David George-Cosh

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The head of a leading Canadian cannabis producer is blasting the federal government for imposing rules that he warns could restrict the industry from taking advantage of being the first developed nation to legalize pot, and prevent the emergence of global brands akin to Canada Goose and Lululemon.

“Could you take a brand from Canada and then move it to a jurisdiction, then gain recognition and awareness and build this global brand? Absolutely,” said Mike Gorenstein, chief executive officer of Cronos Group Inc., in a recent interview with BNN Bloomberg.

“But I think that you need to build your base first and it's really difficult with these advertising restrictions and plain packaging to build a global brand … If Canadians aren't sure which brand is what, why would the rest of the world recognize them?”

Gorenstein’s comments echo recent criticism from other cannabis industry insiders who claim a lack of forward-thinking government policies will cause Canadian firms to lag behind their U.S. counterparts in a race to be the dominant player in the still-nascent sector. Already, a majority of the biggest cannabis companies are now based in the U.S., a shift from a few years ago when Canadian firms were dominant.

“There was this idea that out of the gate, Canada was going to turn into Colorado – but that takes time to build,” Gorenstein said at the company's new offices located in downtown Toronto.

Gorenstein sees cannabis edibles, poised to be a multi-billion dollar business over the coming year, failing to live up to the hype. He said the products – ranging from gummies to cookies to chocolates – will be a tough sell due to burdensome regulations, environmental waste and an industry unprepared to handle the demand when they go on sale later this year.

Last month, the federal government announced its final regulations on next-generation cannabis products that restrict edibles to 10 milligrams of tetrahydrocannabinol (THC) – the chemical compound that gets consumers high – per package, while extracts will be limited to 10 mg of THC per unit and no more than 1,000 mg for topical products.

Edibles and extracts will be limited to plain packaging guidelines, although there will be an allowance for peel-back labels.

Bill Blair, Canada’s pot czar and the minister responsible for border security and organized crime reduction, told BNN Bloomberg last month that the government’s first priority when legalizing cannabis was to ensure the health and safety of Canadians remained paramount.

“It's not the government's intention to promote the use of this drug but rather to make it legally available in a well-regulated manner to reduce the social and health harms often associated with cannabis use,” he said at the time.

Gorenstein points to the THC cap as the main factor he sees limiting the market. Imposing the cap will result in an “aesthetically displeasing” product that will likely turn off consumers because they’ll have to purchase multiple items to get the effect they’re looking for, he said. 

“We really think there needs to be some changes to the regulations or we're not going to be happy with single-serve packaging.”

Cronos won't ignore the edibles market entirely, but it won't be a main focus for the company, Gorenstein said. Instead, Cronos is positioned to be a big player in the vape market thanks to its tie-up with U.S. tobacco giant Altria Group Inc. – which invested $2.4 billion in the pot company last March.

“There is certainly uncertainty in the rules, but we wanted to allocate supply in the category where we see the biggest advantage – and that is vapes,” he said.

While Gorenstein is keeping details of the company's vape plans close to his chest, the company will work with Altria’s R&D division to advance its own proprietary vape technology.

Altria is also assisting Cronos with processes to standardize production, government affairs expertise, and tapping into various marketing techniques to ensure its brands can cut through the noise and clutter of competing products, Gorenstein said.

“I think the big value add [Altria brings], which is hard to quantify, is being able to keep the focus on our strategy and not worry about becoming a global farmer,” Gorenstein said.

“I'd rather take the time to get one product right than launch five products that I think are less than exciting.”

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.