Germany, the largest medical cannabis market in Europe, decriminalized cannabis possession and small-scale home cultivation in April, making it easier for doctors to prescribe it.

But only a few local companies are licensed to grow pot, and U.S. and Canadian firms are looking to capture a slice of the market by providing capital and exporting products to Germany.

Industry insiders said this is mostly driven by problems at home, with Canada plagued by an illicit market and oversupply. In the U.S., allure has dimmed amid regulatory hurdles, including a lack of timeline for federal legalization.

“Canadian market is very challenging for these producers and Germany is probably the largest opportunity for them,” said Frederico Gomes, analyst at brokerage ATB Capital Markets.

Last week, the large-scale Manitoba cannabis grower and retailer Delta 9 said it had filed for creditor protection as it was struggling to pay its bills.

Two German companies, including its largest cannabis producer Demecan and online seller Bloomwell Group, told Reuters they are in talks with US and Canadian companies for potential investments, and more deals may be announced in the coming days.

“We see a big movement in the global market. Everybody needs to be in Germany and wants to be in Germany now,” said Bloomwell CEO Niklas Kouparanis.

Canada’s OrganiGram had in June announced a 14 million euro ($15.21 million) investment—16.5 per cent of its overseas investments funds—in Berlin-based Sanity Group.

A demand spike following decriminalization would further encourage investors, with Cannabis research firm BDSA estimating Germany’s marijuana sales to hit $1.5 billion (C$2.1 billion) in 2024 and $3.7 billion (C$5.1 billion) by 2027.

Bloomwell said it added more patients in the three months following reclassification, compared to its first four years in business.

Another draw is that Germany does not impose high taxes on medical marijuana sales, keeping prices competitive to the illicit market in contrast to Canada, OrganiGram CEO Beena Goldenberg said.

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That didn’t happen.

Instead, the committee of experts reviewing the Cannabis Act barely mentioned hemp in its 91 page report published March 21.

The Canadian Hemp Trade Alliance said the report fails to provide “meaningful guidance” on how Canada should manage and oversee hemp production and processing in the future.

“The expert committee … were focused virtually 100 per cent on public health and safety, protection of youth. And they had no expertise and no mandate to consider hemp,” said Ted Haney, president and chief executive officer of the CHTA.

“But they pretty much just kicked the ball down the court.”

CHTA chair Clarence Shwaluk made a similar comment.

He said the committee could have recommended changes to the Cannabis Act that would separate hemp from “drug regulations and removed obstacles to our industry’s growth and development.”

Health Canada has regulated the cultivation of hemp since hemp was first grown in Canada in the late 1990s, requiring farmers to get a license to grow the crop.

Initially, farmers accepted those constraints. But over the last 10 to 15 years, growers and hemp advocates have lobbied the federal government to de-regulate the crop and free it from Health Canada regulations.

In 2018, the federal government legalized the production and recreational use of cannabis. Folks in the hemp industry assumed that legalization of cannabis would help liberate hemp from the Health Canada regulations.

However, the federal focus on cannabis has created more problems, Haney said.

“Being regulated under Health Canada became more difficult after the legalization of cannabis,” he said.

“The focus of the structures … became all cannabis, all the time.”

One major obstacle for hemp is that some bureaucrats and policy makers in Ottawa did understand hemp and the opportunity for Canada’s agriculture and agri-food industry.

However, in the last five years or so, many of those bureaucrats retired or moved on to other opportunities, Haney said.

“We ended up with new officials … (with) very little expertise (and) very little knowledge of agriculture,” he said. “The mandates of Health Canada aren’t related to agronomy … variety approval, licensing, food safety.”

Hemp has been grown in Canada for about 25 years, but the industry has never lived up to its promise. In the 2010s, hemp leaders were predicting that acreage would hit 250,000 by 2018. That target was never reached as the industry went through several boom and bust cycles.

In the last few years, farmers have seeded 35,000 to 50,000 acres of hemp across Canada for the food industry or for fibre.

The expert committee report and the lack of recommendations to de-regulate hemp are a disappointment for Canada’s hemp sector, but Haney believes opportunities remain.

The report and the minimal mention of hemp in 91 pages illustrates that hemp has nothing to do with cannabis.

“They (Health Canada) convened a legislative review, the expert panel has been clear that hemp really isn’t related to their mandate. It doesn’t represent the kind of risks that Health Canada is adept at dealing with” Haney said.

The panel did make one recommendation regarding hemp, saying Health Canada and Agriculture Canada should create an expert advisory body to look at hemp regulations.

