During a gold rush, there's often as much money to be made selling picks and shovels as digging in the dirt. One year out from the legalization of recreational marijuana, a number of Canadian companies are betting that this logic holds true for the country's cannabis rush.
With weed producers rushing to list on the TSX and other stock exchanges, investor interest has focused mostly on companies that can supply the drug. But the ancillary parts of the industry, based on intellectual property, technology and logistics, could ultimately be where Canadian companies shine on the global stage.
"Everyone wants to have a million square feet growing, but you need software to do that, you need monitoring equipment, you need good genetics, you need products that are going to come out the other side that are efficient and replicable and have consistent taste," said Scott Walters, co-founder and chief executive officer of Molecular Sciences Corp., which designs software to connect cannabis producers with labs and develops its own cannabis pharmaceutical products.
Between 7 per cent and 13 per cent of all money spent in the cannabis economy is on technology and research, Mr. Walters said. He's hired a team of six scientists, including Dr. Steven Rothstein, head of molecular and cellular biology at the University of Guelph, to find and trademark novel uses for cannabis molecules. Those could be in pain-relieving gel caps, bandages for sprains, tinctures, patches and drinks.
"We're developing commercially ready products that we own the formulations and processes for, that others will manufacture," Mr. Walters said. "I own the code in the data, I own the code in the genetics, I own the code in the formulations, I own a portfolio of recipes and software code that we think is going to be very valuable."
The company's intellectual-property approach – similar to traditional pharmaceutical companies – attracted seven-figure investment from Howard Goldman, a major investor in Canopy Growth Corp., Canada's most valuable listed cannabis company.
"We rode that wave last summer and into the fall, with Canopy becoming a billion-dollar unicorn," said Mr. Goldman, of soaring cannabis stock prices. "By springtime and early summer, things have fallen off. But the curve of the medical industry is still a long way from where it's going to be."
It's not just pharmaceutical companies such as Molecular that are poised to make significant money. Companies on the monitoring and logistics side are already reaping the benefits of servicing an industry that's seeing explosive growth.
Ample Organics, which provides growers with seed-to-sale software that tracks everything from crop yields to shipping, is perhaps the best example. Founded three years ago, the company's software is used by around 70 per cent of licensed producers in Canada, according to founder and CEO John Prentice.
"There was no operating system for conducting business in a regulated market," said Mr. Prentice, who describes his company's product as "the Microsoft Windows of weed."
"There's a lot of pieces of information to track, in terms of what regulators rely on as well as regular business requirements of record keeping," he said.
Because the Canadian medical-marijuana market is heavily regulated and the bar is high in terms of record keeping, companies such as Ample have had incentive to develop industry-leading products that are highly exportable. Ample is now selling its product to Australia, Germany, South Africa, and into the Caribbean. Mr. Prentice said it's just getting started.
"Some of the new jurisdictions are still in [their infancy], but the focus is getting to compliance and traceability. Australia, for example, is very much Canada in 2013," Mr. Prentice said.
Canadian cannabis tech isn't only developing fast on the supplier side. Consumer-side technology is also seeing growth, as medical-marijuana users try to figure out what works for their ailments and recreational users search for the strains that make them feel a certain way.
"It's not just about patients saying, I want to go and get stoned. It's about, 'I'd like to try this for my tendinitis, or I'd like to try this for nausea for my cancer treatment,'" said David Berg, whose company Strainprint Technologies Ltd. has developed an app to help marijuana users track how different strains affect them and help doctors and researchers gather data to help with prescription and product development.
The app tracks over 300 medical conditions, cross-referencing user experience with all legally grown Canadian strains, broken down by chemical composition, producer and even by batch. It's free for patients and physicians, but the 18-month old company makes money by selling data-set subscriptions to researchers and partnering with producers to use Strainprint data for branding purposes.
"People are rushing to grow, because it's very sexy and it's the promise of the Green Rush," said Mr. Berg, Strainprint's chief technology officer. "The reality is, there's a million and one different ways you can go wrong in a [growing operation] and the cost of compliance is very high. Technology is the key piece that helps growers comply with Health Canada regulations, and it's the key tool to distribute the product more efficiently to patients."
He sees a bright future for Canadian companies in the marijuana-tech field. "Canada is in a unique position, because we are the only country that has a national access program, and as such, it provides us with a certain level of critical mass and quality control for research."
Or, as Mr. Walters puts it, "While everyone is busy being a farmer, we're busy building science teams."