Six months after legalization, Canada’s cannabis edibles market is stalled: ‘We’re just at the beginning of professionalizing this industry’

By Beth Newhart

- Last updated on GMT

"The key to future growth for many consumer industries will be to convert more of the consumers who are open to but not current users of cannabis." Pic: Getty/rgbspace
"The key to future growth for many consumer industries will be to convert more of the consumers who are open to but not current users of cannabis." Pic: Getty/rgbspace

Related tags Cannabis Canada Cbd cbd beverages THC

The cannabis drug was federally legalized in Canada in 2018, and edibles in 2019, but the market has so far been slow to take off. Brands struggle with product preservation and are looking for more guidance from Health Canada.

The cannabis edibles landscape in North America has been a convoluted space to legally break into, with the internet’s thriving black market skirting around strict local regulations in both Canada and the US. It was thought that Canada finally bypassed the confusion with its legalization in October, but structural issues remain.

Cannabis as a drug has been federally legal for recreational use in Canada since late 2018, while in the US it’s still a state-by-state issue. Cannabis is currently fully legal in eleven US states and Washington DC, and decriminalized or approved for medicinal use in many others.

In the legal jurisdictions, cannabis in the form of consumable THC or CBD products must be sold at designated, licensed ‘dispensaries.’ Pre-rolled joints, strains, concentrates, vapes and edibles are all available, but cannot be sold at other existing grocery stores or businesses.

This is where the gray area for edibles comes into play. It took an extra year for Canada to allow cannabis as an ingredient in food and beverages, in October 2019. But because these products can theoretically be sold outside the ‘dispensary’ setting, they are facing tighter restrictions before coming to market.

Legal freedom vs business obstacles

Jonathan Storper is a San Francisco-based attorney with Hanson Bridgett, and has represented cannabis companies from both the US and Canada for more than a decade. He's currently working with Canada's BevCanna, and spoke to BeverageDaily about the roadblocks in the country’s edibles market.

Canada may be fully legal, but Storper said the business side of things is holding back the category. Valuations of cannabis startups have fallen in the last few months. He likened it to internet startups in the 1990s--many people started a company with no experience that generated no revenue, and the bubble burst and markets dropped.

canopy 1
Tweed Houndstooth & Soda

Something similar is happening with cannabis in North America thanks to lofty category projections: Storper said the industry is expected to grow from $178m in 2019 to more than $1bn by 2026.

And legal edibles like CBD-infused beverages have been slow to hit shelves in Canada for several reasons. Actual valuations are fluctuating and finding investors is proving difficult; startups are finding that they need a lot of money to comply with Health Canada’s three month stability test requirements.

It’s a regulation that has Canada a bit stumped, according to Storper. Food and beverages infused with CBD or THC need to prove that they can stay stable and deliver consistent potency levels for three months before Health Canada​ approves it for sale.

But beverages are suffering from packaging liners that absorb the product and cause a loss of THC potency of up to 50% after three months. This has many brands still in the R&D phase and spending millions of dollars to legally comply with Canada’s laws.

Canopy Growth starts shipping its first cannabis beverage

Canopy Growth, one of the largest cannabis brands in Canada, confirmed to BeverageDaily that its edible products have been selling out quickly in retail outlets and online, but right now it’s their infused chocolate that is most popular. In January the company said the ‘scaling process’ of their beverages was not complete and extended its to-market expectations.

BevCanna on market barriers: 

Although the cannabis infused beverage landscape has certainly proven to be of interest, when you compare the saturation in the cannabis infused beverage market to that of the alcoholic beverage market, there is still be plenty of room in the infused beverage landscape, especially when you factor in the significant barrier to entries due to the initial investment required and the industry expertise necessary to bring cannabis infused beverages to market in Canada.”

On March 16 Canopy announced that its Tweed brand started shipping its first cannabis beverage product across Canada, the Tweed Houndstooth & Soda with THC. But with the recent spread of the coronavirus forcing retail closures, it’s unclear if this is further setting back the debut of cannabis beverages.

Demand for wellness edibles

Canada certainly isn’t giving up on its cannabis potential. About 59% of Canadians are currently using or are interested in using cannabis, and 27% of all consumers say they used cannabis in the first six months of legalization, according to recent research from Mintel.

And of Canadian consumers who haven’t tried cannabis but are open to it, 48% are most interested in edibles, while 42% would use cannabis to relieve pain and 25% to improve sleep.

Scott Stewart, senior research analyst at Mintel, said “Legalized recreational cannabis has certainly had one of the greatest impacts on the Canadian market in the last decade. After just one year, the effects of this industry are already far-reaching--from food and drink to insurance to tourism and more--and additional markets will begin to experience the ripple effects of the legalization of cannabis this year.”

Vancouver-based BevCanna specializes in cannabis beverages, both as a white label beverage manufacturing service to other licensed producers in Canada and as its own house brands of products. Despite the regulatory obstacles, it has still seen strong Canadian demand for edibles and expects wellness-oriented beverages to perform best.

gruv tea 1
Grüv iced tea

The company is planning to launch a zero-calorie, THC-infused sparkling botanical flavored alkaline spring water, Anarchist Mountain, soon. It will roll out alongside an iced tea beverage, Grüv, at licensed retailers across Canada this summer.

BevCanna believes that as consumers become more familiar with the taste and formulation of cannabis beverages, the quicker the market will grow and support a wide array of choices for consumers.

Stewart at Mintel said, "The key to future growth for many consumer industries will be to convert more of the consumers who are open to but not current users of cannabis; their hesitance to try cannabis was a contributor to the relatively low sales in 2019, but the legalization of edibles and drinkables in October 2019 will play a major role in 2020’s success.”

“Edibles and drinkables can be a great introductory way for new users to familiarize themselves with cannabis and better understand the cannabis experience, potentially leading to using other forms of the product.”

Big players taking a 'wait and see' approach

Following Canada’s legalization of cannabis edibles, several major beverage brands like AB InBev and Molson Coors announced intent to launch products. But the stability test requirements delayed the projects into 2020, and have now taken a backseat while many industries pause to fight the COVID-19 pandemic.

flow glow 1
Flow Glow spring water

Storper theorizes that big companies that are trying to play by Canada’s legal rules are likely waiting to see how the category first plays out while still doing R&D. Molson Coors’ Flow Glow spring water was supposed to launch in December, for example, but is still 'coming soon' according to its website​.

Cannabis beverages can definitely be found at select retailers in Canada, but most of the industry remains online, where enforcement is almost nonexistent.

Health Canada has suggested that they may release more detailed regulations for cannabis edibles sometime this summer, so many brands are looking for that guidance before jumping into mass production.

And in this respect, Canada is again similar to the US. Storper said it would be a positive to get more regulatory clarity from the US FDA and on the banking side of things, with more enforcement overall across North America.

“It’s going to kill all of it off if we don’t have more enforcement, and it’s going to lead to terrible safety issues. I think we’re just at the beginning of professionalizing this industry in both countries,”​ he said.

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