In a comprehensive report from the UK’s leading industry journal, The Lawyer, on the state of Canada’s burgeoning cannabis industry, Osler partner Mark Trachuk comments on M&A activity in the industry and the array of evolving legal issues that lies ahead.

Asked about the Canadian government’s plan to legalize recreational marijuana and the impact it will have on M&A, Mark explains that the “decision to legalize adult cannabis use is federal in scope, which makes it unique compared with other jurisdictions. … This puts Canada at the cutting edge of the industry and has tremendous implications for capital markets and M&A transactions in the sector.

“Although production capacity is the principal driver of M&A activity currently,” Mark continues, “vertical integration and the acquisition of proprietary intellectual property relating to cannabis production will also be key drivers for acquisitions.”

On the question of how much M&A work the new legislation is expected to generate, Mark replies that “[g]iven the large number of new companies in the space we expect to see exponential growth in M&A activity in the sector. Large global strategic investors are starting to show interest, including beverage and tobacco producers which will bring new capital and expertise to the industry, and accelerate growth as global brands begin to be introduced.”

He also notes the key issues surrounding the legislation.

“The biggest question is what the distribution model will be,” Mark says. “In Ontario, Canada’s largest province by population, the model proposes government distribution using government-owned and run dispensaries and internet sales. Other provinces are considering licensed dispensaries with the prospect of there being franchise opportunities and the outsourcing of internet sales. However, it is anticipated that distribution models will evolve as demand grows and we move into broader extract-based product lines like edibles (expected to become available in Canada in 2019) and other consumer platforms.”