EDITOR: | November 9th, 2015 | 1 Comment

Green Swan deal bets on centralized approach to the sales of marijuana

| November 09, 2015 | 1 Comment
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2015-11-09-MarihuanaGreen Swan Capital Corp. (TSXV: GSW) announced last week that it has entered into a Letter of Intent with a private Nova Scotia company to legally market medical marijuana products in Canada with the assistance of Aboriginal Canadian businesses. The approach deals with two pains plaguing the marijuana industry.

The announcement evokes a creative approach that draws on two principles. On the one hand it is an effort at taking advantage of downstream value chain opportunities. On the other hand it recognizes the importance of Aboriginal set-asides in the procurement strategy of the Canadian government.

Traditional wisdom from other economic sectors dictates that downstream opportunities in the marijuana industry have potential for better profit margins than selling dry buds. In agriculture, for example, traditional farmers operate with tight margins and are subjected to all kinds of risks whereas the stakeholders operating down the value-chain play with better operating margins and lesser risk profiles.

In theory the growing demand for hemp and marijuana edibles, creams, ointments, drinks shows the potential for the emergence of niche markets.

But I have not seen applicable value chain data for the Canadian context, especially how one can circumvent the highly restrictive MMPR rules with respect to marketing.

And the industry is holding its collective breath waiting to understand how the newly minted Trudeau government will make good of its electoral promise to legalize recreational marijuana.

Under the best-case scenario, Canada will legalize marijuana and marijuana products will end up under the control of the Natural Health Products Regulations, which are under the purview of the Food and Drugs Act.

But Canadian stakeholders are now working under the worst-case scenario under the MMPR regulations that tightly limits marketing efforts by licensed producers.

Therefore, it is evident that Green Swan is positioning itself for taking advantage of the potentially new legislative relaxation.

But I don’t have this kind of data for the Canadian cannabis value chain. If this comes into play, I would expect niche markets to develop quickly which high margins, and then the commoditization of value added cannabis products would cause price compression.

The second noteworthy aspect of the Green Swan announcement evokes the preferential procurement of Aboriginal people in Canada called Procurement Strategy for Aboriginal Business (PSAB). There are over 37,000 Aboriginal-owned businesses across Canada. In fact, Aboriginal people are creating new businesses at 9 times the rate of the average Canadian, according to the CCAB 2011 Aboriginal Business Survey. The most recent census revealed that over 5 years, there was a 38% increase of Aboriginal Business owners – this exceeds that of self-employed Canadians overall. Aboriginal businesses have also created approximately 82,000 full time jobs as well as 18,000 part time jobs and the future looks even better

The PSAB is open to all Aboriginal businesses, including sole proprietorships, limited companies, co-operatives, partnerships, and not-for-profit organizations.

To be considered an Aboriginal business (In Canada, the term Aboriginal people refers to First Nations, Métis and Inuit), the following criteria must be met: at least 51% of the firm must be owned and controlled by Aboriginal people, and if the firm has six or more full-time staff, at least one third of the employees must be Aboriginal.

Under the PSAB, contracts that serve a primarily Aboriginal population are set aside for competition among qualified Aboriginal businesses. Federal employees are also encouraged to voluntarily set aside opportunities for competition among Aboriginal businesses whenever practical. If the Canadian government takes a centralized approach to the sales and distribution of marijuana, this will be an incredible opportunity.


Dr. Luc Duchesne

Editor:

Dr. Luc C. Duchesne is a Speaker and Author with a PhD in Biochemistry. With three decades of scientific and business experience, he has published ... <Read more about Dr. Luc Duchesne>


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Comments

  • Janet

    I enjoyed this article and was pleased to see the stats on Aboriginal business and employment. Living near a large reserve area I have seen the boom in business and employment and hope the medical marijuana industry will represent more opportunity. I will be keeping an eye on Green Swan as they move forward.

    November 9, 2015 - 10:19 AM

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