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marijuana legalization

The federal government is licensing more cannabis companies as it prepares for legalization.Joe Mahoney/The Globe and Mail

The federal government is in the final stage of licensing 208 new cannabis companies, which would more than triple the number of official producers and vastly increase the industry's capacity in the lead-up to legalization, federal officials said.

Health Canada has been under pressure in recent months to speed up the approval process for producers, with frequent complaints in the industry that the application process took years to complete.

To this point, Health Canada has given licences to cultivate cannabis to 80 companies in the country. However, only 36 of these companies have also obtained their licence to sell, which requires companies to grow two crops for inspection by Health Canada.

The fact that 208 companies are in the late stages of their application stands to drastically reshape the market for legal cannabis in Canada in coming months. It is the first time that this number has been revealed publicly.

B.C. lawyer Kirk Tousaw, who works for a number of players in the cannabis industry, said Health Canada has hired more staff to process applications in recent months.

"There has always been a large backlog," he said. "What we have seen in the last six months is a dramatic increase in the number of successful applicants and the pace of applications moving through the system."

Still, experts said it remains unclear if the new licences will be enough to ensure a smooth transition to a legal regime. The government's objective is to pass Bill C-45 through the Senate and legalize cannabis by July, 2018, with the goal of quickly making a dent in the existing black market.

In a year-end interview with the French-language TVA network, Prime Minister Justin Trudeau said legalization will not occur on July 1, which is Canada Day. His office clarified on Tuesday that the objective is still to do this before July 1.

Rosalie Wyonch, a policy analyst at the C.D. Howe Institute, said newly licensed producers will not be in a position to serve the legal market in short order but that Health Canada should continue to process applications "as fast as they can."

"The more producers they license, the sooner they can start producing product," she said.

Jonathan Sherman, a lawyer at Cassels Brock who is active in the cannabis industry, said licensed producers are unlikely to meet the demand for legal cannabis, at least in the initial stages of legalization.

"I would imagine that there will still be a shortage," he said.

Health Canada spokeswoman Tammy Jarbeau said 208 applications have undergone security checks and are in the "final stages" of the approval process. Ms. Jarbeau added the licences will be officially awarded once the companies' production facilities are completed and inspected.

Earlier this week, Statistics Canada said the country's underground cannabis trade was worth as much as $6.2-billion in 2015, based on a price range of $7.14 to $8.84 a gram. Governments across Canada are aiming for legal cannabis to cost about $10 a gram, putting pressure on Health Canada to license enough producers to meet demand and keep legal prices relatively competitive.

Ivan Ross Vrana, an expert in the cannabis industry and a vice-president at Hill+Knowlton Strategies, said the licensing process is finally starting to speed up.

"Yes, there were a lot of kinks to work out. Yes, I would argue that things were slow," he said. "Health Canada is getting to know its processes a lot better, and they are getting the resources to do this."

Mr. Sherman added many licensed producers are trying to increase their capacity by expanding their current facilities, or by buying some of the 208 "late-stage applicants" that will soon obtain their licences.

"You're seeing the existing licensed producers look to expand their capacity to do as much as they can to reach what is predicted demand for July, 2018," he said.

The federal government has said it will not put a cap on the number of companies that are licensed to produce cannabis, hoping to foster a competitive market.

"We don't want to limit the market, we don't want to put a cap on the number of licences, we really want to make sure that if people want to apply to be a licensed producer, small or large, they will have that option," Health Minister Ginette Petitpas Taylor said in a recent interview.

Mr. Vrana said at this point, companies should have a long-term view if they want to participate in the cannabis industry.

"If you are looking to get in and make a quick dollar, I don't think that reality is there any more. I think this is long-term industry play," he said.

Ottawa has agreed to give the provinces and territories 75 per cent of tax revenues from the sale of legalized marijuana

The Canadian Press

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