BUSINESS

Canadian Medical Marijuana Producers Seek To Grow International Business

07/19/2015 10:00 EDT | Updated 07/19/2016 05:59 EDT
ROBYN BECK via Getty Images
Marijuana plants grow on the grounds of the Bob Marley Museum in Kingston, Jamaica, June 9, 2015. AFP PHOTO/ROBYN BECK (Photo credit should read ROBYN BECK/AFP/Getty Images)
TORONTO - As Canada's burgeoning medical marijuana industry ignites, a number of local pot producers are looking to take their homegrown expertise abroad.

"With the cannabis market across the world expanding and opening up, that's presenting opportunities for Canadian producers," says Neil Closner, the chief executive of Toronto-based MedReleaf Corp.

Analysts say Health Canada's strict quality controls make exporting plants grown in Canada to other jurisdictions a cost-prohibitive proposition. Instead, Canadian producers are looking to take what they have learned at home and set up new corporate entities in other countries.

"The strict regulatory environment has, in effect, made producers jump through hoops and pass some pretty high barriers in order to be compliant, and there are lots of lessons they've learned along the way," says Daniel Pearlstein, a life sciences analyst with M Partners.

MedReleaf, which has partnered with a U.S. company called Compassionate Care Center of New York, is currently in a tight race for one of five medical marijuana licences in New York State. Closner said he expects the winning bids to be announced by the end of July.

Although MedReleaf was initially drawn to the geographic proximity — and the large population — of New York State, the company has also set its sights on more far-flung regions in Europe and South America for potential growth.

"The regulations have allowed us to learn enough, and to scale up enough, that we feel, at MedReleaf, that we have enough expertise to actually export Canadian knowledge to other areas of the world," said Closner.

Tweed Marijuana Inc. (CVE:TWD), the Smiths Falls, Ont.-based marijuana company that recently announced plans to acquire Bedrocan Cannabis Corp., is also looking overseas for growth, honing in on countries that are considering adopting medical or recreational marijuana programs.

Chief executive Bruce Linton says the company will spend the remainder of this year beefing up its domestic operations, with international expansion slated for 2016. Brazil and Chile are two of the many countries on Tweed's radar.

"I want to first make sure we become the dominant supplier that is cash-flow positive and has a very significant market share in Canada — and then use that expertise and credibility to pursue international expansion," says Linton.

Experts say Canada's federal regulations have allowed growers to get ahead of the curve. That's in contrast to the U.S., where marijuana producers are stifled by patchwork rules that vary greatly from one state to the next.

"They're not able to take advantage of any economies of scale, because they have to build a separate growing operation in each state," said Closner. "The benefit that we get is we can grow at a huge scale at one location, and hopefully have a lower price because of that."

Khurram Malik, a clean technology analyst at Jacob Securities Inc., says Canadian pot growers have also benefited from stringent rules that have forced them to produce high-quality products.

"Health Canada considers marijuana a pharmaceutical-grade product, not a food-grade product, and that's a huge distinction in how you manufacture," says Malik.

Growers in the black market, or in jurisdictions like Colorado that treat marijuana as a recreational drug, can use pesticides and other chemicals to prevent insects and mould from harming the plants, says Malik — but such "shortcuts" are not permitted by Health Canada.

"Because we have these regulations in place, we probably grow the cleanest, most pesticide-free, fertilizer-free marijuana in the world, at scale," says Malik. "It's literally the highest quality marijuana you can get anywhere in the world."

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