Canada Leads International Cannabis Boom - and It's not About Smoking

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Oct 22, 2018, 08:30 ET

NEW YORK, October 22, 2018 /PRNewswire/ --

CannabisNewsWire Editorial Coverage

Legal changes in Canada are creating an ideal base for cannabis companies, which are shifting their focus away from smoking.

As the first G20 nation to make recreational cannabis legal, Canada is creating an opportunity for its cannabis companies to become global leaders.
Analysis shows that the global cannabis market is larger than expected - and set to keep growing.
Many new consumers prefer not to smoke their cannabis, leading to a shift towards cannabis-derived food and drinks.

Lexaria Bioscience Corp. (CSE:LXX) (OTCQX:LXRP) (LXRP Profile) has developed patented technology that helps make cannabis available to nonsmokers; the company's innovative development methods make cannabis' active chemicals more palatable and more effective in food and drink. Companies such as Tilray, Inc. (NASDAQ:TLRY) are expanding their production to cater to this growing market, resulting in rising share values. GW Pharmaceuticals Plc (NASDAQ:GWPH) has leveraged its position in the market to raise extra financing through a $345 million public offering.Aurora Cannabis, Inc. (OTC:ACBFF) (TSX:ACB) has been focusing on ensuring access to a broad market, setting up supply agreements across Canada. Meanwhile, other companies are evaluating international growth opportunities, with Cronos Group, Inc. (NASDAQ:CRON) (TSX:CRON) having established subsidiaries on five continents.

The Canada-led Revolution

This month marks one of the most dramatic changes ever in the cannabis market, a moment set to transform the industry and the way that it's viewed. As of Oct. 17, consumers across Canada are able to buy cannabis for recreational consumption for the first time. Canada is the first G20 nation to make such a change, and the precedent could be critical. Other countries are watching what happens in Canada, as voters around the world push their governments toward similar legalization; there are already more than 30 countries around the world where cannabis is legal in some form for medical use.

The Canadian example comes just as analysis shows that the cannabis market is larger than previously realized and set for continued growth. This puts Canadian companies in a powerful position, able to make the most of being based in a country that's friendly to the cannabis industry. By using the freedom and opportunities this presents, these companies could easily become global leaders in a fast-growing sector.

Canada Legalizes Cannabis

For Canadian companies working in the cannabis sector, such as Lexaria Bioscience Corp. (CSE:LXX) (OTCQX:LXRP), huge changes are coming.

After much political maneuvering, recreational cannabis is now legal in Canada in keeping with a promise made by Justin Trudeau when he was elected prime minister in 2015. The wait has been frustrating for some, but it has given companies such as Lexaria time to establish their leadership position.

Canada already has a thriving medical cannabis industry, in which tight regulation provides control over the use of drugs. The new regulations extend this careful approach to the recreational market. Using a model similar to liquor licensing, retailers will have to be licensed to sell cannabis and follow clear rules. Those who try to sell outside the system will be quickly shut down.

In setting up its system, the Canadian government and provincial authorities have learned from the example of legalization in certain U.S. states. They worked with cannabis companies to ensure that the licensing system for both production and retail was ready for the Oct. 17 deadline While there will undoubtedly be hitches, including the likelihood that demand will initially outstrip supply, this appears likely to be a smooth launch.

Companies have also been making adjustments. For example, Lexaria recently announced a new subsidiary, Lexaria CanPharm Corp., which is focused purely on applying the company's technology to the cannabis industry. Because Lexaria sells technology, if is already earning revenue in several locations both within and outside of Canada without touching the plant. Lexaria has a Canadian base but international reach.

Cannabis Market Larger Than Expected

Judging the potential size of the legal cannabis market is a tricky business. The drug's widespread illegality around the world means that data is almost entirely drawn from surveys, in which respondents may be wary of admitting their consumption. Legalization will likely lead to changes in consumption patterns; easier access will almost certainly increase both medical and recreational demand.

