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A Surplus of Worthless Inventory?

As of March, Health Canada reports LPs have 150,000 kgs of "unfinished inventory." After months of uncertainty about what this might refer to, BMO Capital Markets warned some portion of this stock might actually be worthless—too poor quality even for extraction biomass. As a result, there may be industry-wide write-downs.

  • Some producers have stressed their unsold inventories consist of product stockpiled for extraction.
  • For some time, insiders have warned "unfinished dried cannabis" inventory may refer to a variety of substances. It may be dried cannabis buds not yet processed or packaged, but it may also mean trim (fan- and sugar-leaves) or cannabis biomass.
  • "Unfinished inventory," may still also refer to cannabis that has been damaged or is otherwise unusable for even extraction purposes.

High Street CEO Adrian Robinson told me, "A lot of companies have been saving their trim, their fan leaves or their sugar leaves, and people are building out these hundreds of thousands of square feet of greenhouse. You're not able to prune those plants like you are in a smaller thousand or two thousand square foot room—you end up with so much more biomass you harvest. So I think you'll continue to see the biomass increase although there isn't a differentiation between biomass and bud on the balance sheet."

Quick Hits

  1. BDS Analytics estimated the global market for legal cannabis will exceed $40B within the next five years, largely driven by North America.
    Globe and Mail—Paywall
  2. As Canada becomes accustomed to legalization, BDS Analytics predicted, spending on MED will decline from $607M to $506M—unless there's a tax incentive to remaining a MED patient.
    The Leaf
  3. The deputy director of China's National Narcotics Control Commission said the number of Chinese cannabis users increased by 25% in 2018, and blamed Canada and US states for legalizing.

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Health Canada:
You Can't Call That Beer

Wikimedia Commons/Papa23456

A new challenge the Health Canada regs present beverage producers is what they will call their products. Those making cannabisbeverages will not be allowed to describe their wares with general words like "wine" and "beer" (or specific terms like "ale" or "IPA") that refer to existing classes of alcoholic beverages.

  • The regs, which are vaguely worded but demanding in spirit, do not allow cannabis products to be advertised in a way that associates them with alcohol, tobacco or vaping products.
    Vancouver Sun
  • Instead, manufacturers will have to find other ways to describe their beverages, such as "barley soda" or "sparkling beverage with THC."
  • The regs pose a challenge to those brewing beverages from grapes associated with wines—they may not be able to describe their product as "made with cabernet sauvignon grapes."
    CBC Saskatoon
  • Molson Coors' joint cannabeverage venture with Hexo, called Truss, will offer a variety of cannabis beverages beginning on December 16.
  • Canadian laws governing cannabis remain significantly harsher than those governing alcohol.
    Global News

Quick Hits

  1. Valens executive Everett Knight said many underestimate the market for oil-based products, particularly when it comes to CBD.
  2. CannTrust announced it had opened operations in the US with an agreement to access hemp production via California company Elk Grove Farming.
    New Cannabis Ventures

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Packaging Update


As part of the new regulations released last week, Health Canada announced changes to its packaging regulations ahead of the legalization of edibles and beverages.
The Leaf

  • As of October 17, packaging will have fewer total messages, and will no longer contain statistical claims about potential cannabis harms (not persuasive enough) or warnings about cannabis addiction (likely not to be believed by consumers aged 18 to 24).

Quick Hits

  1. Police continue to note no increase in impaired driving since legalization.
    Waterloo Record
  2. Edmonton police described legalization as "lower than expected," but they've laid 149 charges of improper transportation of cannabis. They launched a cute campaign to discourage carrying open cannabis in one'called "put your skunk in the trunk."
    Edmonton Journal, CBC Edmonton

Canopy Posts Significant Loss, Declining REC and MED Sales


Canopy reported REC sales down slightly in Q3, compared with its sales in Q2, which ended just after legalizationose last two weeks were the first of legalization. At the same time, the company posted a net loss attributable to shareholders of $335.6M, up from $61.5M one year ago. The loss was three times greater than analysts had expected.
CBC Business

Quick Hits

  1. Canopy said it will launch beverages and edibles in December, but will begin with a few markets and a smaller line of offerings to begin with.
    CTV News
  2. Analysts in the American food industry note the sector has been slow to make deals with Canadian LPs ahead of edibles/beverages legalization this fall.
    Food Dive

First Five Months Deliver $186M Tax Haul


Over the first five months of legal REC, governments across Canada collected some $186M in excise taxes, federal Goods and Services Taxes, and Harmonized Sales Tax including provincial sales taxes.

