U.S. producers of cannabis-infused food and drinks are looking across the northern border as Canada concocts regulations for edible cannabis — a process that will determine how they can compete in the largest national market for cannabis products.
Canadian consumers already can buy from retailers a limited amount of fresh cannabis or its oil thanks to legislation that took effect Oct. 17. The same legislation gives Canadian authorities another year to devise rules for retail sales of cannabis-infused foods, such as brownies and sparkling water.
U.S.-based producers of foods that contain cannabis components already are setting the stage for their entrance into the Canadian market.
In May, Denver-based Dixie Brands agreed to license production rights for some of its cannabidiol-infused products, including drinks and pet treats, to a company in Canada. Cannabidiol is being studied for its medical benefits, including its ability to relieve pain and inflammation. Those products do not contain tetrahydrocannabinol, or THC, a compound in cannabis that produces psychoactive effects. The company's portfolio also includes mints, gummies, chocolates, drinks and other products containing THC, which are not part of the licensing deal.
"We have to basically start now," Chuck Smith, CEO of Dixie, said in an interview with S&P Global Market Intelligence.
Others say Canada's moves in coming months could set the tone for future regulation of edibles, providing clarity on key questions of consumer safety. In the U.S., regulations vary by state: Only seven states allow the sale of food products containing THC, and those that do have enacted different rules for how much of the compound manufacturers can include in one serving.
Major beverage companies, including Heineken Holding NV and Constellation Brands Inc., have invested in smaller, cannabis-focused firms in early bets that the space will grow.
But "as we learn from Canada and we learn from some of these operations in Colorado and California," said Phil Kafarakis, president of the Specialty Food Association, "that's when we're really going to learn a lot about how this [industry] scales out."
'Take a guess and evaluate'
Canada's eventual regulations for edibles will address many of the same issues facing legal products. Under the country's Cannabis Act, passed by Canada's parliament on June 21, labels for edibles will have to carry a standardized symbol indicating that the product contains cannabis components, according to Health Canada, the division of the Canadian government responsible for health policy.
The agency plans to publish a set of draft regulations in late 2018 or the first few months of 2019, Health Canada spokeswoman Tammy Jarbeau told S&P Global Market Intelligence. Canadians will be able to comment on the proposed rules ahead of their implementation.
Health Canada has a history of stringently evaluating food and beverage products from U.S. companies before they enter the Canadian market, said
In crafting its own regulations, Canada could consider provisions adopted by some U.S. states. Alaska, California, Colorado, Massachusetts, Nevada, Oregon and Washington all allow the retail sale of THC-infused products, though they set strict limits on the level of the compound allowed in each serving of a snack, mint or drink.
Colorado revised its rules governing edibles after several high-profile deaths and increases in calls to poison control — all linked to overeating edibles, said Andrew Freedman, Colorado's former director of marijuana coordination, who now advises governments on cannabis legalization. Regulators organized a working group to study the matter and ultimately settled on a limit of 10 milligrams per serving after testing how various amounts of the compound affected people differently.
"It was exactly take a guess and evaluate," Freedman said.
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Other states have since looked to Colorado as they have developed their own per-serving limits on THC in edibles, but they are divided on how much THC should constitute a serving. California, Nevada and Washington set the same limit of 10 milligrams per serving through statute or regulation, while Alaska, Massachusetts and Oregon only allow half as much THC per serving.
Alaska regulators went to Colorado to speak with officials there before setting a 5-milligram-per-serving THC limit on edibles, said Erica McConnell, director of Alaska's Alcohol and Marijuana Control Office.
"They felt it was advisable to implement a cautious and conservative limit, as it is easier to increase a low limit than it is to decrease a limit found to be too high," McConnell said in an email.
State-level statutes stifle supply chains
Resolving questions such as what constitutes a safe dose of THC in Canada will create a new national market for edible cannabis products. Canada's provincial governments still will have power over aspects of legal cannabis, but the national rules will likely contrast with the fragmented legal landscape for cannabis in the U.S., which also dictates different packaging, testing, distribution and other restrictions for producers.
The patchwork of U.S. state-level laws governing access to cannabis means producers can legally sell their edibles only in the same state where the cannabis in those products is grown. Selling across state lines would run afoul of federal law, which still considers cannabis an illegal drug in the same class as heroin.
"We have to actually expand only on a state-by-state basis. We can't build the product in Colorado, for example, and ship it to another state," Dixie's Smith said.
Dixie Brands sells a THC-infused mint in recreational markets in Colorado, Nevada and California, but the company has to market the same product as a tablet in Maryland, where cannabis and edibles can be sold only to registered medical users. "We had to change the box and outer packaging to be less consumer-focused and approachable," Smith said.
CannaCraft sells cannabis and other edibles, including a sparkling water infused with THC. The company added delivery trucks to handle shipments for the water, which takes up more room and generates less money for the company than other products such as vape pens, which heat cannabis oil to produce a flavored vapor, CannaCraft Vice President of Communications Kial Long said.
"The margins on the product are still healthy but we still spend more on distribution," Long said in an interview.
Still, regulatory and dosage concerns remain a prime concern in the U.S. while the supply chain "will figure itself out," said Healthy Brand Builders' Tonkin.
For Canada, the challenges will be crafting regulations with limited case studies, as well as evaluating U.S. products developed under a mix of conflicting state-level regulations, Tonkin said.
"I call this 'cowboy land,'" he said in an interview, describing the current U.S. regulatory environment.