This article is brought to you by Cannabis Compliance Inc. (CCI)
In the last few years there has been an emergence of major Canadian players who have been dominating the global cannabis market, competing only with Bedrocan from the Netherlands. In 2018, it is estimated that Canada exported nearly 1500 kilograms of medical cannabis into the European market. Companies such as Aurora, Canopy Growth, and Aphria have become some of the players dominating the Canadian and international markets.
Canada’s regulatory framework facilitated Canada having the first mover advantage in the market. The Canadian framework for medical cannabis has a long history beginning from the early days of the Medical Marijuana Access Program (MMAR) back in 2001, which then expanded later to the MMPR (Marijuana for Medical Purposes Regulations), then moving to ACMPR (Access to Cannabis for Medical Purposes Regulations). With the call for the federal government to legalize recreational cannabis, the medical regulations were subsumed under what would be developed and known as the Cannabis Act and the associated Cannabis Regulations. Well-developed and fully established requirements for production practices, from sourcing genetics to packaging and distribution of finished products, became a model adopted by many international policymakers such as Australia, Cyprus, and Malta. The progressive regulatory system allowed Canadian businesses to thrive and be recognized for high quality cannabis products. All three winners of a medical cannabis tender announced recently by the German government have Canadian roots: Aurora, Aphria and Demecan (Wayland). This recognition by one of the most quality-oriented regulators is a tribute from the global community to Canadian producers.
The medical cannabis market is emerging and is predicted to grow exponentially in the next decade with Europe being the biggest market on the horizon. This explains strong interest of international businesses entering the EU market. Demand exceeding supply is the greatest indicator. There are numerous press releases by Canadian companies announcing partnerships with and acquisitions of distribution businesses in the EU. Germany has seen an increase in medical patients since its medical cannabis scheme came into effect in 2017. It is estimated that Germany currently has somewhere between 30,000 – 40,000 patients, and that number continues to grow. Other markets such as Italy continue to see the demand for medical cannabis rise, yet supply provided through the military’s monopoly on cultivation is not able to keep up with demand and the market relies heavily on imports.
One of the biggest risks to Canada losing the first mover advantage is the high cost of production in Canada compared to countries with more favorable climates such as Colombia, South Africa, Lesotho or Greece. It is expected that future commoditization of cannabis will draw production to cost-effective jurisdictions. Eventually, policymakers in those jurisdictions will create frameworks comparable to the one in Canada. Additionally, countries without advantageous climates are focusing on domestic cultivation. The Netherlands' sole producer, Bedrocan, is the largest exporter of medical cannabis in Europe, and countries such as Denmark have allowed for cultivation and bulk exports. To continue to thrive in the international cannabis space, Canadian producers are expected to move towards development of superior genetics, advanced technologies and innovative products. Canada’s well-developed R&D ecosystem with world class academic institutions, innovation centres, globally recognized scientists and researchers offers endless opportunities for the industry to reach the cutting edge of innovation. One of the most recent examples is the launch of TC3 - Toronto Cannabis & Cannabinoid Research Consortium during the Toronto Health Innovation Week in April 2019.
The European Market Offers Many Challenges as well as Opportunities
Europe is a promising market for Canadian cannabis businesses, but it also poses several challenges. There are barriers that Canadian producers are already facing that hinder their ability to enter the market. A lack of harmonization and silos of regulatory information between jurisdictions creates difficulty to import and export cannabis goods. These regulatory barriers include the level of THC content in CBD products and whether they are regulated as a controlled substance or wellness product such as Novel Food.
Most importantly, Canadian and European manufacturing standards are not aligned. Canadian Good Production Practices (GPP) described in the Cannabis Regulations are not aligned with EU-Good Manufacturing Practices (EU-GMP) and Good Agricultural and Collection Practices (GACP) prescribed by Eudralex. This creates some challenges to Canadian businesses interested in exporting to EU countries. Existing Mutual Recognition Agreement (MRA) between Canada and the EU covers EU-GMP and not GPP which triggers mandatory inspections by the EU regulatory authorities prior to granting Canadian cannabis products entry to the EU market. Thus differences between GPP and EU-GMP standards require considerable effort by Canadian cannabis firms to ensure both requirements are met1.
There is also a branding barrier for Canadian companies as the regulations are restrictive. The Cannabis Act Regulations do not allow any distinct or appealing branding for cannabis products. With the international distribution channels only being through pharmacies and prescriptions, marketing efforts become quite limited. Canada will face a lot of competition internationally, particularly as the CBD market expands. Internationally, CBD products are classified and regulated in a multitude of ways, but the restrictions placed on these products, their branding and where they can be sold are nowhere near as restrictive as they are in Canada. Canadian producers are having to be extremely clever in how they voice their brand, but ultimately these restrictions on branding will stifle each company’s competitiveness on the international markets.
As for the future of Canadian cannabis in Europe, in the short-term the European market will still rely on exports from Canada. However, as domestic cultivation, and cultivation in more advantageous climates come online and the need for Canadian exports decline, Canada will need to be innovative in re-branding what Canada is known for in the cannabis industry.
1. For more information regarding GMP standards and GPP systems update to GMP, you can read this white paper.