Legal Cannabis has a home in Edmonton
EDMONTON ECONOMIC DEVELOPMENT
OCTOBER 18, 2018
Pulling into the parking lot of Alberta Craft Cannabis (formerly GrenEx Pharms), it’s not obvious that you’re about to enter the headquarters of what could soon be a multimillion-dollar company.
Sandwiched between a trucking operation and an environmental solutions provider, the south Edmonton warehouse still bears the sign of its former tenant. But inside the inconspicuous red- and white-brick building, sits an aeroponics system capable of producing up to $10 million worth of dried cannabis annually.
Though it has 10,000 square-feet of cultivation space, Edmonton’s first licensed cannabis producer is actually considered a small player in the world’s next multibillion-dollar industry.
A commercial medical cannabis industry has existed in Canada since 2014, but recent developments — such as the federal government’s promise to legalize the drug, the growing number of medical users in Canada, and the adoption of medical cannabis in several countries around the world — have created a frenzy around this emerging market.
Investor interest, which exploded in fall 2016, resulted in roughly $2 billion in financing for Canadian producers in the first three months of 2018 alone. The windfall sparked a series of takeovers, mergers and new site announcements, as licensed producers expanded their footprints ahead of legalization, which took place Wednesday.
Alberta Craft Cannabis itself was bought for $16 million in early February by GreenTec Holdings Ltd. of Kelowna, B.C., a company that consolidates licensed producers of craft cannabis.
“It's fascinating in a lot of ways,” said Dennis Taschuk, CEO of Radient Technologies, a leading extraction technology company based in Edmonton. “It kind of reminds you of the technology days when the Internet flipped over to the dot coms. But there's a difference — this industry is real. This industry has substance and depth.”
A study by Statistics Canada found that Canadians already spend almost as much on cannabis as they do on wine. In 2017, Canadians spent an estimated $5.7 billion on cannabis, compared to $9.2 billion on beer, $7 billion on wine, and $5.1 billion on spirits. Ninety per cent of cannabis sales were for non-medical purposes.
Government officials and licensed producers alike are hoping to divert these black market sales to the new, legal, recreational regime.
Meanwhile, demand for medical cannabis continues to soar. The number of registered patients in Canada has grown almost 42 times over the past four years — reaching 330,758 in June 2018. It’s estimated the medical cannabis market in Canada alone could reach between $1.8 billion and $2.6 billion in sales within the next decade.
The total Canadian cannabis market (medical and recreational) is valued between $4 billion and $8 billion, but estimates vary widely based on assumptions about market size and consumption levels.
With an estimated 4 million to 6.5 million recreational users in Canada and a growing demand for medical cannabis both globally and at home, experts are predicting a nationwide shortage once recreational consumption is legalized.
The time it will take industry to meet this growing demand, however, is in contention. While investment bank Mackie Research Capital expects the shortfall to last until 2020, Cannacord Genuity revised its initial forecast to reflect the acceleration of licensed producers entering the market under Health Canada’s new streamlined process. The firm now estimates supply will meet demand by the end of 2019 — a full year earlier than originally anticipated.
132 licensed producers and counting
In May 2017, Health Canada announced it would speed up the licensing process to enable increased production capacity. The number of licensed producers has tripled since then, reaching 132 on Oct. 16, 2018 — a day before legalization.
Former GrenEx Pharms CEO John Simon said the company had been waiting almost four years for its licence when the relationship with the federal health ministry was suddenly turned on its head in last summer.
“Instead of us calling Health Canada and saying, ‘When are we going to get our licence?’ They're calling us and saying, ‘When can you build out? When can you build out more? Can you expand on your current property?’” he said.
Despite these efforts to ramp up production, Canadian licensed producers are still unlikely to meet the anticipated recreational demand of between 400,000 and 1 million kilograms in time for legalization. According to Denver-based consulting firm Marijuana Policy Group, publicly traded producers have bankrolled capacity to produce more than 1.25 million kilograms of cannabis, but build out and licensing take time.
In Alberta, there are currently nine licensed producers, and, as of August, another 76 in the application process.
At least eight of these applications are for facilities in the Edmonton region, including one by the largest publicly traded cannabis company in the world, Canopy Growth.
Worth over $14 billion on the Toronto Stock Exchange, Canopy Growth has committed to centralizing its western operations in Edmonton. The licensed producer intends to operate up to five facilities in the area. The first is in a retrofitted 160,000-square-foot-warehouse, located in the southeast Morris industrial park.
Edmonton-based Aurora Cannabis, which trails Canopy Growth in value at $12.88 billion, completed its first harvest this summer and awaits a final sales licence for its new state-of-the-art facility, located next to the Edmonton International Airport. At 800,000 square-feet, Aurora Sky is the largest cannabis production facility in the world and can produce more than 100,000 kilograms of dried cannabis per year.
Global grow opps
Global demand is also on the rise, and though more than 25 countries currently have legal medical cannabis programs, only five — Canada, the Netherlands, the U.K., Uruguay, and most recently, Australia — export the drug.
As countries establish in-country growing programs, Canadian licensed producers are busy signing export deals and setting up facilities in these underdeveloped markets before more jurisdictions join the estimated $57-billion fray.
"The prospects internationally are absolutely enormous," Aurora Cannabis chief operating officer Cam Battley told 630 CHED earlier this year. "This is an opportunity for leading Canadian companies to put their stamp on the world, and we virtually have no competition right now. It's an exciting time."
Last spring, Aurora acquired leading German narcotics wholesale distributor Pedanios. The move resulted in record earnings and has opened up the entire European Union market to the company, according to Battley.
With an expected demand of more than 450,000 kilograms — two times the projected medical market in Canada — and broad insurance coverage, Germany is considered the crown jewel of the medical cannabis market. The country’s latest cannabis tender is expected to attract bids from some of Canada’s top producers — Aurora included.
But one facility isn’t enough to serve the growing European market. In January, Aurora announced a joint venture with Danish tomato and pepper producer Alfred Pedersen & Son to build a million-square-foot facility that will serve the Nordic countries of Denmark, Sweden, Norway, Finland and Iceland.
Canopy Growth is also expanding its international portfolio. The company currently operates in 11 countries across five continents and has earmarked much of its recent $5 billion cash infusion for global expansion.
“If we look at Canada and the expected demand for cannabis coming in the [coming] year — we’ll want to make sure our Canadian operations are there to serve Canadians and that our international markets are served by international production,” said Canopy Growth president Mark Zekulin.
Meanwhile, seven kilometres from Canopy’s western headquarters — towards Edmonton’s historic Strathcona district — Alberta Craft Cannabis has chosen to focus on Canadians.
The company planted its first seeds earlier this year. Once germinated, cuttings of these mother plants (everything is done through clonal propagation to control CBD and THC ratios) will be grown, dried and sold to provincial distributors and medical users across the country.