Canada’s nascent medical marijuana industry is being thrown into new turmoil with a court ruling that threatens to undercut its business design.
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For more than four decades, Smiths Falls was known as the “Chocolate Capital of Ontario” due to its iconic Hershey factory. But Hershey bolted in 2009, and some years later, the guarana plant was sold to a completely different sort of company: Tweed Marjuana Inc.
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Leading pot producers for example Canopy Growth Corp., Aphria Inc., Aurora Cannabis Inc. and Mettrum Health Corp. came into being for one specific reason: The federal government introduced rules in 2014 that required patients to purchase marijuana from licensed producers. Just before that, patients were getting licences to develop in your own home, which makes it hard for Ottawa to regulate the sector.
The decision Wednesday from federal court judge Michael Phelan could bring aspects of that old system back. He gave patients the authority to grow their own cannabis, arguing the current system restricts access to the drug.
It is another potential game-changer for this industry, which always appears to be in some stage of transition. Currently, the licensed pot producers are fighting competition from illegal dispensaries and seeking to launch new oil-based products (following a separate court ruling legalized them).
Share prices fell over the sector Wednesday as investors reacted to Judge Phelan’s decision. However the declines were modest, partly because nobody is certain what impact the ruling may have. Canopy shares dropped six percent, while Aurora shares fell nine percent.
“There’s a lot more questions than answers at this time,” said Aaron Salz, an analyst at Dundee Capital Markets.
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Nothing alterations in the short term, since the government has six months to re-write the law. Ottawa could appeal the decision, but legal experts noted the Supreme Court of Canada has a long history of upholding lower court rulings covering marijuana usage.
Health Canada has already invested enormous money and time into developing the present regulatory system, and can’t be wanting to go back to enter board. Likewise, the ruling is frustrating for many licensed producers, that have spent millions of dollars developing production facilities that meet strict security and product quality standards. Description of how the face the chance of losing business to home growers who won’t suffer from exactly the same regulations.
But Canopy President Mark Zekulin maintained he is not worried about losing share of the market. He thinks many people are pleased with a system that gives a high-quality product to their door at a relatively low cost.
“There’s a lot of people who don’t desire to be converting their basement or closet right into a high-grow growing area,” he explained.
Neil Belot, Aurora’s chief brand officer, argued there must be plenty of room for licensed producers and home growers. He explained he’s happy concerning the court decision, noting that it shows Canada has come a long way in reducing the stigma around marijuana and highlighting its health benefits.
Salz said it makes sense for Ottawa to allow home growing whether it also cracks recorded on the greater than 100 illegal dispensaries that have put their hands up in Canada, mainly in Toronto and Vancouver. But if it allows both, he said it could be “potentially disruptive” for the licensed medical producers.
The court ruling does not address the largest issue facing the marijuana sector: the recreational market.
The medical pot market is tiny, about 40,000 registered patients. The amount of money the licensed producers could make by servicing this customer base is extremely limited. But assuming the federal government legalizes recreational use, the client base will grow exponentially.
Experts said it is unclear what impact this decision might have around the recreational market, if any. If it only affects the medical market, it may look insignificant for the producers within the years ahead.
For now, the ruling just adds more uncertainty to an industry that already provides extensive it.
“Nothing surprises me within this sector anymore,” Zekulin said.
“Every couple of months there’s something new that’s exciting and potentially changes the landscape.”
pkoven@nationalpost.com
Twitter.com/peterkoven
