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Canadian producers have a big advantage over American growers
Cam Battley believes that in the not-too-distant future, his company — one of Canada’s largest licensed producers — will be exporting a “significant chunk” of the cannabis it is growing domestically.
“We have a massive market over in Europe, even in Latin America,” says Battley, chief corporate officer at Aurora Cannabis Inc. “These countries are legalizing medicinal cannabis one by one but they’re not growing as much as us. They’re going to need product, and we’ve already got the ball rolling on exporting.”
It’s a sentiment shared by other major producers here, many of which are spending tens of millions of dollars to build up international footholds with the intent of being key players in the emerging global cannabis industry. But before they can make good on those ambitions, some things will have to change.
That’s because when it comes to international trade, cannabis isn’t just any other product.
Under the Cannabis Act, Canadian producers are currently only allowed to export weed for medical use, and then only to countries that allow cannabis to be imported.
When it comes to recreational cannabis, the rules are ever more strict: a number of international treaties fundamentally ban the movement of cannabis for recreational purposes, regardless of the domestic legal status of cannabis in specific nation.
“Where the rubber hits the road for domestic cannabis producers is that international trade is largely restricted. And my view is that that is unlikely to change in the next five to seven years at least,” says Martha Harrison, a partner at McCarthy Tetrault LLP who specializes in international trade and investment law.
Canada is signatory to three international treaties that prohibit the movement of cannabis for recreational purposes — the 1961 Single Convention on Narcotic Drugs, the Convention on Psychotropic Substances (1971) and the UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, ratified in 1988. Under those treaties, Health Canada has an obligation to restrict the movement of cannabis to “medical and scientific purposes between countries.”
Earlier this year, the World Health Organization, citing new research touting the medical benefits of cannabis made headlines for calling for the removal of the drug from Schedule IV of the 1961 convention, the most restrictive category, which contains Class A drugs such as cocaine and heroin.
But the United Nations has yet to follow through, due in part to the organization’s historically conservative stance on drugs.
“The UN is kind of in an awkward position. They don’t want to dilute controls on marijuana because it would be viewed by some members are diluting controls on all narcotics. It’s kind of that slippery slope argument that you see in governments that are against legalizing marijuana,” says Adams Lee, an international trade lawyer at global law firm Harris Bricken.
According to Harrison, until the UN or the WHO reclassify cannabis and products containing THC outside the scope of international treaties, cannabis trade will be limited.
Nevertheless, a handful of large Canadian cannabis producers such as Aurora, Tilray Inc., Canopy Growth Corp., and Aphria Inc., remain bullish on the prospects for international cannabis trade.
Tilray recently announced the opening of a cultivation facility in Portugal that it says will feed medical demand in Europe and both Aurora and Canopy Growth have large production hubs in Denmark for similar reasons.
While the producers say they are aiming to serve medical markets, these facilities have enough capacity to eventually meet a significant portion of Europe’s demand for recreational cannabis — if and when cannabis is ever permitted to be moved across borders for non-medical purposes.
Harris Bricken’s Lee calls the industry’s optimism “a little bit too rosy.” But, he adds, if Canadian companies want to position themselves as first movers, projecting the “best-case scenario” to investors, then their investments abroad “perhaps make sense.”
“We know that the demand will be there internationally. And right now, we have a significant advantage because American cannabis companies cannot export their product,” says Battley.
Canada’s edge stems from the fact that U.S. federal guidelines continue to classify cannabis as a Schedule 1 drug, making it ineligible for export.
Until that changes (assuming it does), Europeans who consume cannabis for medical reasons will continue to get a taste of Canadian weed.
Canada’s major licensed producers currently export thousands of kilograms of cannabis to supply medicinal markets in countries that lack cultivation capacity.
And as Canadian production of cannabis has ramped up, so have cannabis exports: Since 2015, when it became legal to trade cannabis for medical purposes, shipments of dried cannabis have tripled.
Most this product goes to Germany, a country of 82 million people, where cannabis is legal for medical use and insured by the government as part of its national pharmacare program.
Producers only need an export permit from Health Canada and a import permit from the German government in order to begin their shipments.
“We’ve gotten good at this, we’re able to get our permits on both sides in under 30 days,” says Battley, who credits Aurora’s German branch (Aurora Deutschland) with administering the trade process.
Harrison, for her part, believes that the scenario most likely to have a domino effect on the international trade of cannabis is if countries begin reclassifying cannabidiol (CBD) as a permitted medical ingredient in the same vein that ingredients in natural health products are. “Based on industry intelligence, I can say that the trade on CBD oil is going to open up in a quicker and more fluid way that recreational cannabis.”
“That’s going to engender a larger regime shift in how governments and international bodies view the movement of cannabis globally. It’ll be good if Canada can lead the way on that.”
Copyright Postmedia Network Inc., 2019