The floodgates have opened for U.S. companies looking to enter the Canadian cannabis industry. With billions of dollars in potential revenue at stake, the buzz around this market is unlike anything that has been witnessed so far on either side of the border. Even though Canada’s approach to cannabis is better, there are still only 38 million people living there. A figure that California alone surpasses at 39 million. So while there is room for expansion, there is also a very real limit to take into account.
Cannabis In Canada VS The U.S.
In quest of fresh sources of income and, in some cases, relatively inexpensive assets, an increasing number of American businesses are warily entering Canada’s fiercely competitive cannabis market.
Executives from a range of U.S. cannabis businesses, including those in the beverage, edibles, technology, and events sectors, have expressed interest in Canada’s centrally regulated market.
Despite falling prices and overproduction of cannabis in Canada, some U.S. executives believe that there is more potential in Canada than in the main U.S. markets, where sales are stagnating year over year. This is particularly true in states with more established state markets, such as Colorado, Nevada, and Oregon.
Overall, the U.S. market is growing quickly. According to Mitchell Osak, head of Toronto-based Quanta Consulting, if you look at it on a state level, market growth is starting to flatline – if not decline dramatically – excluding freshly legalized states and California.
On the basis of market size and regulatory clarity, Canada may, from a 10,000-foot perspective, be an alluring market for growth-oriented, publicly traded U.S. enterprises.
Cantor Fitzgerald, a financial services company based in New York, reports that the recreational cannabis industry in Canada rose by 21% year over year in the second quarter, compared to just 1% in the United States.
Opportunity For Growth
In addition to sales patterns, Osak pointed out that Canadian assets are currently rather affordable, and the weaker Canadian dollar sometimes makes M&A in Canada more alluring.
For American buyers with money, he claimed, there were plenty of high-quality assets available from desperate sellers at low prices. Blaze Solutions, a cannabis technology firm based in California, chose that path.
For an undisclosed fee, Blaze purchased the dispensary point-of-sale software business Greenline in May. The company’s CEO, Chris Violas, stated that the business was exploring new growth opportunities outside of its main areas.
Winning market share in the cannabis industry involves deliberately looking for ways to increase market share without consuming our own technology and finding a partner who can open up that new market. Customers now have the “option to expand their footprint into the U.S. or Canada utilizing the same software supplier,” according to a news release from Violas announcing the acquisition.
This is crucial for more affluent cannabis retailers in bordering states like Washington, New York, and Michigan.
Edible Companies & Canadian Opportunities
Some U.S.-based producers of infused goods are traveling to Canada to strike partnerships with authorized producers. The licensing and collaboration agreements enable Canadian businesses to make edibles and other infused products in accordance with the American business’s manufacturing standards.
According to business expert Osak, some U.S. companies that would like to enter Canada are edibles brands searching for new revenue possibilities and methods to spread their names.
Edibles are expanding significantly in the U.S., albeit on a smaller scale, and several U.S. edibles companies have begun licensing their formulations and branding to Canadian LPs.
California-based Kiva Confections announced a partnership with Montreal-based license holder Greentone in May, which will allow Kiva to sell its edibles at retail locations across Canada.
According to Ben Schultz, who oversees Kiva’s new market expansion, the company has typically entered new markets through partnerships and licensing agreements. Such agreements, according to Schultz, are one way to reduce risk because they spare the business from having to fork out a significant sum of money to develop its own manufacturing facilities.
“That is our growth look. From a cash-flow perspective, we didn’t have to invest $10 million to establish ourselves in Canada, as many others have, for better or worse,” he said.
The highly competitive edibles industry in Canada and the country’s patchwork of provincial rules didn’t deter Kiva. Kiva has a lot of experience in the U.S., rolling out its product to other states and territories that have completely different rules.
The lack of federal legalization and standardization in the cannabis industry in the U.S. means that companies already have a lot of expertise in modifying their trademarks and products to comply with local laws.
Hall Of Flowers Enters Canada
Hall of Flowers is another American company looking to establish a foothold in Canada through a collaboration. Hall of Flowers Canada, a trade show which will be held in Toronto in the middle of September, provides a retail setting that facilitates business between brands and retail buyers.
Hall of Flowers Canada plans to bring together at least 200 businesses and 1,000 retail leaders, according to a news release. The CEO and founder of the company, Dani Diamond, described the company’s entry into Canada as a calculated risk.
It was Krista Raymer, co-founder of the Vetrina Group, who first approached Diamond with the idea of bringing the Hall of Flowers model to Canada.
“The Hall of Flowers team was able to reduce risk by working with us because of our expertise and connections in the Canadian market,” Raymer stated. “They are on the ground, which would otherwise limit the Hall of Flowers team’s ability to carry out day-to-day operations. And they are able to convey the subtleties that are crucial to the success of the program in Canada.”
Horizontal Approach To Cannabis In Canada
There are ways for cannabis companies to minimize the risk being taken when stepping into the Canadian market with a horizontal approach.
American businesses see an opportunity in the Canadian market, but they also see it as a chance to test out brand-new cannabis products in one of the few recreational markets with federal regulation worldwide.
The head of cannabis at renowned American craft brewer Boston Beer Co., Paul Weaver, said that they created their approach to de-risk as much of the unknown as we could. Boston Beer chose to work with strategic partners in Canada to create THC-infused non-alcoholic teas under the brand name TeaPot rather than making a big statement by purchasing a cannabis producer and bottling facility.
Through a three-tier, complicated supply-chain relationship with Windsor, Ontario’s Peak Processing Solutions, and Entourage Health Corp., the firm introduced its product in Canada.
This is the industry’s new state of the union: working with partners, collaborating, and somewhat distributing your capital. The entire sector is adopting a more horizontal strategy. According to Weaver, high capital expenditure, overinvestment in one idea, and a lack of flexibility are common characteristics of big risks.
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