  • Provincial shares of the $97.9M excise tax revenues totalled $79.1M, while Ottawa kept $18.8M. ?
  • Ottawa collected $35.5M in GST, while provinces collected $52.7M in sales taxes.
  • Excise tax revenue increased 12.4% between the final quarter of 2018 and the first quarter of 2019.
  • Numbers aren't as high as some predicted, which Conference Board of Canada economist Robyn Gibbard attributed to the difficult REC rollout.
  • Gibbard, in a statement, said, "We think that as the kinks are worked out, governments can expect strong growth in revenues from cannabis sales going forward."

Provincial shares of the $97.9M excise tax totalled $79.1M, while Ottawa kept $18.8M. ?


StatsCan: 2M Use
REC or MED Daily


Statistics Canada released an analysis of cannabis trends and related metrics.

Quick Hits

  1. A second man convicted of a minor possession offence (two joints) decades ago (37 years) has been banned for life from the United States since legalization.
    Global News
  2. Bill C-92, the Liberal government's cannabis records-suspension law, cleared the Senate and will become law.
  3. The number of cannabis-related lobbyists registered federally has jumped from 25 in the 2015–16 year to 114 in 2018–19. Companies lobbying the federal government were led by Canopy (33 reported communications), followed by Tilray (19) and Aphria (9).
    Ici Radio-Canada—In French

First Moves toward Vaping Devices


Organigram will offer its products as part of Feather Company vapes this fall, making it likely the first LP to announce its vape-product plans. The Organigram/Feather vapes will come in three different systems: closed-system vapes (such as pod systems), disposable vape pens, and 510-thread compatible cartridges like those popular on the illicit market.
New Cannabis Ventures, Twitter—David-George Cosh

Quick Hits

  1. Italy announced plans to import 400 kilograms of MED over two years and called for tenders. Aurora won the last such call.
  2. Aurora's Cam Battley expects much of his company's product will be for export to Europe. Other LPs are equally enthusiastic about the prospect of dominating international cannabis, but they'll face bans on REC exporting/importing, UN uneasiness, and critics claiming their optimism is unfounded.

Kanehsatake Outpaces Quebec in Dispensaries

Jesse Staniforth

There are more dispensaries in Kanehsatake Mohawk Territory (pop. 1,350), 30 minutes northwest of Montreal, than there are legal SQDC REC stores in Quebec.
TVA Nouvelles—In French

  • Chief Serge Simon said this was a situation the federal government created, forcing Band Councils like his to attempt to regulate a product Ottawa sprang on Indigenous communities.
  • Chief Simon said his community wants, as others have, to run public consultations on cannabis, hold a referendum, then set up independent oversight for cannabis within their own territory. Ottawa legalized cannabis without proper consultation with First Nations, Simon argued, and the result of that is many First Nations did not have time to catch up.
  • I wrote about the differences between the handling of cannabis in Kanehsatake and in neighbouring community Kahnawake Mohawk Territory (southwest of Montreal, with no dispensaries) last winter.

Quick Hits

  1. A Montreal MED user successfully beat an attempt by his landlord to ban him from consuming cannabis indoors by refusing to accept the modification to his lease and appealing on the grounds of medical necessity.
    Journal de Montréal—In French
  2. A second branch of the SQDC—this one located in rural Mirabel, north of Montreal—adopted a strike mandate.
    Montreal Gazette

Health Canada
Begins Consultations
on CBD Health Products

Wikimedia Commons

During Health Canada's media call on new cannabis regulations last week, one reporter asked whether there was any possibility CBD might receive Natural Health Product (NHP) designation, making it possible for retailers outside the licensed cannabis sector to sell it. Health Canada officials said they would eventually be moving toward public consultations on the issue, but few expected such consultations would happen soon. To the suprise of many, they were announced this week. (They're open to online comment until September 3.)

Quick Hits

  1. Here's a quick list of things any Canadian can demand from their MP in support of MED patients, courtesy of lawyer and MED-rights advocate Trina Fraser.
  2. A survey found 45% of employers want to see MED covered by health benefits plans.

Advice for Flailing Ontario


Blackshire Capital executive VP Jean Lépine assessed the Ontario Cannabis Store as overrun with logistical problems and failing to generate as much tax revenue as it could.
The Growth Op

  • He noted Ontario continued to complain of a supply shortage when supplies were becoming available.
  • The Ontario Cannabis Store, he argued, carries too many products consumers don't want, while when LPs short the OCS on inventory, they're protected by no-penalty contracts.
  • He counseled abandoning lotteries in favour of pre-qualification for new licenses.
  • Abstractly, Lépine called for Ontario to work with new applicants to imagine "what's possible rather than what currently is" at a daylong summit attended by provincial and Health Canada reps, and Deloitte.

Quick Hit

  1. Shoppers Drug Mart signed a deal with TruTrace Technologies to develop a pilot program tracking cannabis from seed to sale and measuring quality, all with blockchain. Some, however, question the ability to track a product as variable as cannabis.
    Global News

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