With more than two-thirds of Americans supporting marijuana legalization, it feels like it’s only a matter of time before pot is federally legalized in the U.S. When that happens and cannabis can freely cross state lines, significant growth opportunities for the industry and the companies operating within it will appear…
But that doesn’t mean legalization will be a smooth ride for everyone, or that it will simply translate into more revenue for the already-large cannabis producers in the country. There will definitely be growth, no doubt, but Aurora Cannabis (NYSE:ACB) CEO Miguel Martin recently cautioned investors that there could be significant challenges that come with legalization.
The pot market could look a lot like Canada’s
Canopy Growth (NASDAQ:CGC) CEO David Klein expects his company to be operating in the U.S. within the next 12 months. That suggests some significant marijuana reform would need to take place (likely full legalization) before then. However, Aurora’s CEO doesn’t appear to be as optimistic, believing that legalization could take longer than what people believe — although he didn’t make a specific prediction as to when it might happen.
And when the U.S. decides to legalize marijuana, Martin said in a recent interview that he thinks regulators will look to the Canadian model and use a similar approach, stating that, “I just think that people are a little bit naive if they don’t think it’s going to look a lot like Canada and a lot less like the Wild West when it comes to federal regulation of cannabis.”
While borrowing ideas from the Canadian market would help U.S. regulators navigate legalization and perhaps speed up the process, it could pose challenges for the industry. In the Canadian cannabis industry, one of the major issues is that there are many warning labels on products and minimal space for a company to even feature its name or logo. That makes branding almost impossible, and it also doesn’t help that advertising is virtually non-existent.
Another onerous restriction on cannabis producers in Ontario, specifically, is that they are not able to possess a retail license. The maximum ownership they can have in a company that has a retail license is 25% — and that’s after the provincial government increased the percentage from 9.9%. This prevents licensed producers from having too much power and prioritizing their own products in stores.
And for the products that get onto store shelves, companies also have to be careful with how they are named. Cannabis-infused beverages, for instance, aren’t able to use ‘beer’ or ‘wine’ in their names nor can the products even be associated with an alcoholic beverage. This eliminates any advantage Canopy Growth may have enjoyed by partnering with Constellation Brands and potentially piggybacking off the popularity of its popular Corona and Modelo brands. Not only are cannabis products in Canada dull-looking, but big producers like Canopy Growth can’t take advantage of some of the popular brands they’re aligned with, making it difficult to differentiate from competing products.
Why a legal market could be bad news for large multistate operators
The biggest problem that a highly regulated market might bring for multistate operators is that it could make growth more difficult. Last year, the Brightfield Group released results from a poll of 3,000 Canadians and it found that…
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