How Canadian Companies Are Investing in California's Recreational Cannabis Market
Canadian cannabis companies are opening their wallets to invest in the California cannabis market. Why? In the past month, California has opened their doors to allow the legalization of recreational cannabis. The announcement came on January 1 of 2018 according to a New York Times news report. Many individuals were anticipating this day as everyone knows California will be the major hub for many tourists worldwide. Therefore, it’s natural that international authorities have their eyes set on the golden state.
Canadian companies are the first to act because they have flourished in a better and more cannabis business-friendly environment. Now, they are tapping into the California market for more profits as many Canadian companies have investments up there. Companies like CannaRoyalty and Sunniva are spending millions on every area of the industry, including cultivation, retail, and branded products.
How did Canada Become a Major Global Player in The Cannabis Industry?
While the US was squabbling from state-to-state over cannabis use, Canada was making better laws that encompass the whole nation. The Canadian Cannabis Act to legalize the production, distribution and sale of cannabis for recreational use is expected to become law on July 1, 2018. This will make Canada the first major economy in the world to fully legalize cannabis for recreational consumption. This gives Canadian companies a competitive advantage in global markets.
In addition, prices are already falling in the country. This indicates a high degree of competition on the supply side. Canada’s cannabis industry is now in the consolidation phase as many companies are merging to adapt to upcoming fierce competition.
Canada Noticed the Importance of Cannabis in International Trade
Federal restrictions have prevented US companies even considering the possibility of exporting American products. Meanwhile, Canadian companies are contributing to the creation of the vibrant international cannabis industry.
Last year, Germany legalized cannabis for medicinal consumption. Furthermore, Canada’s Peace Naturals is already exporting cannabis to German pharmacies. Several other European countries are willing to make laws to allow cannabis use as well.
A 2017 UN report estimates that the number of worldwide cannabis users ranges up to 238 million people. The potential is great. It’s so great that Australia became the fourth country in the world allowing exportation of cannabis for medicinal purposes. Israel has joined to the competition too because Judaism doesn’t forbid cannabis use. Therefore Israeli companies don’t face oppositions from ultra-conservative religious groups. Moreover, all these global players have their attention focused on the US, especially California.
Reasons Canadian Companies are Successfully Investing in California
It’s no coincidence that stock prices of Canadian companies jumped since the legalization of recreational cannabis in California. A major Canadian investor in California’s cannabis market, CannaRoyalty (CSE: CRZ) saw its stocks jump 27% in early January. This was a direct result of developments in California. These outstanding figures are the result of three factors Canadians capitalize on:
Factor 1: Canadian Companies Have Better Access to Capital
Capital is probably the major reason why Canadians are more successful than their American counterparts. In the first half of 2017, Canadian cannabis companies successfully raised $770 million.
Due to US regulations, Canada’s major players in the cannabis industry, whose shares trade on the Toronto Stock Exchange and the Venture Exchange currently don’t have access to the Californian market. However, companies traded on the Canadian Securities Exchange (CSE) can enter US markets if they meet federal requirements. CSE helps tremendously to raise capital.
American companies, however, are at a disadvantage when they need capital. Stringent regulation and need of capital force US companies to use holding companies in Canada to tap that capital market.
Factor 2: Canadians Have More Experience
As stated above, the Canadian government was quick to act when it came to nationwide legalization. This gave Canadian companies an early start to adapt to an unclear regulatory environment, not just in their own country, but worldwide.
The Cannabis industry operates into many unknowns, which makes companies think twice before acting. Moreover, they risk losing the chance to stay ahead of their competitors. However, Canadian companies encountered such problems earlier and have successfully dealt with them. They are producing for both their own market and different countries.
Compared to US investors whose operations are ferociously hindered by the uncertainties caused by the federal government, Canadians have better flexibility. Therefore, when they saw the rise of the world’s biggest cannabis market they almost immediately deployed millions of dollars in California.
Factor 3: Stringent US Restrictions Prevent American Companies Realizing their Full Potential
When Jeff Sessions equated cannabis with heroin, it showed not only his ignorance but also sent a clear signal to the world that some very important American lawmakers are hopelessly behind the times. Plus, acting like it’s the Dark Ages only creates hardships for local people.
Many authority officials that are restricting cannabis companies due to regulations renders business operations precarious and takes away the competitive strength of American companies. Canadian experts are very optimistic about the future of Canada’s cannabis industry because the US government has practically kept the American cannabis industry away from the booming international trade.
The American government inadvertently helps invigorate the Canadian industry. Furthermore, in the absence of US competitors, Canadian companies are successful in the international arena. Now they are in California deploying the experience and capital they have gained throughout the years.
Overall, the Canadian cannabis industry sees opportunity in the land of California. They have full access to invest in California which will continue to grow. It will be interesting to see the future of “What” the cannabis market will become within California due to the many investments it’s receiving from Canadians.