Canada’s cannabis industry just beginning to bud

Canada’s cannabis industry just beginning to bud

For almost a year now, recreational marijuana can be legally sold and purchased in Canada. But what looks like a once-in-a-lifetime business opportunity is proving to be an elusive pot of gold, reports Nicolas Martin.

In the small Canadian town of Hamilton, about an hours drive away from the next big city, Toronto, the Hello Cannabis store greets potential customers with a simple placard flashing a smiley and the word “Hello.”

Apparently, it doesn’t take much more for the company to pique people’s interests in its assortment of pre-rolled joints, cannabis buds, oils and pills — some of them even without the psychoactive ingredient of the popular drug. Every day, between 400 and 700 customers call in at the store owned by Oliver Coppolino.

When I met him, he readily showed me around the store, pointing to big screens on the walls where customers can “pick their menu” and look for themselves what treats are in store for them. But more individual advice is also on offer.

“We do usually have floaters around with a tablet who can answer any kind of questions and guide people through the menu,” he told me.

Cananbis tore owner Oliver Coppolino smiling in front of his company's logo — a smiley saying Hello.

Store owner Oliver Coppolino has every reason to smile about rising sales and profits

Coppolino’s cannabis store is meanwhile one of 50 in the Canadian province of Ontario, each of them with a market of about 300,000 potential customers. He’s struck a pot of gold, you might think now, which, indeed, he seems to have. Demand is huge, he says, which makes him “very happy.”   

“Basically our main problem is a supply issue. We always have some products, but some hot products that everybody wants sell out very quickly.”

Da world’s weed nation

Canada legalized the use of medicinal marijuana back in 2001. In October last year, the government of liberal Prime Minister Justin Trudeau also allowed the private consumption of cannabis for recreational purposes, however limiting the amount a person can possess to 30 grams. Even before the liberalization, pot consumption in Canada was already one of the highest within the industrialized world, with estimated illegal sales of close to CAN$6 billion (€4 billion or $4.4 billion) a year.

Mark Rendell, a business journalists writing for Canada’s second-largest daily, The Globe and Mail, says the decision to legalize cannabis has now led to a gold rush mentality within the emerging industry. A market watcher for more than a year, he saw even sober-minded investors get “high” on cannabis stocks, he says.   

“It is very rare that Canada leads the way in any industry. Because of federal legalization, the banks and the stock exchange in Canada have become much more comfortable much earlier than any other country in any other financial system with financing cannabis.”

High-rise building in the banking district of Toronto

The cannabis boom has been funded by numerous investors from Canada and abroad. Some of the new companies listed their stocks at the Toronto Stock Exchange to secure financing

Read more: Cannabis capitalists scrutinize future of UK’s fledgling industry

Even before the Trudeau liberalization came into force, several companies had listed at the stock exchange in anticipation. They had gambled on a promise made by the prime minister during his 2018 election campaign. The funding they had secured gave them a head start in the new industry.

However, the cannabis legislation eventually turned out to be a compromise between the main political parties, giving the central government in Ottawa the final say on granting production licenses, while the provincial governments must decide about the cannabis products that can be sold.

Shadow market still booming

Mark Rendell explains that some provincial governments, like the one of Ontario, were rather reluctant to grant licenses for commercializing the drug. In addition, production licenses are still slow in coming, with more than a hundred companies still waiting to start growing and leading to supply bottlenecks in the market.

Crop failures and quality issues are compounding the problems of the nascent industry, he says, so that investing in the massive buildup of horticulture greenhouses that are emerging everywhere is a risky business.

As a result, only about 20% of the Canadian cannabis market is in the hands of licensed dealers and producers, the country’s statistics office has estimated recently, with the rest coming from illegal sources.

  • Cannabis Marihuana (Fotolia/Opra)

    Mother Nature’s drug lab

    Cannabis – smoke it or wear it

    The cannabis plant contains the psychoactive substance tetrahydrocannabinol (THC). It makes people feel euphoric and relaxed and can also alleviate pain. The flowers of infertilized female plants contain particularly high amounts of THC, that’s why they are taken for producing marihuana. Some cannabis species do not contain any THC at all and are grown for fiber production.

  • opium poppy (picture alliance/dpa/D.Ramik)

    Mother Nature’s drug lab

    Better than aspirin

    Opium poppy (Papaver somniferum) produces – you guessed it – opium. To harvest it, you simply incise the capsules and let the white latex exude and dry. Opium contains high amounts of morphine, the strongest existing pain medication. A chemical variation of morphine provides the semi-synthetic drug heroin.

  • Pluteus salicinus (picture alliance/dpa/Wildlife)

    Mother Nature’s drug lab

    Fancy a magic mushroom?

    Mushrooms are chemical artists – some of them even produce psychoactive substances. Among them: this grey-coloured Pluteus salicinus. It grows on wood and contains psilocybin, which causes visual and mental hallucinations similar to LSD. Side effects are nausea and panic attacks.

  • Chewing on a coca leaf (Reuters)

    Mother Nature’s drug lab

    Drug snack to go

    Leaves of the coca plant harbour chemical compounds similar to cocaine. They alleviate pain and act as stimulants. In many countries in Latin America, chewing on raw coca leaves is quite common. It helps tourists deal better with altitude sickness, too. By fermenting and drying the leaves and processing them chemically, cocaine is produced.

