The market for medical marijuana is set to be unveiled as new Health Canada regulations pave the way for the legal marijuana supply industry, which Health Canada estimates could reach $1.3 billion in sales by 2024.

Under the new regulations, the federal government will license commercial operators to produce, package and distribute a range of standardized marijuana products, with prices to be determined by market supply and demand. The potential profit for commercial producers is significant: Health Canada estimates that the number of licensed medical marijuana consumers will increase almost ten-fold to over 300,000 in the next decade.

With the new regulations set to come into full force on April 1, 2014, companies such as Tweed Inc. (Tweed) and Easton Pharmaceuticals Inc. (Easton) are poised to enter the market as prospective medical marijuana producers.

Tweed plans to establish a $100-million per year medical marijuana operation in Smith Falls, Ontario. The company has also recently captured the interest of investor group, LW Capital Pool, which is in the process of acquiring Tweed for listing on the TSX Venture Exchange. Easton, a specialty pharmaceutical company, is in negotiations with an Ontario-based company towards a possible investment or partnership.

The potential market for medical marijuana in Canada has also attracted investment interest from south of the border. Privateer Holdings Inc, a Seattle-based venture capital firm, has invested millions through its Canadian subsidiary, Lafitte Ventures Ltd., for the production of medical-grade marijuana inside a $3-million, 35,000-square foot facility in Nanaimo, British Columbia. Similarly, CEN Biotech, the Canadian subsidiary of Creative Edge Nutrition, has obtained a ‘ready to build’ letter for a 58,000-square foot production facility in Lakeshore, Ontario.

In addition to recent commercial and investment interest, the medical marijuana industry provides new opportunities for M&A activity in Canada. In an economy facing major drug patent expirations, decreased R&D budgets and increased generic competition, many pharmaceutical companies have turned to the acquisition of specialty biotech and pharmaceutical companies for future growth and expansion.

The lucrative profits and potential growth of the medical marijuana industry in Canada pose an attractive opportunity for Canadian pharmaceutical and biotech companies to expand existing product lines and enter an entirely new industry. However, companies eyeing potential acquisitions face unfamiliar territory as profits, market demand and competition in the industry will remain largely unknown until commercial producers begin production and distribution following the full implementation of the new regulations starting April 1. Despite this uncertainty, for some companies, a head start into the market for legal marijuana may very well be worth the risk.

Jennifer Ng