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The New Cannabis Capital of the U.S. is … Canada?!

Canada's Black Market Poses Challenges for Enforcing Federal Laws
Photo by Getty Images

When estimating the size of the marijuana industry and its stupendous growth, it’s always a measure of billions—as in how many billions of dollars are available to entrepreneurs or investors seeking a piece. Most peg the cannabis industry’s current size as around $10 billion or so, with increases of 100 percent possible by 2020. But it only took days, not years, after California and three other states legalized adult-use cannabis—increasing the number of Americans living under legalization to 65 million—for the cannabis industry’s first billion-dollar company to emerge.

But it’s not in California, the U.S.’s “marijuana basket” where as much as 70 percent of the nation’s herb is grown. Nor is it in Colorado, which has been the country’s de-facto capital of legal cannabis commerce since the state legalized in 2012.

It’s in Canada, the new-and-future home of marijuana-related commerce in North America.

Shares in Canopy Growth—headquartered in Ontario and operating out of a repurposed chocolate factory—had increased by 386 percent as of Friday to establish itself as the very first marijuana-powered “unicorn.” (Full disclosure: This writer holds a very small position in the company, and wishes wholeheartedly he had had the foresight to sink his entire 401k and every other penny of his limited wealth and that of his friends and relatives into the firm.)

That’s growth no “Uber of pot” or any other American company can match or even hope to approach, no matter how many states legalize—because for now, Canadian companies have an insurmountable competitive advantage: legitimacy.

Every American businessperson and entrepreneur dealing directly with the cannabis plant is breaking federal law. This is why dispensaries and cultivators have trouble opening a bank account and are routinely audited by the IRS—and forget even thinking about interstate commerce.

In Canada, more than 40 companies have licenses from Health Canada to produce medical cannabis. That’s right—licenses from the federal government. Until American companies can claim that status, they’ll always be playing catch-up to northern counterparts.

The longer it takes for U.S. federal law to deem marijuana legal, the longer the Canadian licensed producers have to establish more international partnerships and create higher barriers to entry,” Dundee Capital Markets analyst Daniel Pearlstein told The Financial Post, adding that even the most advanced American company is “three to four years behind” Canada.

Put another way: The feds are screwing the American marijuana industry.

And Americans are well aware. The principals of weed-focused equity firm Privateer Holdings have invested heavily in Canadian companies, including British Columbia-based Tilray.

This situation was inconceivable even recently—and shows how much America’s attitude on the drug has relaxed, and how little political capital the country has to spend on drug policy. You may recall the time, not too long ago, when the U.S. successfully bullied Canada into dropping a plan to decriminalize marijuana.

In 2004, then-President George W. Bush’s ambassador used threats of decreased trade and a “border crackdown” to help convince Canadian lawmakers to back off of relaxing marijuana laws. That display ensured Dubya was greeted by marijuana smoke as well as antiwar protesters during his state visit the following year, but it also set things back in Canada by several years, and led to moronic statements from Stephen Harper, the country’s Conservative former prime minister, that marijuana is “infinitely worse” than tobacco.

Now, with Prime Minister Justin Trudeau’s Liberal Party back in power and cannabis legalization a key plank in the party platform—federal licenses! In a legalized market!!—Canada’s cannabis industry leaders are poised to grow even bigger.

This is a near-total turnaround that isn’t likely to change anytime soon—not under President Donald Trump. While Trump the candidate said on the campaign trail that he’d respect state law and leave legalized states be, much will hinge on who he names to the Supreme Court and to lead his Justice Department.

But to cross the final frontier, Canadian cannabis firms will need help from Trump & Company. That frontier is the border itself—and how to reach a point when Canadian cannabis can be legally shipped south to consumers in the United States.

Brendan Kennedy, Privateer’s CEO, thinks that day is within sight. And with so much money at stake—the entity which Trump respects more than anything else, judging on his life and his campaign—it may be an easier sell than we know.

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