Quebec ban of edible products a $300-million hit to industry, Deloitte warns

Bans and added restrictions on cannabis extracts proposed this week by Quebec will cost Canada’s legal pot sector hundreds of millions of dollars in annual sales, experts warn.

It might also cost the country a key advantage in the growing global cannabis industry, they say.

Quebec launched a 45-day public consultation Wednesday on a policy that would prohibit sales of cannabis-infused confectionaries such as brownies, gummies, chocolates or mints. Under the proposed plan, the province would also cut the maximum amount of THC allowed in other infused foods and drinks to five milligrams – half the limit set by Health Canada last month – and prohibit THC levels above 30 per cent for non-edible cannabis products such as vape cartridges.

Because vape cartridges typically contain THC concentrations ranging from 70 per cent to 90 per cent, industry executives say the policy amounts to an effective ban on cannabis vape products as well. Vaping is among the most popular forms of non-smokeable cannabis consumption, according to data from several legal U.S. cannabis markets.

Maude Méthot-Faniel, the press attaché to junior Quebec health minister Lionel Carmant, confirmed on Friday that the proposed 30-per-cent limit would apply to vape products if implemented as planned.

“Confectionary alone is about $150-million in just Quebec,” said Rishi Malkani, the Canadian cannabis practice lead for Deloitte, in an interview. Last month, Deloitte projected sales of cannabis-infused foods, drinks, vapes and topicals could reach $2.7-billion a year in Canada within the first few years of their legalization.

Quebec, however, was expected to account for 26 per cent of the total Canadian demand for cannabis extracts, Mr. Malkani explained, putting that projection in jeopardy.

“Huge dollars. Gummy bears alone we projected at about $40-million per year in Quebec,” he said.

Combined with lowered expectations for other categories (i.e., selling a more limited selection of infused beverages), Mr. Malkani said the proposal would cut “at least” $200-million from his June projection, and banning vape products as well would lower his estimate by more than $300-million in total.

“And [the Quebec government] would have taxed all that,” he said.

Quebec is also planning to raise the minimum age for cannabis consumption from 18 to 21, which Ms. Méthot-Faniel said is expected to become law by the fall.

In addition to the direct economic costs of the policy, Mr. Malkani said different rules in Quebec would also cost Canada its position as an international model for cannabis regulation and a top player in the growing global fight for cannabis investment.

“This is one of the huge benefits that Canada has: a nice regulatory environment that applies nationally where, even if each province is a little bit different, at least we can move product across nationally without U.S.-like problems where we can’t put the same products in the same stores in different states,” Mr. Malkani said. “Now we’ve got Quebec-unique packaging, dosing, formulations. I don’t think this is going to be helpful.”

Michel Timperio, president of the Quebec Cannabis Industry Association, called the proposed restrictions “a shock and also extremely paternalist,” as well as “really, really a low blow” and “extremely deceiving,” as his industry was not consulted prior to Wednesday’s announcement.

He agreed with Mr. Malkani’s lowered sales expectations and said the policy was also likely to drive investment dollars away from Quebec.

“We represent a lot of stakeholders that have actually invested in this business thinking it was well-regulated, and now the climate here is all of a sudden very, very uncertain,” said Mr. Timperio, who also heads the cannabis division of Laval, Que.-based Neptune Wellness, which is devoted to processing dried cannabis flower into extract and concentrate-based products. “They all invested thinking these products were coming along, including us [Neptune] as a company, so it is quite destabilizing.

“This [policy] is very damaging for any of our members that have invested in Quebec and it is really an invitation to invest outside of Quebec, like Couche-Tard is doing,” Mr. Timperio said, referring to the Montreal-based parent company of more than 16,000 convenience stores around the world, which earlier this week invested in Edmonton-based cannabis retailer Fire & Flower.

Couche-Tard to invest in Canadian retail-pot chain

“The focus here seems to be, for all intents and purposes, basically eliminating every category,” said Greg Engel, CEO of New Brunswick-based licensed cannabis producer Organigram, of Quebec’s proposals. “For example, capping THC at 30 per cent on non-edibles would really have a tremendous impact on the ability of vaporizable products to enter the marketplace.

“You aren’t going to create a product uniquely for Quebec more than likely,” Mr. Engel said.

“I guess you could do cured meats. That is one of the oddities that are allowed, so you could do beef jerky, I guess, [but] I don’t think anybody has considered that as a product line, to be honest.”

The idea of Neptune reformulating any of its products specifically for the Quebec market “would be hard and it would not be appealing, let’s put it that way,” Mr. Timperio said. “It would not be worth it.

“And obviously consumers will still be able to get those [higher THC] products outside of our province in a legal way,” he added, “which I frankly hope they will do because the objective is to get those people out of the illicit market and have them use controlled, regulated products – and pay taxes.”