Cannabis 2.0: The Next Wave of Legalization.

Read Time: 8 minutes, 21 seconds.

Last October, Canada made history by becoming the first G7 country to legalize recreational cannabis for adult-use. The products made available through this regulation were fresh and dried cannabis flower, plants, seeds and oils.

This October, the country will allow for several other forms of cannabis products to be regulated and sold through legal channels. This will include cannabis-derived concentrates, vaporizable products, edibles, beverages and topicals. This new wave of Canadian legalization has been named “Cannabis 2.0”.

Cannabis 2.0 Amendments.

In June of this year, the Canadian government announced additional amendments to the Cannabis Regulations to allow for the legal production and sale of cannabis edibles, extracts and topicals. In line with The Cannabis Act, these amendments aim to reduce the risks of cannabis derivative products.

The new amended regulations will come into force on October 17, 2019. However, it will then take a longer period of time before cannabis derivative products will become available for consumers to purchase. Licensed Producers need to provide 60 days’ notice to Health Canada of their intent to sell these new products. Therefore, the first legal concentrate, edible or topical products will likely not be available for purchase until late December 2019 or early January 2020.

Cannabis edibles

Cannabis 2.0 Amendments.

In June of this year, the Canadian government announced additional amendments to the Cannabis Regulations to allow for the legal production and sale of cannabis edibles, extracts and topicals. In line with The Cannabis Act, these amendments aim to reduce the risks of cannabis derivative products.

The new amended regulations will come into force on October 17, 2019. However, it will then take a longer period of time before cannabis derivative products will become available for consumers to purchase. Licensed Producers need to provide 60 days’ notice to Health Canada of their intent to sell these new products. Therefore, the first legal concentrate, edible or topical products will likely not be available for purchase until late December 2019 or early January 2020.

Concentrates

Cannabis concentrates, also known as “dab-able concentrates”, are extractions made from the cannabis plant that contain the most desirable chemical compounds (cannabinoids and terpenes), while simultaneously removing any unwanted plant material and impurities.

The Government of Canada has stated that 0.25g of cannabis concentrates is equivalent to 1g of dried cannabis. Therefore, Canadian recreational consumers will be permitted to carry and possess up to 7.5 grams of cannabis concentrates. Legal concentrates will be permitted to contain up to 1000 mg of THC per package.

There are numerous forms and iterations of concentrates and extracts. Solvent-less concentrates are created without the use of an external solvent.

The most popular form is rosin, which extracts the active compounds of cannabis through heat and pressure. Another example is full melt hash, which extracts trichome heads through ice and water.

Solvent-based extracts use an external substance to extract cannabinoids and terpenes from the cannabis plant. Solvents frequently used include butane (BHO), propane (PHO), ethanol and C02.

Legal vape pen cartridges will be permitted to contain up to 1000 mg of THC per package.

Vaporizable Products

Vape pens are a form of hand-held vaporizer intended to be used for the consumption of cannabis concentrates and extracts. A vape pen is usually comprised of a battery and a cartridge. A heating element inside of the pen will raise the temperature of the concentrate until it turns into a vapor. Vape cartridges can be filled with a wide variety of cannabis concentrates including oil and distillate. Consumers often choose these types of products for their convenience and discreetness.

The Government of Canada has stated that 0.25g of concentrate inside of a vape pen cartridge is equivalent to 1g of dried cannabis. Therefore, Canadian recreational consumers will be permitted to carry and possess up to 7.5 grams of vaporizable concentrate, or 12.5 vape pen cartridges (assuming that one cartridge contains 0.6 grams of concentrate). Legal vape pen cartridges will be permitted to contain up to 1000 mg of THC per package.

The Supreme Cannabis Company’s wholly-owned subsidiary 7ACRES has entered into a partnership with leading vaporizer company, PAX Labs, to bring cultivar-specific cannabis concentrate pods to Canadian consumers.

Edibles

Edible products are foods and candies infused with cannabis extracts. Based on Deloitte’s research, the most common forms of cannabis-infused edibles are gummy bears, cookies, brownies, chocolate and lozenges.

Currently, Canadian consumers are only able to create their own edibles at home through baking or cooking with dried cannabis. In October 2019, cannabis companies will be permitted to begin creating and distributing these forms of products.

The Government of Canada has stated that 15g of cannabis-infused edibles is equivalent to 1g of dried cannabis. Each package of edibles will be permitted to contain up to 10mg of THC. Therefore, Canadian recreational consumers will be permitted to carry and possess up to 450g of edibles, or 1290 mg worth of THC-infused food items.

Beverages

Beverages are drinkable products infused with cannabis extracts. These types of products are extremely new and are not very popular yet, even in mature markets like California.