  • Angel's trumpet (picture alliance/dpa)

    Mother Nature’s drug lab

    Beautiful poisonous flowers

    Angel’s trumpets are beautiful to look at but you should refrain from tasting them. All parts of the plant contain alkaloids – chemical compounds with strong effects on the human body. When you eat or smoke the plant, your heart rate will increase and you will start to hallucinate. As with all natural drugs, finding the right dosage is difficult. Deadly accidents occur quite often.

  • Datura inoxia, Datura inoxia, toloache, thornapple (picture-alliance/blickwinkel/R. Koenig)

    Mother Nature’s drug lab

    Bummer with thornapple

    On the internet, poisonous Datura plants – also known as thornapples – are advertised as natural drugs as well. Really not a good idea: The plant induces strong hallucinations, sometimes with a complete loss of reality. People tend to hurt themselves severely under its influence.

  • Argyreia nervosa, Hawaiian baby woodrose, elephant creeper, wooly morning glory (picture-alliance/blickwinkel/R. Koenig)

    Mother Nature’s drug lab

    Hawaiian Babies

    Argyreia nervosa is native to Asia, even though the plant is called Hawaiian baby woodrose. The seeds of this climbing vine contain ergine, a compound similar to LSD. It causes colourful visions and euphoria but also nausea, prickling and psychoses. Overdosing can happen easily as one seed alone already has a strong effect.

  • Peyote cactus (picture-alliance/WILDLIFE)

    Mother Nature’s drug lab

    Ecstasy with cactus

    The peyote cactus in Mexico and Texas is full of mescaline, a hallucinogenic compound that is illegal under the international Convention on Psychotropic Substances. Mescaline alters thinking processes and one’s sense of time and self-awareness. The cactus is cut into pieces and eaten or boiled into a tea. The cactus species is now listed on the Red List as vulnerable.

  • Myristica seeds (picture alliance/CTK/R. Pavel)

    Mother Nature’s drug lab

    Beware of nutmeg

    Nutmeg in high amounts can act as a drug, since it contains the hallucinogenic compound myristicin. But don’t worry: you’ll never reach the necessary dosage if you only use nutmeg as a spice. Getting high on nutmeg seems a bad idea anyway, as side effects include headaches, nausea and diarrhea.

  • Mitragyna speciosa (picture-alliance/Arco Images/Sunbird Images)

    Mother Nature’s drug lab

    Psychedelic leaves?

    Yes, it’s true: the evergreen kratom tree (Mitragyna speciosa), native to Southeast Asia, incorporates the opioid-like compound mitragynine into its leaves. In traditional medicine, the leaves are chewed to relieve pain, increase appetite and treat diarrhea. But they can also be used to mix drug cocktails.

  • tobacco plant (picture alliance/ZB)

    Mother Nature’s drug lab

    One of nature’s most dangerous killers

    The tobacco plant produces poisonous and addictive chemicals, such as nicotine and other alkaloids, and harbours them inside its leaves. With this poisonous cocktail, the plant tries to ward off animals that might want to eat it. When the leaves are dried and smoked, the chemicals enter the human body – together with many cancerous substances generated by burning tabacco.

    Author: Brigitte Osterath

Industrial growing

The town of Leamington, Ontario — much closer to Detroit than Toronto — shows what the industry’s future may look like. There, a company called Aphria is currently building Canada’s most modern horticulture greenhouse for growing cannabis.

Situated in Canada’s southernmost tip on the shores of Lake Erie, the town has a more favorable climate than other regions in Canada, allowing the growing of tomatoes and cucumbers indoors. The veggies are gone, however, although the company still uses the old machinery left by the former food production, says Brett Marchand.

“It is a brand new industry you get a chance to build,” the Canadian army veteran, who also worked in the meat industry, tells me as we stroll through the sprawling complex. “Most people don’t get a chance and this is a once-in-a-lifetime opportunity to be part of something right from the beginning.” 

Growing pot in greenhouses provide more favorable conditions than growing cannabis under artificial light

Growing pot in style. Brett Marchand says that greenhouses provide more favorable conditions than growing cannabis under artificial light, which most producers — legal and illegal — do

More hype than substance?

Pot plants stretch as far as the eye can see in the first of three greenhouses, where Aphria has just launched production trial runs. Robots plant small seedlings placed under their mechanical hands by large assembly lines.

Marchand is confident that the market will continue to grow. “We haven’t hit the top, we are just one of many that are starting from a small amount and growing up. In probably two years from now we won’t have a supply problem. Every time we give more supply to the market they open up another store,” he says.

Aphria has invested more than CAN$95 million in its Leamington complex in hopes that the automated production line will save it energy and personnel costs. The company’s stock market value has soared to more than a billion Canadian dollars recently, although revenues are still lagging far behind with just over CAN$36 million last year.

An assembley line with workers sampling cananbis buds

Cannabis production is still rather labor-intensive reducing the margins growers can reach with their products

Canada’s pot boom has also been fueled by a number of recent multi-billion-dollar investments and partnership from the food and tobacco industry. They all want to be part of the alleged gold rush which market analyst Arcview Group has estimated could reach sales of CAN$6 billion by 2024.

Yet, market watcher Mark Rendell is skeptical in view of the many broken promises made by a lot of companies about their production targets so far. “Companies had to drive their story forward, they had to come out with press release after press release … saying we are going to build this and sell this because they were talking to a retail investor audience. So there was a real shock, how much they underperformed.”

Rendell doesn’t expect market supply and demand to balance out for at least three years. Much would also depend on whether black market sales can be curbed so that more consumers buy their pot in official stores from licensed producers. Hardly a year after Canada legalized cannabis, it’s not yet safe to say if the bold policy will really become a business success story or simply go up in smoke.

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