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Ace Valley, the sister company of the Ontario beer brand Ace Hill, is launching a line of disposable cannabis vaporizer pens later this year, using a white-label manufacturing strategy enabled by Health Canada’s new extract regulations released last Friday.

Ace Valley is not a licensed cannabis company, and cannot handle or sell marijuana directly. Instead, Barrie, Ont.-based extraction firm MediPharm Labs will fill the vape pens with cannabis oil and handle their sale to provincial wholesalers. Ace Valley will do the marketing and branding, and source the vaporizer hardware from third-party manufacturers.

The partnership is indicative of the type of white-label strategy that many expect to emerge with the introduction of extract-based products in late 2019. Food, cosmetic and even lifestyle brands are eager to participate in the cannabis space when infused-goodies, beauty products and vaporizers become legal. Many, however, don’t want to become licensed cannabis companies themselves, preferring instead to use contract packaging (co-packing) or white-labelling services.

Ace Valley piloted this model in the dried cannabis space last fall, when it launched a brand of pre-rolled joints, which are manufactured and distributed by Kelowna B.C.-based licensed grower Flowr Corp. but branded by Ace Valley.

MediPharm, in turn, is aiming to make itself the white-label partner of choice for the next wave of legal products.

Unlike most licensed cannabis companies, MediPharm does not grow plants. Rather it sources cannabis biomass from a variety of cultivators, extracts the cannabinoids, and sells the extract products under other companies’ brands. This makes it less subject to the vagaries of agriculture than licensed cultivators, and makes it one of the few licensed entities that can be relied on for high-volume white-label production, said Pat McCutcheon, chairman and CEO of MediPharm.

Ace Valley and MediPharm signed a deal to produce a minimum or two-million disposable vape pens over the next three years, “subject to purchase orders and pricing from provincial distributors.” The pens are expected to retail in the $50-range and be good for between 200 and 250 hits each.

"When it comes to minimum mandatories, we're one of the only companies you can go to that can satisfactorily sign contracts like that, and feel confident we'll be able to execute on,” Mr. McCutcheon said.

“We did not recreate the wheel here, this is a well-positioned, well-executed strategy in big pharma and global supply chains,” he added.

One part of Health Canada’s new regulations in particular helps companies like MediPharm. The new rules prohibit food makers from producing cannabis edibles in the same buildings where they make regular foods. This significantly increases the upfront cost associated with entering the edibles market, encouraging food companies to look for licensed partners, rather then getting licensed themselves.

"The regs are really exciting,” said Mr. McCutcheon. “It's very much in line with our longer strategy… to distribute [active pharmaceutical ingredients] to a number of different edible companies, on top of a vape platform."

This week also saw MediPharm close a $75-million raise and announce that it has applied to list its common shares on the Toronto Stock Exchange.

For Ace Valley, entrance into the vape market is a no-brainer. Vaporizers are one of the most popular and fastest growing product segments in U.S. states with legal recreational markets. That’s particularly the case among millennials, who are Ace Valley’s target demographic.

Vapes are already popular in the illicit market in Canada, and legal cannabis companies are beginning to roll out vaporizer strategies ahead of December. Two weeks ago, four of Canada’s largest cannabis companies, Organigram, Aphria, Aurora and Supreme, announced plans to partner with U.S. vape company Pax Labs.

Despite its sister company being a beer brand, Ace Valley CEO Mike Wagman, who also runs Ace Hill, said he doesn’t have any immediate plans to launch cannabis beverages.

“The thing about vapes is we know the vape market is big, and we know the vape market appeals to our customer. Beverages is a much more nascent category,” he said.