These beverages can come in a variety of forms including infused water, soda, tonics, elixirs, tea, coffee and even cannabis “beer”.

The Government of Canada has stated that 70ml of cannabis-infused beverages is equivalent to 1g of dried cannabis. Each beverage container will be permitted to contain up to 10mg of THC. Therefore, Canadian recreational consumers will be permitted to carry and possess up to 2.1L of cannabis beverages, or 60 mg worth of THC-infused drinkable products.

There are a few significant challenges when it comes to producing and selling cannabis-infused beverages. These drinks are metabolized through the digestive system, resulting in effects more similar to edibles than smoking or vaporizing dried flower. The liver converts THC into a compound called 11-hydroxy-THC, which early studies suggest can produce a stronger high than THC found in dried cannabis flower. However, some individual’s genes will not allow them to metabolize THC through the digestive system and therefore they will not experience a strong effect from beverages. Cannabis-infused drinks are a complicated product because some consumers will react strongly and some will not react at all.

Cannabis beverages account for approximately 6% of ingestible sales in U.S. markets, comprising less than 1% of total cannabis sales.

Supreme Cannabis - Topical - Cannabis 2.0

Topicals

Topicals are cannabis-infused lotions, balms, salves, patches, creams and oils that are applied to and absorbed through the skin. Consumers report to use these products for localized relief of pain, soreness, and inflammation.

Cannabis topicals are generally non-intoxicating. These products contain cannabinoids that react with the CB2 receptors under the skin, but they do not reach the bloodstream. Some transdermal patches, however, are able to transfer cannabinoids into the bloodstream, resulting in a potentially psychoactive effect.

The Government of Canada has stated that 70g of cannabis-infused topicals is equivalent to 1g of dried cannabis. Each bottle of cannabis-infused topicals will be permitted to contain up to 1000mg of THC per package. Therefore, Canadian recreational consumers will be permitted to carry and possess up to 2100g of topical products, or 21,000 mg worth of THC-infused lotions or balms.

U.S. Market Data.

When attempting to predict how Cannabis 2.0 will play out in the Canadian market, it is helpful to examine data from mature markets like the United States.

In California in 2018, the top four categories based on the percent of total sales were: Flower 38% (942.3m), Concentrates 33% ($837.23m), Ingestibles 12% ($31.5m) and Pre-Rolled Joints 8% ($193m). According to BDSAnalytics. Beverages make up a very small portion of dispensary sales in California, accounting for only 6% of total ingestible sales. Flower is still the leading category, with concentrates following not far behind.

In December of 2018, concentrates outsold flower in the California cannabis market with a revenue of $87.5 million. This signals a growing interest in these forms of cannabis products. Concentrate sales growth has outpaced overall market growth in both Colorado and Washington as well. This data suggests that as markets become more mature and as consumers become better educated about the types of products available, they tend to migrate to concentrated forms of cannabis such as shatter, wax and rosin. This trend seems to be most pronounced for medical cannabis consumers looking for fast-acting potent effects.

Supreme’s philosophy on Cannabis 2.0.

Our primary focus for the first phase of Cannabis 2.0 will be extracts in the form of vapes and dab-able concentrates. These types of products require high quality flower to create and are great expressions of the plant’s profiles. These product formats will allow us to leverage our operational strength of growing High End flower. Our position is reinforced by analyzing data from the U.S. that reveals that concentrates and flower are the top-selling product categories in mature markets.

Our commitment to producing top quality flower will allow us to create derivative products that consumers will love. We are also proud to be partnering with a leading global vaporizer company like PAX Labs to bring concentrate pods to the Canadian market.

Our processes, partnerships and intellectual property position us for success in this new market.

Promotion Restrictions.

These new amendments also describe the marketing regulations surrounding cannabis derivative product formats. Licensed producers are limited in their abilities to promote and communicate about cannabis and cannabis-derived products. For example, it is prohibited to promote a cannabis extract in a way that implies the product has a flavour other than the natural flavour of cannabis. This means there will likely be no fruit or mint flavoured vape pen cartridges, the type that is popular among tobacco users and American cannabis vape consumers.

Looking Forward.

Deloitte estimates that the annual Canadian market for cannabis derivative products will be worth C$2.7 billion once it reaches maturity. A strong interest in cannabis derivatives among current and likely consumers suggests that these new product formats will drive substantial revenue growth across Canada’s cannabis sector. Allowing for the legal production and sale of alternative cannabis products will help cement Canada’s position as market leader in this quickly expanding global industry. Additionally, permitting these products for sale will help convert cannabis enthusiasts from the informal to the formal market.

These recent regulatory amendments will likely not be the last, as the cannabis industry continues to change and grow on a daily basis.

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