system with the Government of Canada indicating that it will review whether the two frameworks ought to continue to co-exist within five years of the Cannabis Act coming into force. That review may in fact come as early as three years out, as stipulated by section 151.1(1) of the Cannabis Act.
Many licensed producers are focusing their efforts heavily on the recreational markets by, among other things, inking supply deals with the provinces and territories and rolling out and promoting recreational brands. While a focus on recreational use is logical given the sheer number of potential consumers in the marketplace, licensed producers who neglect to invest in the medical side of the business may ultimately do so at their own peril, for a number of reasons.
Higher Margins
Licensees who sell into the medical system are, at this time, the only ones who are able to sell direct to consumers without any intermediaries. Recreational sales must be processed through a retail licensee, whether that is a privately-owned or publically-owned operator. In either instance, the insertion of one or more intermediaries creates another step in the distribution chain. This will result in a higher retail price for consumers, downward pressure on the wholesale price at which the cultivator must offer its product, or both. Even in instances where the cultivator itself acquires a retail sales license and obtains a degree of vertical integration, additional costs are imposed on the cultivator in the form of start-up and ongoing operating costs, as well as the potential for additional taxes being levied at the provincial and territorial level. Conversely, sales of medical cannabis will continue to be made directly from the licensed producer to the consumer with no intermediary or additional cost involved, resulting in higher margins.
Insurance Benefits
Licensees who focus on medical cannabis sales will be able to tap into the fact that a number of insurers and companies are beginning to provide coverage to assist patients in purchasing medical cannabis. Sun Life Financial recently announced that it will begin covering medical cannabis costs for a number of conditions, as does Manulife Financial Corp. for a few companies that have requested coverage. Green Shield Canada and Great-West Life have also indicated that they are considering providing coverage in the not too distant future.
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