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US Cannabis Leaders are Carefully Watching the Looming Canadian Wave

Canadian cannabis companies are well funded and clearly developing a long term export strategy.

Opinions expressed by Entrepreneur contributors are their own.

A PriceWaterhouse Canada study concluded Canadian mergers-and-acquisitions in quarters one and two had remained stable, despite trade issues, partially due to robust activity in their cannabis industry. The report predicted further industry consolidation, with the largest Canadian companies well funded and actively looking for international M&As.

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The Canadian strategy? From what I’ve observed; let the U.S. markets do what we do best -- innovate, develop iconic brands and market them to our consumer base, the largest worldwide. These innovative, industry-leading U.S. companies are acquisition targets for publicly traded Canadian companies looking to drive up their market cap in the near term and develop a portfolio of top brands.

Our neighbors to the North are planning ahead. Canadian VCs have been acquiring cash-flowing assets all over the U.S. and prospecting for strategic locations globally to develop trade deals -- finding the most cost effective locations to produce, as well as the most lucrative locations to distribute.

Related: How Canada's Marijuana Legalization Changes the Game

Meanwhile, some of the same Canadian companies are working to establish strategic trade deals globally, leveraging the IP and human capital they’ve acquired, developing production centers in countries with the lowest production costs, and distributing everywhere they can. Eventually, when the cost of production in Canada renders the country impractical for large-scale cultivation, they can pivot and continue to thrive.

[Public Health Agency] Health Canada estimated domestic demand to stabilize at around one million kilograms a year, yet they are on-pace to produce 2.4 million kilograms a year by 2020. With export agreements in roughly 25 countries–most notably Italy, Germany, and Eastern Europe–already in place or under development, Canadian producers are working quickly to offset this oversupply. 

The numbers don’t lie. Canada’s population -- 35.8 million -- is a consumer base too small to support the rate at which their licensed cannabis producers are expected to scale. Companies traded on the Canadian Securities Exchange have made representations to their shareholders that they can’t possibly achieve without expanding into overseas markets.

Related: Canada Is Creating a Multi-Billion Dollar Legal Marijuana Industry

Countries already in the running for global cannabis.

Considering the current trajectory, it’s conceivable legalization worldwide will create more than a billion potential cannabis consumers within my lifetime. Market analysts are projecting legal global cannabis spending to reach between $50 billion and $140 billion by 2027. And the question remains -- how long can Asian manufacturing superpowers like China and India idle by before they are forced to participate? My guess is, not too much longer.

It’s well known that China has been applying for cannabis-related patents at an unprecedented rate. They are also the world’s largest manufacturers of LED lights and vertical farming technology, and the world’s largest producer of hemp and CBD products. The U.S., in comparison, is the largest importer of hemp products worldwide.

So far, likely other contenders in the next five-to-ten years are Lesotho, South Africa, Zimbabwe, Malawi, Ghana, Morocco in Africa, plus Columbia, Uruguay and Mexico in Latin America.

Speaking of our neighbors to the South, former Mexican President Vicente Fox currently sits on the board of a Canadian cannabis company [Khiron Life Sciences], and thinks cannabis should be part of NAFTA negotiations. The incoming administration of Andrés Manuel López Obrador has signaled that it’s open-minded to legalization in Mexico and may follow Canada’s model. U.S. prohibition prevents North America from being completely cannabis-legal, but it won’t prevent international M&A, distribution or trade for markets in legal countries.

Related: Cannabis Edibles Market Set to Quadruple in U.S., Canada to $4B

Emerging American cannabis brands have little choice but to consider international investors and partnerships if they want to be part of the inevitable global market for cannabis products. That won’t end until there’s federal legalization in the U.S.