For Shwaluk, it’s obvious how that regulatory framework should be structured.

“The government of Canada must fully recognize that hemp is not adult use cannabis or medical cannabis and start treating hemp as a normal agricultural crop.”

—Robert Arnason writes for the Western Producer.

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The sale, the fifth such deal since April 1, is part of Canopy’s ongoing efforts to improve liquidity by reining in costs through layoffs, exits from some international markets and store closures.

The company has generated proceeds of $81 million through these transactions and expects $150 million in total proceeds from facility divestitures by the end of September this year.

“The proceeds from this transaction further the achievement of our target of $150 million… enabling us to efficiently reduce our overall footprint and strengthen our financial position,” said CEO David Klein.

Canopy’s shares, which have slumped more than 80 per cent this year, have been under added pressure since last week after the company raised ‘going concern’ doubts citing recurring losses from operations and certain debt obligations due in the short term.

The company had said it requires additional funding to continue operations but analysts have questioned the cannabis producer’s ability to reduce cash-burn and turnaround operations. Brokerage Benchmark slashed its price target on Canopy to zero earlier this week.

The company had $783 million in cash and short-term investments as of March 31, about 43 per cent lower than a year earlier.

Canopy also faces an investigation from the U.S. Securities and Exchange Commission over the reporting of revenue in its BioSteel segment.

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Freeland’s 2023 federal budget, released Tuesday, includes $13 million in 2023-24 for Agriculture and Agri-Food Canada to temporarily increase the interest-free limit for loans under its Advance Payments Program (APP) to $350,000 for the 2023 program year.

The interest-free portion of an APP loan was previously capped at $100,000 but that level was temporarily raised last summer to $250,000 for the 2022 and 2023 program years.

The APP provides farmers with cash advances of up to $1 million, based on up to 50 per cent of the anticipated market value of a farm’s eligible production, whether it’s still to be produced or is already stored.

“Farm production costs have increased in Canada and around the world, including as a result Russia’s illegal invasion of Ukraine and global supply chain disruptions,” Tuesday’s budget documents said. “It is important that Canada’s agricultural producers have access to the cash flow they need to cover these costs until they sell their products.”

On that note, the budget also committed the feds to “consult with provincial and territorial counterparts to explore ways to extend help to small agricultural producers who demonstrate urgent financial need.”

Fertilizer funding

On the matter of input costs, the budget also notes Russia’s invasion of Ukraine “has resulted in higher prices for nitrogen fertilizers, which has had a notable impact on eastern Canadian farmers who rely heavily on imported fertilizer.”

To that end, the budget proposes a $34.1 million addition to the federal On-Farm Climate Action Fund over three years, specifically “to support adoption of nitrogen management practices by eastern Canadian farmers, that will help optimize the use and reduce the need for fertilizer.”

That $34.1 million figure roughly coincides with a recent estimate of the tariffs collected so far on imports of Russian fertilizer into Eastern Canada. Several grower groups in that region have called for an end to that tariff and for farmers to be directly reimbursed for tariffs already paid.

Dairy development

Among other longer-term investments, the budget proposes $333 million over 10 years to set up what it calls the Dairy Innovation and Investment Fund, starting in 2023-24, to back development of new dairy products based on solids non-fat (SNF), a dairy processing byproduct.

The dairy sector is up against “a growing surplus” of SNF, for which the limited processing capacity in Canada “results in lost opportunities for dairy processors and farmers,” the budget said.

The new fund would support “investments in research and development of new products based on SNF, market development for these products, and processing capacity for SNF-based products more broadly.”

Inoculation inventory

The budget also pledges $57.5 million over five years starting in 2023-24, and $5.6 million ongoing, for the Canadian Food Inspection Agency to set up a foot-and-mouth disease (FMD) vaccine bank for Canada and develop FMD response plans.

Recent outbreaks of FMD in livestock in Asia and Africa “have increased the risk of global spread,” the budget said, and if an FMD outbreak were to occur in Canada it “would cut off exports for all livestock sectors, with major economic implications.”

The impact of a potential FMD outbreak “would be significantly reduced with the early vaccination of livestock,” the budget said. For the vaccine bank, the feds plan to “seek a cost-sharing arrangement with provinces and territories.”

The Canadian Cattle Association on Tuesday hailed the vaccine bank announcement, describing a vaccine bank as a “critical” investment which “helps provide necessary insurance to protect Canada’s export markets.” Several livestock groups have called for such an investment in recent years.

