Canada’s licensed pot producers face uncertainty after court says patients can grow their own

Canada’s nascent medical marijuana market is being thrown into new turmoil with a court ruling that threatens to undercut its business model.

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For a lot more than 40 years, Smiths Falls was referred to as “Chocolate Capital of Ontario” due to its iconic Hershey factory. But Hershey bolted in ’09, and some years later, the guarana plant was sold to a very different sort of company: Tweed Marjuana Inc.

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Leading pot producers for example Canopy Growth Corp., Aphria Inc., Aurora Cannabis Inc. and Mettrum Health Corp. came to exist for just one specific reason: The us government introduced rules in 2014 that required patients to buy marijuana from licensed producers. Just before that, patients were getting licences to grow at home, making it hard for Ottawa to manage the sector.

The decision Wednesday from federal court judge Michael Phelan could bring aspects of that old system back. He gave patients the authority to grow their own cannabis, arguing the present system restricts accessibility drug.

It is another potential game-changer for this industry, which always seems to be in certain stage of transition. Currently, the licensed pot producers are fighting competition from illegal dispensaries and seeking to produce new oil-based products (following a separate court ruling legalized them).

Share prices fell over the sector Wednesday as investors reacted to evaluate Phelan’s decision. But the declines were modest, in part because no one is certain what impact the ruling will have. Canopy shares dropped six percent, while Aurora shares fell nine percent.

“There’s a lot more questions than answers at this point,” said Aaron Salz, an analyst at Dundee Capital Markets.

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Nothing alterations in short term, since the government has 6 months to re-write what the law states. Ottawa could appeal the decision, but legal experts noted the Supreme Court of Canada includes a long good reputation for upholding lower court rulings covering marijuana usage.

Health Canada has already invested enormous money and time into developing the current regulatory system, and can’t be wanting to return to the drawing board. Likewise, the ruling is frustrating for many licensed producers, that have spent huge amount of money developing production facilities that meet strict security and product quality standards. Now they face the risk of losing business to home growers who won’t suffer from the same regulations.

But Canopy President Mark Zekulin maintained he is not concerned about losing market share. He thinks most people are happy with a method that delivers a high-quality product for their door at a relatively low price.

“There’s a lot of people who don’t desire to be converting their basement or closet into a high-grow growing area,” he said.

Neil Belot, Aurora’s chief brand officer, argued there must be lots of space for licensed producers and residential growers. He explained he’s happy about the court decision, noting it shows Canada made a great progress way in lowering the stigma around marijuana and highlighting its health benefits.

Salz said it is sensible for Ottawa to allow home growing if it also cracks down on the greater than 100 illegal dispensaries which have popped up in Canada, mainly in Toronto and Vancouver. But if it enables both, he explained it may be “potentially disruptive” for that licensed medical producers.

The court ruling doesn’t address the biggest issue facing the marijuana sector: the recreational market.

The medical pot market is tiny, about 40,000 registered patients. How much money the licensed producers could make by servicing this customer base is very limited. But assuming the us government legalizes recreational use, the client base will grow exponentially.

Experts said hello is unclear what impact this decision might have around the recreational market, if any. If it only affects the medical market, it may look insignificant for the producers in the years ahead.

For now, the ruling just adds more uncertainty for an industry that already provides extensive it.

“Nothing surprises me within this sector anymore,” Zekulin said.

“Every few months there’s something new that’s exciting and potentially changes the landscape.”

pkoven@nationalpost.com

Twitter.com/peterkoven