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Canada is the cannabis king, but can it keep its crown?

Canada recently became the first and so far, only, G7 country to legalize cannabis. It’s a simple fact, but one that has ignited an entrepreneurial tsunami the likes of which this country has not seen since at least the dot.com boom.

It is a rare and exhilarating thing to see an entire industry being built from the ground up in real time, one made all-the-more exciting because, for the time being at least, we are seen as world leaders in a fast-growing and still emerging industry.

Toronto has become a global hub for public listings, from Florida-based medical dispensaries to Colombian growers, generating billions in market capitalization. Canadian companies, meanwhile, are striking out across the globe, scooping up Danish greenhouse designers and sealing international distribution agreements, while openly declaring their plans to dominate the worldwide cannabis industry.

And what’s particularly interesting, is that this entrepreneurial gold rush has all been made possible courtesy of the federal government.

General speaking, Canadian governments are not in the business of enabling business. They are much more experienced at erecting barriers, developing new and duplicative ways to regulate, and stifling competition.

And when Canadian business does distinguish itself in a particular sector, as a country, we are, as a rule, decidedly un-strategic about it.

Take mining for example. There was a time when we were seen as global leaders. Unlike so much of Canada’s traditional branch plant economy, itinerant miners leveraged know-how gleaned from the country’s rich resource base to stake claims from South America to Asia.

Canadian mining easily became our most international industry, representing more than 10% of Canadian foreign investment, while Toronto became a global hub not only for the largest concentration of junior listings, but for the cluster of engineering firms, technology suppliers and specialized bankers and lawyers that service it.

The mining sector is arguably Canada’s closest approximation to a Silicon Valley, and a significant source of wealth, and yet there was never any strategy to leverage our competitive and comparative advantage. While the Australians were busy creating partnerships between government, industry and academia to invest in R&D and develop targeted trade strategies, Canada did neither.

Not surprisingly, Australia, home to two of the world’s five super major miners, and the leader in data-driven, automated mining, is now seen as the global standard-setter.

There are many similarities – and lessons to be learned – between mining and the current cannabis gold rush. Indeed, many of Canada’s new cannabis entrepreneurs came from junior mining. They are being financed by many of the same bankers, and many of the retail investors flooding into the sector are the same ones who used to buy penny gold stocks.

The question is, apart from a few people getting very rich, very quickly, where do we go from here? Will we be able to transform this first-mover advantage into something lasting? There is no question the potential is huge. The global medical cannabis space alone is projected to be worth between US$50 and 100 billion by 2025, not to mention the market for cannabis-infused edibles, and sector-related technologies from breathalyzers to inhaling devices.

How much Canada will be able to hold on to will depend, broadly speaking, on three things. The first is the interest of big, global multinationals to get into the space. We have already seen Constellation Brands, the US alcohol behemoth, take a $5-billion stake in Ontario-based Canopy Growth. If Coca-Cola or big pharma move in, it will be challenging for a small Canadian startup to compete, or say no to a hefty pay out (and indeed, that is what many are hoping for).

The second factor relates to the ability of Canadian entrepreneurs to successfully evolve their businesses from start-ups to sustainable, well-managed enterprises, with the appropriate talent, financial rigour and governance frameworks.

And the third depends on the degree to which Canadian governments will either help or hinder this burgeoning industry. For the moment, governments seem most focused on either regulating it, controlling it, or taxing it.

The industry notched a significant win when Ontario’s new government decided to scrap plans for government-control of all retail sales. The decision to allow for private retailers, which narrowly avoided entombing the industry in bureaucratic amber, opens the door to entrepreneurial opportunity. Unfortunately, that has not been the case when it comes to marketing.

Ottawa’s decision to impose what can only be described as draconian prohibitions on cannabis branding and marketing will put us at a significant competitive disadvantage compared to US competitors, especially once cannabis is federally legal south of the border.

We could become white label suppliers to big California brands, unless of course cannabis growing moves south, as some predict it inevitably will. But experts agree that the real money lies elsewhere.

Regardless, all of this is not something we need to worry about today. Today, we should celebrate what we have accomplished, which is unquestionably impressive. Let’s just make sure we don’t let another opportunity slip through our fingers. Being first out of the gate is fine, but unless we are able to keep the lead, it won’t count for much.

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Written by Rick Murray

Cannabis: The great Canadian experiment
October 16, 2018