Inside a nondescript south London building, a worker in a white lab coat and purple latex gloves packages squares of high-end chocolate. He puts the packaged chocolate on a stainless steel table, where another worker seals the small bag and drops it onto a blue conveyor belt that deposits it into a large plastic bin.
The bins, each packed with hundreds of the treats, are carted off to be stored in a nearby vault.
It may look like a normal confectionery factory, but it’s not: This one is in the business of making cannabis-infused chocolate. The operation at London-based Indiva has been running since October, when Health Canada gave cannabis companies the green light to begin making marijuana-infused foods, drinks, concentrates and topicals.
Welcome to Cannabis 2.0, the next wave in the rollout of legal marijuana products in Canada.
Recreational marijuana use became legal in the fall of 2018, triggering a massive new industry to grow cannabis – one that quickly made Southwestern Ontario, with more than a dozen major producers from Windsor to Brantford and north beyond London, a significant pot belt.
Cannabis companies nationwide, including many in Southwestern Ontario, are salivating at the chance to sell edibles, concentrates and ointments and creams. Those products were legalized Oct. 17, but aren’t expected to be available for sale until January at the earliest because of federal health regulations and delays getting the supply chain up and going.
The timing could not be more critical for an industry that took a pounding in the first year of legalized marijuana sales, building out far more capacity to grow pot than could be sold in the limited number of legal stores. Shares in what were then Canada’s 10 largest pot producers by market capitalization lost an average of more than half their value, stinging many investors.
The growing pains were especially acute in Ontario, the nation’s largest market, where the government has so far approved only 25 pot stores, a fraction of the number operating in some other provinces.
In the fallout, the industry has shelved expansion plans, laid off workers and had trouble securing credit, increasing the heat on edibles to help the bottom line.
“There’s a lot of pressure on regulators here to get this stuff out,” lawyer Eric Foster, who heads the cannabis practice at Dentons Canada, said of the new products.
“The companies are going to be pushing really hard on it, because a lot of them are expecting this to be really important for driving revenue for them.”
Indiva has been laying the groundwork for its chocolate-making since 2017, chief executive Niel Marotta said.
“We were very early in pursuing this. We signed this agreement with Bhang two years ago,” Marotta said of the American chocolate maker with which Indiva partnered to bring its sweet treats to the Canadian market.
Each bar contains 10 milligrams of tetrahydrocannabinol (THC), the maximum amount of the psychoactive component in cannabis allowed by federal regulators, but can be divided into four pieces.
“We think cannabis is a social experience . . . When you break it up and share it four ways, everyone is going to get the same amount of cannabis,” Marotta said.
Marotta acknowledges his company can’t compete with other producers in supplying dried cannabis, the nation’s most in-demand cannabis product, so Indiva is trying to carve out a niche with its marijuana-infused chocolate, sugar and salt.
South of the Canada-U.S. border, in states like Colorado and California, where edibles and concentrates have been legal for years, the products’ total market share has steadily grown to nearly half of total marijuana sales.
In Canada, the market for cannabis edibles and other 2.0 products is expected to be worth more than $2.5 billion, according to a 2019 report by Deloitte, a global professional services firm.
Canadian cannabis companies enjoy a significant advantage over their American and international counterparts because of government support, access to capital markets and a unified market, unlike the fragmented regime in the U.S., where marijuana is still illegal at the federal level, the report said.
But Canadian companies still need to innovate to secure a strong, sustainable competitive position as legislation evolves in other countries, the report said.
Cannabis industry insiders have long complained that the black market has thrived, in part, because it has been the only place for consumers to buy edibles and concentrates.
Pot firms hope the availability of the new 2.0 products will deal a blow to the black market. But some observers question whether Canada’s strict regulations, including about maximum THC doses, will keep people from abandoning illicit sources.
For example, consumers can buy a 10-pack of candies each containing 20 mg of THC for roughly $20 online and have it sent to their house, sometimes on the same day, from illegal delivery services.
In London, a handful of such black market businesses still operate in defiance of the law, while more than a dozen unsanctioned dispensaries on the nearby Oneida Nation of the Thames have long been selling edibles and concentrates.
“If due to the regulations, these new products can’t meet the consumer demands of Canadians, there’s a risk that they won’t achieve the objective policy goal of displacing the illicit market,” Foster said.
The prices of Cannabis 2.0 products will likely be higher than on the black market, but buyers may opt to pay more for products that are tested and regulated, said David Soberman, a professor of marketing at the University of Toronto.
“People are probably going to be more comfortable buying a product that’s processed for eating from a legitimate company than that same sort of thing on the black market,” he said.
All Cannabis 2.0 products must come in child-resistant, plain packaging that includes a label with a health warning, an ingredients list and the content of THC and cannabidiol (CBD), a non-psychoactive component. The products can’t be made to appeal to youth or make health claims.
Foster praises the government’s “measured” approach to rolling out the new products, noting the rules can be changed as Canadians become more familiar with edibles and concentrates.
“Laws are always capable of being changed in the future as this product becomes a little bit more socialized and, frankly, understood by the market and by Canadians,” he said.
WeedMD, a licensed producer with a 57,000-square-metre greenhouse in Strathroy, isn’t rushing its new products, but that doesn’t mean it hasn’t been preparing for Cannabis 2.0, chief executive Keith Merker said.
Earlier this year, WeedMD converted its indoor growing facility in Aylmer into an extraction and processing lab that will have the capability to process up to 200,000 kilograms of biomass a year.
“We don’t believe that rushing and being first to market with a given product for 2.0 is necessarily the way the game is run,” Merker said.
Setting its sights on the cannabis vaping market, the company plans to produce cartridges filled with distillate, a cannabis concentrate that can be vaporized, Merker said.
“We already located and locked down the…