What Country Will Win in Cannabis? “Rumours of my demise have been greatly exaggerated” Rise Against A popular cannabis past time is to debate which country will spearhead the global industry. I define ‘win’ as having the largest roster of market-leading firms. This is not a premature or academic question. Firms in vibrant industry clusters tend to attract more capital, talent, govt support and industry partnerships. Think Silicon Valley for technology. Conventional wisdom says it won’t be Canada. Their LPs are floundering and have lost their first move advantage. The US will dominate because of their brands, innovation, size and legacy knowledge. Does this conclusion hold up to critical analysis? No. For the foreseeable future, Canada is in the lead - and is pulling away. Winning countries hav 3 key ingredients: big, battle-hardened companies; a large, domestic and competitive medical & rec market enabled by clear regulations and; an ecosystem of ancillary companies. Market-beating companies will excel beyond being low-cost producers (though that’s important). These firms will also have panoply of assets including institutional knowledge, skilled workers and IP, all forged over time in difficult environments. Why is Canada winning? - Many LPs have dramatically improved their quality and selection while driving down costs, to the point where they are very competitive with the best MSOs. - Canada is a hyper competitive market that is working through its boom/bust cycle. If you can win here, you can compete anywhere. - Some LPs are already successful exporters with leading share positions in legal markets. Some LPs like Canopy also have optionality into the huge US market (once it opens). - There is a rich cannabis ecosystem including banks, professional service providers and knowledgeable investors. Why not the US? - MSOs are hamstrung without the scale, certainty and policy definition that comes with full legalization (which is at least 5 years out). - MSOs are not as competitive as they could be given their reliance on non-market, short term advantages like scarce licenses. - The failure of popular brands like Cookies in Canada show that US brands are not omnipotent. - State-driven legalization focuses MSO efforts on new, unique markets versus building a globally competitive business. Others? > Germany and Holland are high-cost places that are tippy-toeing to legalization. By the time they fully liberalize, imports will have captured most of the legal business. > Australia will be a contender after they fully legalize. The success of their wine industry demonstrates world-conquering chops. > Low cost South American nations should be more competitive but are limited by a lack of domestic markets, capital markets infrastructure etc. > Thailand & Portugal seem to be going backwards.

Posted by Mitchell Osak at 2024-05-21 15:15:16 UTC