Why nobody knows anything about edibles

ANALYSIS: Cannabis-infused foods are expected to become legal in 2019. But financial barriers to entering the edibles market will be high — and the regulatory unknowns could make any investment risky, writes Corey Mintz
By Corey Mintz - Published on November 12, 2018
edible marijuana in the form of a brownie
In 2017, edibles represented 11.4 per cent of the $9.1 billion of legal cannabis sales in North America. (iStock.com/Juanmonino)

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The people in this room are smart. They are scientists, lawyers, regulators, entrepreneurs, chefs. They work in government, hospitality, tourism. They’ve gathered to discuss putting cannabis in food for retail, which companies will be allowed to do starting sometime in 2019. But nobody here really knows how Canada’s edibles market will work.

We’re in the Food Research and Innovation Studio — FIRSt — three storeys of labs above the Chef’s House, a student-operated restaurant at George Brown College in downtown Toronto.

Companies contract FIRSt to test and develop commercial food products: Rawcology coconut chips, Gobbles organic dog biscuits, Social Lite vodka-and-grapefruit cocktail, PH Food vegan teriyaki dumplings, Healthy Crunch chipotle kale chips.
“People want to find out, ‘Why are my kale chips going bad?’ We do the testing to extend the shelf life and things of that nature,” says Tricia Ryan, director of FIRSt. “The product development going on in private industry, I’m ashamed for them. Adding basil oil to crackers? How long did that take? We are at the forefront of product development.”

FIRSt is hosting the Entrepreneur’s Guide to Cannabis-Infused Edibles and Beverages seminar, which features lawyers, food scientists, and investment strategists talking about a variety a topics, including brand protection, marketing, retail opportunities, consumer safety, funding strategies, the legal landscape for packaging, and the possible impacts cannabis and edibles will have on the restaurant industry.

The crowd is dressed in business casual — lots of jackets with no ties, shirts with the top two buttons undone. The room is animated: attendees aren’t just passively listening; they’re furiously scribbling down notes.

According to a recent report from the American firm BDS Analytics, in 2017 edibles represented 11.4 per cent of the $9.1 billion of legal cannabis sales in Canada and the United States. It projects that will grow to 14 per cent by 2022.

When the seminar pauses for lunch, people break into small groups, and everyone starts explaining their entrepreneurial ventures to everyone else.

“I think the common theme is that nobody knows anything,” says one lawyer to his lunch mates, who nod in agreement.

People here are frustrated that no one has any idea how restaurant service will work. Will you eventually be able to serve edibles in a hospitality setting? Will businesses have to create spaces separate from those in which alcohol is sold?

“I think we have more questions than we have answers today,” says Shanna Munroe, president of Restaurants Canada, when the seminar resumes.

But, as Ryan tells the crowd, people are already making plans for businesses based on the legal sale of cannabis-infused food products. They can’t afford to wait until the regulations are unveiled for fear they’ll be “late to the party.”

Over the course of the afternoon, attendees ask questions about co-packing versus micro-processing licences, separate storefront requirements for pre-packaged edibles sold at the retail level. A teacher wants to know how hospitality industry workers will be retrained. No one knows.

Given the strict prohibitions governing the promotion of cannabis (it can’t be associated with glamour, recreation, excitement, vitality, risk, daring, or be in any way appealing to young people), one attendee wants to know whether he’ll be able to promote his cannabis product on the label of another product he makes — a bottle of sparkling water, for instance.

People want to know what the difference is between a promotion (which is not allowed) and a sponsorship (which is, unless it features a direct testimonial about the product from a celebrity).

Lawyer Chad Finkelstein dismisses Health Canada’s webinars on the subject as “completely useless.”

An allergy specialist points out that health officials will need to examine the complete supply chain.

“What’s going to be very interesting in this space is how one link passes off to the next in the supply chain, and the liability there,” says Paul Valder, CEO of the Allergen Control  Group, a food-safety firm that specializes in gluten-free certification. “From growers to transportation to R&D and the labs — what are the testing thresholds? How are they going to be validated and verified at that level? How are we going to treat schools and hospitals and penitentiaries? What safety controls are we going to put in place? What about cross-contamination? It’s a challenge in the food industry today.”

One panellist suggests that you won’t be able to combine cannabis with nicotine, caffeine, or alcohol. An audience member corrects the claim, saying that you will be able to mix it with chocolate — which contains caffeine — without having to decaffeinate it.

Another panellist says that they wouldn’t be surprised if Health Canada ended up working from existing energy-drink regulations for an edibles food licence. But at this point, we’re just guessing.

There are, however, a handful of points the whole room agrees on.

  1. Big business will have an advantage. Smaller entrepreneurial efforts may hit the market more quickly, but existing food-product manufacturers will likely have to build separate facilities for cannabis-infused foods, and only large companies will be able to afford to do this.
  2. Food safety is going to be a huge issue “because you’re going to divulge more to the consumer than you’re used to,” says consultant Brian Sterling.
  3. This will have an impact on alcohol sales in the hospitality industry. Munroe says they’ve already decreased by 13 per cent in U.S. states that have legalized cannabis, and she’s predicting a 15 per cent drop in Canada.
  4. “Servers have their hands full assessing alcohol consumption now,” says Richard Anderson, executive director of Smart Serve Ontario, which oversees third-party certification for alcohol servers. Servers will be asked to do more (they’ll need to be aware of a wider range of behaviours in order to determine whether guests should be cut off) even as their revenue shrinks.
  5. If you’re interested in getting into the edibles market, start the legal process as soon as possible. It will likely include cannabis-testing and micro-processing licences and security clearance (which involves submitting floor plans and surveillance-monitoring and security plans in addition to background checks). One panellist says that some applicants will be in the queue for four years and cautions that the process will probably take no less than six to nine months.
  6. Everyone expects that police raids of unlicensed retail operations will increase as the government rolls out its legal retail options.

So while the edibles market may seem to represent a huge opportunity, the financial barriers to entry will be high, and the regulatory unknowns make any investment risky.

“If I was a food producer, I’d get my ducks in a row. Fortune favours the prepared,” says Brian Sterling. “But you may end up getting sideswiped because the government may say something unexpected — like you can’t use sugar. I’d say get ready. But don’t bet the farm on it.”

 

Correction: An earlier version of this story misspelled Chad Finkelstein's surname. TVO.org regrets the error.

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