“While we hope this vaccine bank is never needed, we are grateful for today’s investment and its establishment,” CCA president Nathan Phinney said in a separate release. “We appreciate the government listening to our concerns and understanding the critical need to put in place emergency preparedness plans to control the spread of the disease and protect our export markets for Canadian beef.”

Risk management

CCA also hailed a separate budget line item pledging $184 million over three years to boost the Species At Risk Act. That funding goes to the federal environment, parks, fisheries and natural resources departments “to continue monitoring, protecting and promoting the recovery of species at risk to help restore their populations.”

“We will be engaging with the government of Canada to ensure beef producers are at the table as key stewards of lands where species at risk live,” the CCA said.

On that matter, noting cattle producers’ stewardship work on endangered native grasslands, Phinney said the CCA calls on Ottawa “to include support for protecting Canada’s grasslands in the future.”

Liquor and cannabis

Among federal sin taxes, the feds propose to temporarily cap the inflation adjustment for excise duties on beer, spirits and wine at two per cent, for one year only, as of April 1. Alcohol excise duties are usually automatically indexed to total Consumer Price Index (CPI) inflation at the beginning of each fiscal year.

The feds also announced plans to allow all licensed Canadian cannabis producers to remit excise duties on a quarterly basis rather than a monthly basis, also starting April 1. That move expands on a measure put in place for “certain smaller” cannabis producers in the 2022 budget.

On that note, the budget said, “while significant progress has been made in eliminating criminal activity in the cannabis market, licensed cannabis producers are currently experiencing financial difficulties as they help to build a stable, legal cannabis industry in Canada.” — Glacier FarmMedia Network

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After weighing the evidence on the compound’s safety, the FDA will decide within months how to regulate legal cannabis and whether that will require new agency rules or new legislation from Congress, according to the report.

Shares of U.S.-listed cannabis companies were down between five and nine per cent in afternoon trade, following the report.

Cannabidiol, or CBD, is a non-psychoactive compound derived from cannabis.

Cannabis products, excluding Jazz Pharmaceuticals’ Epidiolex, are illegal at the federal level in the United States, although some states allow their use.

The agency wants to know if CBD can be safely eaten every day for a long period or during pregnancy amid concerns about future fertility, Patrick Cournoyer, who heads the FDA office developing the agency’s cannabis strategy, told the WSJ.

When asked for comment, the FDA referred Reuters to a statement from last year that said the agency was taking steps to improve regulatory pathways for the lawful marketing of appropriate cannabis and cannabis-derived products.

— Reporting for Reuters by Raghav Mahobe in Bangalore.

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Biden said thousands of people with prior federal convictions could be denied employment, housing or educational opportunities and his executive action would relieve such “collateral” consequences.

Biden’s move fulfills a campaign promise and is likely to please members in his left-leaning political base ahead of the November midterm elections in which the president’s fellow Democrats are defending control of the House of Representatives and Senate.

“Too many lives have been upended because of our failed approach to marijuana. It’s time that we right these wrongs,” Biden said.

He urged state governors to follow suit.

“Just as no one should be in a federal prison solely due to the possession of marijuana, no one should be in a local jail or state prison for that reason, either,” Biden said.

Shares of cannabis growers and sellers surged following Biden’s comments, with Tilray Brands and Canopy Growth both jumping more than 20 per cent.

The results of a classification review could have wide ramifications. Presently the drug falls under the same classification as heroin and LSD and is in a higher classification than fentanyl and methamphetamine, the president said.

If marijuana classification were to ease at the federal level, that could allow major stock exchanges to list businesses that are in the cannabis trade, and potentially allow foreign companies to begin selling their products in the U.S.

While many states have legalized the medical or recreational use of cannabis, the substance remains illegal under U.S. federal law, forcing most major banks to deny their services to cannabis-related businesses.

The issue has forced U.S. marijuana companies to trade their shares over the counter or by listing in Canada, with the Nasdaq and New York Stock Exchange prohibited from listing them.

The president’s action drew praise from some members of Congress.

“The Progressive Caucus applauds this action by President Biden today to advance criminal and racial justice,” said Representative Pramila Jayapal, who chairs a group of left-leaning lawmakers, in a statement.

Biden said he had directed Attorney General Merrick Garland to develop an “administrative process” to issue certificates of pardon to those who are eligible.

“The Justice Department will expeditiously administer the President’s proclamation, which pardons individuals who engaged in simple possession of marijuana, restoring political, civil, and other rights to those convicted of that offense,” the department said in a statement.

Biden said certain rules needed to stay in place even as regulations around the country loosened.

“Finally, even as federal and state regulation of marijuana changes, important limitations on trafficking, marketing, and underage sales should stay in place,” Biden said.

