Canada may soon consider changing the maple leaf on their flag to a marijuana leaf. Ok, not really, but if there’s one industry that will blow maple syrup out of the water, it’s going to be cannabis. Venture capital is pouring in as the country prepares plans for recreational pot legalization in July of 2018.

Building up to legalization

The Canadian government is leaving it up to individual provinces’ discretion to determine the details of how cannabis will be sold, the minimum age for purchase and consumption, and where use will be permitted.

As the Canadian cannabis industry grows, variety, value, and innovation will be paramount. According to New Frontier Data, dry cannabis flower is the largest source of revenue for dispensaries, making up 47 percent of total medical marijuana sales volume. Pre-rolled joints account for 13 percent of total sales volume. But bud’s share of the market is vastly eroding due to the rising popularity of concentrates, edibles, and infusions. Demand for concentrates grew from 10 to 27 percent, and adult-use concentrates increased to 21 percent, expanding it to the second-largest category.

Witnesses who testified before the health committee in Ottawa recently used the opportunity to warn that excluding these popular products would only stoke their pervasiveness on the black market. It’s a good thing then that Ottawa recently announced that marijuana-infused edibles and concentrates would be allowed in the market after all. Ottawa’s stance on edibles previously was that they “would be made available for purchase once appropriate rules for their production and sale are developed.” The health committee in charge of carrying out Bill C-45 revised the legislation so that edibles will be legal within a year after the July 1, 2018 legislation date.

On September 8, 2017, Ontario became the first province in Canada to publicize an official plan for the upcoming legalization of marijuana, promising to open at least 40 licensed stores by next July, with plans to grow that to 150 stores by 2020. (The estimated 150 “grey market” pot shops currently operating in Ontario—Toronto alone has more than 80—will be required to shut down from now until next summer.)

Whether Ontario’s plan to monopolize recreational cannabis will be successful remains to be seen. The government’s emphasis on publicly-owned stores and privatized consumption could be detrimental to growth, and some wonder if it will even make a dent in the black market. A recent Oraclepoll Research survey found that 63% of respondents would prefer to purchase cannabis products in a retail environment. Even with online sales, limiting the outlets to 40 will severely crimp access.

UPDATE: In a detailed proposal, Canadian Prime Minister Justin Trudeau has proposed a tax of one dollar per gram on adult-use cannabis when recreational sales begin in July of next year. Cannabis products priced higher than $10 a gram would be subject to a 10% tax. Trudeau says the federal government would split the tax revenue 50-50 with provincial governments.

Rise of the Canadian mega growers

Canada recently doubled its processing staff to accelerate the licensing process. In August alone, Health Canada granted four separate Access to Cannabis for Medical Purposes Regulations (ACMPR) licenses, raising the total in the country to 56.

Late last week, New Brunswick announced a deal with two federally licensed medical marijuana producers to supply the province’s estimated $90 million cannabis needs. New Brunswick’s Organigram Holdings will supply the province with five million grams of cannabis a year, and Ontario’s Canopy Growth Corp. will provide an additional four million.

Canopy Growth recently entered into a supply license agreement with Spanish pharmaceutical company Alcaliber, S.A to provide the company with clones. This two-country supply system gives Canopy access to cheaper off-shore labor and direct market entry into several European countries. Canopy’s Tweed facility in Niagara-on-the-Lake, Ontario, is the world’s largest marijuana greenhouse at over 350,000 square feet.

MYM Nutraceuticals and its majority-owned subsidiary CannCanada recently signed an exclusive deal with the aptly-named Quebec municipality of Weedon, to build a 1.5 million-square-foot cannabis production facility, consisting of fifteen 100,000-square-foot-greenhouses. This massive marijuana operation will be one of the largest growing operations on the planet, with the potential to produce over 150,000 kgs of cannabis per year, or roughly $750,000,000 worth.

In other news, Cronos Group recently secured $40 million Canadian Dollars (US $32 million) last month through debt financing for the continued construction of one of its production facilities. And Aurora Cannabis began work on their Leduc facility near the Edmonton Airport, clocking in at 800,000 square feet of growing space, capable of producing 100,000 kgs of cannabis annually.

What’s it all worth?

A report by Deloitte published in a November 2016 put the projected annual revenue for Canadian cannabis market at $22.6 billion. That number certainly caught the attention of the mainstream media. However, to reach that magic number, every adult in the country would have to spend an average of $800 (or about 80 grams before tax) on weed in Year One of legalization. A more realistic projection by CIBC cut that estimate in half, projecting that both the provincial and federal governments could bring in as much as $5 billion a year in tax revenue.

Greencamp.com did a little research of their own and came up with the numbers in the chart below, projecting approximately $4.2 billion in sales. Given that the price per gram is likely to be $10, and the fact that New Brunswick recently announced a supply agreement for recreational cannabis for 9,000 kg annually, a little math puts the retail market for cannabis in New Brunswick at around $90 million. Ontario is almost 18 times bigger than New Brunswick, possibly putting the total annual retail market value in Ontario at $1.6 billion. Following the same principle, Greencamp calculated the annual retail market value for all other provinces.

Source: greencamp.com

Now that Canada is starting to see provincial legalization plans coming to light, and public surveys are being conducted to inform the planners, one thing is becoming plainly obvious: the assumption that so many adults will buy recreational marijuana as frequently as projected is skirting the limits of credibility. Many believe that allowing private dispensaries and designated consumption establishments to operate alongside government-owned stores would be a more effective and profitable approach to regulation and a catalyst for hitting these kinds of sales figures.

Certainly, venture capitalists and entrepreneurs are keen to take the field, while individual investors are becoming bullish on Canadian pot stocks. We all know where this is going. Up. But how high Canada gets remains to be seen.