Value Chain For The Cannabis Industry: An Economic Development Opportunity

Value Chain For The Cannabis Industry: An Economic Development Opportunity

October 5th, 2018

by Louis Grenier

The cultivation of medical cannabis has invaded Canada and has attracted investors with deep pockets. Due to the fact that investors have to comply with heavy industrial standards to get their production license, Canadian producers are ahead of their American, German or Australian competitors to name just a few.

Consider the following companies:

Canopy Growth ($6.7 billion), Aurora ($4.2 billion), Tilray ($3.6 billion), Aphria ($2.5 billion) and Hydropothicaire ($904 million) have at least two years of ahead of the competitors in the countries named above who are struggling to obtain accreditation. Canadian companies have pass the tests without problems.

Keep in mind that cannabis production is only a small part of the huge market that the medical cannabis value chain offers. "Derivatives" will be present in various forms, ranging from pills to oils with a THC concentration ranging from 10% to 25%.

The real explosion will come from products derived from recreational cannabis (i.e., chocolate, beer, cakes, sweets, some based on canabidiol (CBD) which do not contain any psychoactive components.  As soon as the product is legalized, there will be a race to the production of derivative products.

Quebec's well-equipped regions

Large cannabis producers are already seeking potential partners to manufacture the various cannabis products. There is an opportunity to be seized as a privileged place of production of these products or even as a resource region.

Given the important regulations that will surround all components of the production chain, profiles of industrial parks will benefit regions in the province.

The main elements that will be considered:

  • The social acceptability of the population (thus a strong branding of the region as to the welcome policies of the industry)
  • A good base of available workers (non specialized and specialized)
  • The proximity of a university or a CÉGEP (or a technology transfer center in agribusiness) capable of supporting producers in the development and marketing of derivatives
  • The presence of a good regional network of input suppliers (i.e., packaging products, machinery maintenance services, control and computer services, etc.)
  • The relative proximity of a reliable source of raw materials
  • The rapid availability (3 to 6 months) of industrial buildings offering the most favorable market conditions OR the presence of a local partner ready to increase its production capacity

In our opinion, the first investor requests will vary between 10,000 sq. ft. and 25,000 sq. ft. in a building for the first production trials. We must expect a fierce competition, both at regional and national level.

A development cost to predict

The competition will therefore require attraction and investment support tools that will be adapted to this industry. The availability of funds from the main private partners makes it possible to refocus local efforts towards more sustained marketing rather than direct assistance to entrepreneurs.

Regional branding, a more targeted website, a presentation of the region's advantages (i.e., suppliers, industrial services), hiring dedicated representatives or the purchase and construction of industrial motels specifically designed for the industry are some examples of activities that can be considered to make the most of this opportunity.

Good luck attracting potential investors!!!

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