Areas of

Budding this fall: The serious business of recreational cannabis

Wednesday, October 17, 2018 @ 8:36 AM | By Sara Zborovski and Nader Hasan

Sara Zborovski and Nader Hasan %>
Sara Zborovski and Nader Hasan
While we usually associate flowers with spring, the budding cannabis industry will be flowering this fall. With legalization of adult-use cannabis now finally implemented, market participants will continue their race to obtain and increase their share of the burgeoning market sector.

As cannabis issuers in the recreational sector begin to realize significant revenue and further legitimize their operations, we can expect these market participants to obtain access to more capital and continue with their growth at an accelerated pace.

Accordingly, lawyers who want to have a powerful presence in this industry must stay ahead of the curve. This will necessarily require a fundamental understanding of the regulatory framework governing legal cannabis.

The application of the relevant legislation and regulations has yet to be seen and lawyers should be mindful of uncertainty in implementation and development, especially as issuers are looking to grow at an accelerated pace. 

Cannabis companies will be looking to grow in many ways:

  • Companies will be looking to grow organically and obtain production capacity or acquire other companies to obtain additional licences or facilities. Furthermore, companies will be looking to expand their IP portfolio and strengthen their brands while the industry figures out the regulations regarding promotion.
  • Companies will be looking to vertically integrate their operations and obtain the necessary authorizations and licences in order to do so.
  • Companies will be looking to expand their demand as well as their supply by exploiting new and emerging markets in Africa, Europe and Latin America. Canadian companies will be making inroads wherever they can, and they will need advisers who have a global perspective to make informed business decisions. Additionally, they will require people with local expertise to talk to in each prospective export market.
  • Companies will also be expanding thorough diversified investments in new and existing cannabis businesses and Canadian cannabis companies will continue to seek investment opportunities domestically, in the U.S. and abroad.
  • Companies will be entering into new, undefined, spaces not explicitly contemplated by the regulatory framework. We will see these companies innovate and develop expertise in areas such as health care technology and big data.
  • Companies will be looking to enter into partnerships, joint ventures and other business opportunities across the sector. Given the wide variety of regulatory requirements, companies will need to be careful that being affiliated with these business partners does not put them offside federal or provincial regulations.
  • Companies will increasingly be seeking debt financing. Lenders will also be facing the prospect of collecting on collateral consisting of cannabis products and production facilities.

The blistering pace at which this industry has been growing will not slow down after Oct. 17. The industry is set to transform itself and cannabis companies are already a step ahead, thinking about products like beverages, with some of them pursuing collaborations with multinational blue chip companies.

Lawyers who advise these companies will need to be equally ahead of the curve and have a nuanced understanding of the regulations to be able to provide their advice in real time. It won’t be enough to simply know how to run deals or manage patents to be an effective adviser to cannabis companies. Lawyers who practise in this space will be required to have well-developed regulatory expertise to give meaningful advice as the market goes through this stage of rapid transformation.

Sara Zborovski is a partner and head of the cannabis group at Norton Rose Fulbright. Nader Hasan is an associate at the firm. The authors would like to thank Daniel Weiss, an articling student at Norton Rose Fulbright, for his invaluable assistance in the writing of this article.

Photo credit / mrhighsky ISTOCKPHOTO.COM

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