Feb 19, 2019
Canopy plans wide range of pot-infused products as Health Canada mulls regulations
Canopy Growth Corp. (WEED.TO) is gearing up to release a wide range of cannabis-infused edibles and beverages when they become legal later this year, according to the company's CEO.
Canopy expects to sell a variety of form factors including non-caffeinated chocolate, five different kinds of beverages, and vape pens with new cartridge technology once Health Canada formally legalizes them, said Canopy CEO Bruce Linton.
"We've been working on an unbelievable array of things that we could do," Linton told BNN Bloomberg in a phone interview.
Canopy's strategy comes as Health Canada wraps up public feedback on Wednesday for its draft regulations to minimize the public health and safety risks posed by cannabis edibles, extracts, and topicals.
Under the draft regulations that were released in December, Health Canada is proposing strict tetrahydrocannabinol (THC) limits, packaging restrictions and manufacturing controls for the production of edible cannabis to prevent contamination.
Linton added that the industry still needs to see what Ottawa's final rules will look like. For example, under the draft rules, clear packaging is not permitted for beverages.
"It's not exactly clear to me what would meet the standard set out by Health Canada," he said.
Linton expects Health Canada to loosen guidelines for medical cannabis ingestible products and allow for more customizable vape pens and "hard pills" which will be a different pharmaceutical product compared to the soft gel capsules currently available on the market.
"All those form factors are going to reward those who have invested in how to create stabilizing ingredients and re-synthesize them in any state, whether it's hard or liquid," he said.
Canopy plans to use a substantial part of Constellation Brands Inc.'s $5-billion investment to build and develop the infrastructure necessary to sell cannabis-infused products this year. Already, spending on developing edibles and beverages accounted for about one-fifth of the $64.8 million it attributed to the cost of sales in its fiscal third quarter.
Bonnie Herzog, managing director of equity research at Wells Fargo Securities, said Canopy is likely to be ready to sell a range of premium beverages, including sports hydration drinks.
"Considering the sheer size of the global soft drink market, with sports drinks at less than five per cent of that, the opportunity in non-alcoholic beverages alone is vast," she wrote in a report published Friday.
The company recently completed a bottling plant near its Smiths Falls, Ont. headquarters, where it will produce cannabis drinks, such as a non-alcoholic fizzy beverage that contains a small amount of cannabis, Linton said.
To prepare itself for the anticipated demand, Canopy has secured several supply deals to obtain large amounts of cannabis oil, the critical ingredient needed to create edibles and vape pens.
In November, Canopy signed a deal with MediPharm Labs Inc. to supply up to 900 kilograms of cannabis extract over an 18-month period. It also signed a multi-year deal with Valens GroWorks Corp. in December to provide extraction services to create "high-grade cannabis resin" for the cannabis producer.
"I would say that effort to continuously deal with the allocation of the scarce resource is a top three priority in the company," Linton said during a conference call with analysts on Friday.
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