— Reporting for Reuters by Jeff Mason and Doina Chiacu; additional reporting by Noel Randewich, Shariq Khan and Richard Cowan.

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Smiths Falls, Ont.-based Canopy announced Sept. 27 it has an agreement in place with OEG Retail Cannabis — already the owner/operators of Canopy’s franchised Tokyo Smoke stores in Ontario — to buy Canopy’s 23 corporate-operated Tweed and Tokyo Smoke stores in Manitoba, Saskatchewan, Newfoundland and Labrador.

A separate Calgary-based cannabis retailer, 420 Investments, operator of the Four20 chain in that province, has a deal to buy five Canopy-owned retail stores in Alberta and rebrand them under its own banner.

Canopy said the deal “reinforces (its) focus on advancing its path to profitability as a premium brand-focused cannabis and consumer packaged goods company.”

The deal with OEG would give it not only the stores but “all Tokyo Smoke-related intellectual property,” Canopy said in a release. Tweed stores going to OEG in this deal are to be rebranded as Tokyo Smoke.

Canopy would continue to own and operate the Tweed consumer brand, which includes a “vast portfolio” of products such as pre-rolled joints, drinks, edibles, whole flower, vapes, cartridges and oils, the company said.

“We are taking the next critical step in advancing Canopy as a leading premium brand-focused (consumer packaged goods) cannabis company while furthering the company’s strategy of investing in product innovation and distribution to drive revenue growth in the Canadian recreational market,” Canopy CEO David Klein said in a release.

“By realizing these agreements with organizations that possess proven cannabis retail expertise, we are providing continuity for consumers and team members.”

Canopy’s “path to profitability” has been uphill: for its fiscal year ending March 31, it booked an company-attributable net loss of $302.2 million on net revenue of $520.3 million, up from an attributable net loss of $1.74 billion on net revenue of $546 million in the year earlier.

The company in April announced a cost-cutting plan including “cultivation-related efficiencies,” facility improvements, contracting out some processing work, cutting sales and administrative costs and reducing staff headcount, with a goal of $100 million to $150 million in savings over the following 12-18 months. — Glacier FarmMedia Network

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Canada became the first developed nation to legalize use of recreational marijuana in October 2018. It has since also passed a law allowing citizens with a criminal record for marijuana possession to be pardoned quickly and without cost.

Canada’s health minister was required to conduct a review of the legislation, its administration, and operation three years after coming into force, so the review is coming a year later than had been planned.

Health Minister Jean-Yves Duclos said it took longer than expected to begin the review because the government wanted to “make sure things were done right” and plan a review broader than what is mandated by law.

While a study of the law’s safety was a priority, Duclos said the review also would look at Canadian cannabis industry complaints about high taxes, sale limitations and advertising restrictions.

The Canadian Chamber of Commerce welcomed the review, saying its broad scope would help facilitate growth of the legal cannabis sector.

“However, to effectively displace the illicit market and protect the public health and safety of all Canadians, law enforcement, businesses, industry and all levels of government will need to continue to work together,” the chamber’s National Cannabis Working Group said in a statement.

The review will evaluate the law’s impact on young Canadians and progress toward the legislation’s aim of providing adults with access to regulated, lower-risk and legal cannabis products, according to a statement from the government.

It will also analyze what progress has been made in deterring criminal activity and displacing the illicit cannabis market.

Through this review, “we will strengthen the (Cannabis) Act so that it meets the needs of all Canadians while continuing to displace the illicit market,” Duclos said in a statement.

— Reporting for Reuters by Ismail Shakil in Ottawa.

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Aurora Cannabis on Aug. 25 announced a subsidiary is buying a 50.1 per cent stake in Bevo Agtech, the parent of vegetable and ornamental plant producer Bevo Farms — which in turn is buying Aurora Cannabis’ Aurora Sky grow facility at Edmonton, to convert to “non-cannabis” use.

Publicly-traded, Edmonton-based Aurora said it had paid about $45 million cash to Bevo’s selling shareholders on closing of the deal, with up to another $12 million in Aurora stock to follow over the next three years depending on “certain financial milestones” being reached at Bevo’s Site One facility at Langley, B.C.

On the other side of the deal, Bevo is to pay up to $25 million to Aurora over time for the Aurora Sky facility — in Leduc County, near Edmonton International Airport — based on “certain financial milestones” being reached at that site.

Bevo is billed as one of the biggest suppliers of propagated vegetables — mainly tomatoes, peppers, cucumbers and eggplants — and ornamental plants in North America.

