Oh Canada, you handily beat your neighbor on this one.
When it comes to medical and recreational marijuana legalization, you have a system that has worked in ways the U.S. could have emulated.
Unfortunately, we’re still trudging through, state-by-state, with the threat of a massive test of federalism looming over us.
Meanwhile, you calmly dropped a practical system of rules back in April, and in the process set up major advantages for Canadian pot companies that will have international implications for many years to come.
Analysts widely expect the new market to eclipse beer, wine, and liquor in sales within a matter of years.
And that is just on the home front. Your companies are already exporting products to countries around the globe.
An existing market, with established, well-capitalized players, is about to see a massive race to capture market share and sales.
And while there are plenty of opportunities for investors in the U.S. as medical marijuana becomes the norm and legal recreational use spreads, only a fool would ignore the Canadian companies on the rise right now.
The differences between Canadian and U.S. regulation couldn’t be more stark.
The underlying systems of government are fairly similar. Both countries use a federal system, with a degree of autonomy for provinces carved out where national government doesn’t intrude or overrule.
When it comes to marijuana laws and regulations, the approaches are polar opposites, with U.S. legalization limited to the local and state levels, while Canada is building a framework from the top down.
The U.S. marijuana industry is completely fragmented as a result. Companies cannot expand, or transport and sell, any products over state lines.
The top-down Canadian approach is far different and well established. Back in 2001, the courts mandated exemptions for medical marijuana in drug laws.
This system stayed stagnant until 2013, with patients either growing their own, designating a person to produce for them, or buying directly from Health Canada, the only authorized mass producer.
Between 2014 and 2016, that changed again. Commercial interests were allowed into the market, and now 36 licensed producers are active.
And it is on top of this existing system that the new recreational rules have been added.
There isn’t a scramble to build businesses from the ground up. These companies already exist. Nor will there be any real threat of legal limbo for companies.
Instead, there is a clear path forward, which will soon provide a massive expansion of the market for the best companies to capture.
This established system and the predictability of it going forward has allowed something to happen in Canada that hasn’t in the U.S.
Marijuana producers have access to banks. Simply having an account and a merchant account to process credit and debit transactions provides a decisive advantage.
U.S. banks won’t even get close to state-level marijuana operations due to federal law. Simply providing any services exposes them to sanctions, penalties, and potential jail time for employees.
U.S. producers have had to truck around mountains of cash to complete even the most mundane business-to-business transactions, with all the expenses of an armored truck and guards attached.
Colorado’s cannabis industry alone saw $996 million in sales in 2015, and $1.1 billion in sales last year. Every single dollar had to be secured and shipped around.
These aren’t high-margin businesses either. Retail prices are dropping, and there are already robust security measures in place for the production facilities and shipments. The extra security and transportation for the greenbacks eat into relatively tight cash flows and profits further.
Lending is still a bit difficult, but Canadian banks are creating lines of credit for businesses. An NPR article last year talked to one owner who can tap at least a million dollars to cover short-term expenses.
Both the stable regulations and access to normal banking services create an unprecedented opportunity for businesses and their investors alike — true scalability.
U.S. producers cannot cross state borders in any way. They are capped. Though Colorado has established producers, they cannot ship anything to the much larger market in California.
One in five Americans lives in a state where some form of marijuana use is allowed. No company will ever come close to that kind of market exposure.
The Canadian model allows companies to thrive not only across the nation, but across the world.
International sales have already begun, with licensed shipments already sent to the Czech Republic, Germany, Brazil, and Australia.
Arcview Market Research projects a compound annual growth rate of 25% through 2021 for the North American marijuana industry. The lion’s share of that will be captured by Canadian growers due to their decisive advantages.
Established Canadian businesses moving on a much larger market are already rewarding early investors. And we’re just at the start of the trend.