Despite the limitations on judging the market, observers have been keen to estimate what the market could represent. A survey from before legalization indicated that 4.2 million Canadians consume cannabis on a regular or occasional basis. Based on this data, companies and commentators have predicted an industry worth billions of dollars, which could quickly surpass the whiskey industry.

But leading cannabis commentators are now suggesting that previous estimates may have undervalued cannabis' potential. The only specialist cannabis analyst for a major Wall Street trading firm believes that the impact of legalizing a previously illegal market has been underestimated. Legalization could lead not just to large-scale sales of cannabis but also to its use as an ingredient in other products. Because Fortune 500-type companies are now interested in the space, the market could eventually be worth hundreds of billions of dollars.

If that analysis is accurate, then many cannabis companies are being massively undervalued. That's good news for the future prospects of businesses such as Lexaria.

Consuming Cannabis without Smoking

This growth is likely to be coupled with changes in the way cannabis is consumed - changes of huge relevance for Lexaria.

A recent survey of U.S. consumers showed that many would like to try cannabis if it became legal. They also said that they would be more likely to do so if they could consume the plant through food. Putting cannabis into drinks and snack foods will make it easier for people to enjoy in a social setting with friends, in a similar way that they currently consume alcohol. That would make it a more popular and accepted part of everyday life.

Lexaria's patented technology could be invaluable for companies catering to this desire. Its lipophilic enhancement technology is designed to improve the biological conductivity of active compounds, including those found in cannabis. It increases their potential for absorption by the body, meaning that consumers get better value for their cannabis. It also improves the taste, which will be important in making cannabis food and drinks popular. Recent tests have shown good results for applying this technique to active ingredients derived from cannabis.

Lexaria plans on licensing this technology to third-party partners and was recently awarded its 9^th and 10^th granted patents applicable for cannabis beverages. With cannabis-infused food and drink set to hit the Canadian market next year, and with large companies eyeing its potential, plenty of companies are sure to be interested in such technology that takes advantage of Lexaria's leadership position.

Growing with the Market

The legalization of recreational cannabis is good for companies already working in the Canadian medical market such as Tilray, Inc. (NASDAQ:TLRY). A company with a strong pedigree in research and development, Tilray is expanding its sales potential in preparation for the recreational market. Its High Park Farms subsidiary recently received a license to sell cannabis in Canada and has already carried out several harvests to get stocks ready for sale. Such moves have led to positive views of the company's future, with Wall Street commentators predicting a huge rise in the value of its shares over the next year.

The expectation of huge growth in the cannabis industry is helping companies raise extra finance to tap into that market. GW Pharmaceuticals Plc (NASDAQ:GWPH) has just raised over $345 million through a public offering. A medical cannabis company, GW isn't currently involved in the recreational sector but is still profiting from the growth it brings.

One of the big players in Canada's medical cannabis market, Aurora Cannabis, Inc. (OTCQX:ACBFF ) (TSX:ACB), has been laying the groundwork to make the most of recreational sales. The company has supply agreements with provinces across Canada, giving it the opportunity to reach a broad customer base. As well as providing quick profits, this will help to establish brand recognition early on for greater influence as the market grows.

While attention is currently focused on Canada, that is just one part of the cannabis market. As with other industries, global reach will eventually decide the biggest players, and Cronos Group, Inc. (NASDAQ:CRON) (TSX:CRON) is already working on such expansion. With subsidiaries in North and South America, Europe, Australia, and Israel, the company is tapping into growing cannabis markets around the world. Lessons from Canada will help in developing these other markets and in positioning Cronos to make the most of them.

The legalization of cannabis in Canada is a critical part in an international puzzle, one whose pieces include unexpected growth, global connections and transformations in consumer habits. Put together, these pieces offer the hope of a profitable future for cannabis companies.

For more information on Lexaria, please visit Lexaria Bioscience Corp. (CSE:LXX) (OTCQX:LXRP).

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