(Bloomberg) -- Canada may have a head start in the global cannabis industry now that pot is legal, yet companies targeting the U.S. market say the advantage won’t last long once the American branding machine gets rolling.
“The Canadians have a first-mover advantage in large-scale production, large-scale farming, large-scale commodity input, but the U.S. has an edge in brands and the consumer experience,” Ben Kovler, chief executive officer of Chicago-based Green Thumb Industries Inc., said in an interview at a pot conference in Toronto. Americans are “not growing the hops or the barley, we’re making the beer; we’re not tomato farmers, we’re making Heinz ketchup.”
Canada legalized recreational pot on Wednesday and has taken the lead in many aspects of the industry. Since marijuana remains illegal at the federal level in the U.S., Canada’s stock exchanges and investment bankers have dominated business on both sides of the border. As a result, Canadian licensed producers such as Tilray Inc. boast a much bigger market value than their U.S. peers.
Canada won’t be able to maintain that lead for long, said Afzal Hasan, president and general counsel at CannaRoyalty Corp., an Ottawa-based company that invests in pot companies, often in exchange for a royalty on their revenue.
Not Reality
“The people that for whatever foolish reason thought Canada was going to dominate the world of cannabis, they need to disabuse themselves of that notion because it was never founded on any reality,” Hasan said in an interview.
CannaRoyalty trades on the Canadian Securities Exchange, but it’s largely focused on the California market, where marijuana has been legal for almost a year. It also has a strategic partnership with Canadian retailer 180 Smoke and intends to bring some of its 50-plus brands to Canada next year when vaping and edibles become legal.
Hasan, who’s from Nova Scotia, doesn’t pull any punches in explaining why Canada’s cannabis industry is at a disadvantage.
“There is literally no industry in the world that we have an advantage in,” he said. “‘Our most prolific companies, Nortel, BlackBerry, Bombardier -- we’re not good at running businesses, period, and it has to do with our culture. We’re not as aggressive and competitive and capitalistic as the folks down south.”
Canada has laid down very strict rules around branding, including requirements that packages have to be a single color, logos can’t be bigger than the mandatory health warning, and marketing can’t associate a product with glamour or fun.
Consumer brand awareness on the first day of legalization was “extremely low,” with more than 95 percent of consumers unaware of the brands they had just purchased, according to GMP analyst Martin Landry. The brokerage surveyed 100 consumers on Day 1. This “raises questions about the large sums of money spent by some LPs to launch their brands,” he wrote in a note.
That means U.S. brands have an opportunity to connect with their consumers in a way that Canadian licensed producers don’t, said Kovler.
“That gives us pricing protection, pricing power, shelter against the storm of price compression because you have an experience with the consumer,” Kovler said.