The company today grows greenhouse seedlings, field crop seedlings and floral plants on 63 acres of greenhouse space at Langley, Aldergrove and Pitt Meadows in B.C.’s Fraser Valley.

Bevo’s management team will remain “significant” shareholders in that company and will embark on a “robust” growth plan, including the use of Aurora Sky to grow orchids and propagate vegetables.

Aurora Cannabis, which has shuttered multiple production sites in several provinces in the recent years, had announced in May it would close the Aurora Sky site by its third quarter in 2023.

At that time, Aurora Sky — purpose-built in 2018 as the largest cannabis production facility in the world — was operating at just 25 per cent of capacity, the company said.

Aurora CEO Miguel Martin, in the company’s Aug. 25 announcement, said the deal with Bevo to repurpose Aurora Sky will save “significant costs previously expected in connection with the wind-down and sale of the facility.”

Aurora, he said, expects its investment in — and collaboration with — Bevo to “drive significant shareholder value and synergies for both parties.”

Bevo CEO Leo Benne, in the same release, said expanding into Alberta “allows us to significantly expand Bevo’s addressable market,” by boosting its production capability, extending its shipping range and accessing “new regional greenhouse demand” in both Canada and the U.S.

Also, he said, Bevo is “incredibly happy that the Aurora team is committed to keeping all of our facilities dedicated to our customer base, and to expanding our operations into Alberta through the addition of the Aurora Sky facility.” — Glacier FarmMedia Network

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But while there are more products on store shelves, more cultivars than ever before and high prices for the crop, demand for hemp has been mixed.

“I think the hemp industry (in Canada) is struggling,” said Calgary-based hemp consultant Russ Crawford.

A former president of the Canadian Hemp Trade Alliance (CHTA), Crawford added that while hemp is a viable and profitable crop compatible with Canadian agriculture, he thinks it has a stigma attached, as regulations by Health Canada have steered away prospective growers.

“There are some challenges, not the least of which its affiliation with cannabis,” he said. “It is still overseen by Health Canada and on that basis, there’s a certain amount of requirements for farmers and processors to be registered and licensed and checked and double-checked by Health Canada… Hemp is still struggling with reaching its full potential.”

Other high-priced crops and a relative lack of investment in market development were also cited by Crawford as challenges. Nevertheless, he anticipates a small increase in acres in Western Canada.

“It’s not going to be a huge jump, but it will be a modest increase,” he said.

Meanwhile, Manitoba-based hemp consultant Anndrea Hermann called the hemp industry in Western Canada “growing and prosperous,” citing its increased use as feed.

“We’ve seen a constant gain in the grain side. We have further gains in feed production with having more varieties listed now than ever,” she said, also citing the presence of new fibre processing facilities.

Hermann added that this year’s hemp harvest is critical as supply from previous years is tightening.

“We need more acres this year because what we’ve seen this year is all the organic grain that was grown in 2021 has already been spoken for and/or mostly processed by now,” she said. “It’s not like some years ago when we had such a huge glut (of conventional grain) that we can peel away at that glut for two years.”

As international markets open up to hemp, there will be demand for Canada’s crop, according to Hermann.

“Especially on the food side, Canada has really mastered a lot of the standard production and quality parameters that we’re not quite seeing yet out of the U.S.,” she said, adding that there is budding demand for building materials made of hemp.

“Once we have these manufacturing facilities that can transform this stock fibre, that’s going to increase the demand because we’re going to have more product and we’re going to have that product here in North America versus having to import that product from our colleagues in Europe,” Hermann added.

Clarence Shwaluk, director of farm operations for Manitoba Harvest Hemp Foods, said his company worked with 80 growers across the Prairies for last year’s harvest and currently has 60 under contract. The company also showcased its new products at the Natural Products Expo West in Anaheim, California last March.

“We introduced a number of new products (there). We’ll be doing some exclusive work with Whole Foods Market based in the U.S. for 90 days and then we’ll expand those products into additional markets,” Shwaluk said.

“Those products are more in line with using hemp as a baking ingredient or in smoothies. (They’re) an additional play on our protein product lines.”

Manitoba Harvest has also been collaborating on a project with Protein Industries Canada since last year, developing new pea and hemp varieties for use in food and ingredient processing with aims to increase protein content while improving starch content and texture.

Overall, Shwaluk seems optimistic about hemp’s standing in the markets.

“I think hemp is positioned well for the protein markets and hemp has some really good attributes as far as the nutritional side of things,” Shwaluk said. “We had a couple of good production years, but we’re going to be a little bit down on acres this year.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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