Frustration permeated the cannabis industry’s response to Health Canada when the federal agency released final regulations for marijuana-infused foods, drinks and vape products last Friday. Everett Knight, however, was rather pleased.
“These rules are exactly in line with our hopes and our expectations,” the executive vice president of Valens GroWorks, a Kelowna-based company focused exclusively on cannabis extract-based products, told Cannabis Professional shortly after the rules were published.
As had been outlined in the draft rules released in December, the new regulations prohibit making cannabis-infused foods in the same building as other food products or bottling cannabis-infused beverages in the same facility as other drinks.
That’s good news for companies like Valens, Barrie, Ont.-based MediPharm Labs, or Vancouver-Island based HollyWeed North that are building large portions of their business models around white labelling, whereby they produce extract-based products on behalf other companies who simply do the branding and marketing for the products.
“If you are one of the very few that are setting up your facility to do white-label manufacturing for all those people who have the product ideas, you now have a treasure trove of potential customers and clients," said Chad Finklestein, a lawyer with Dale & Lessmann LLP.
“There are so many companies that want to capitalize on the market for edibles, ingestibles, concentrates, whether it is CBD or THC, and they have ideas, but they aren’t necessarily going to be doing any manufacturing themselves,” Mr. Finklestein said.
Neither MediPharm, HollyWeed, nor Valens actually cultivate cannabis directly, instead focusing on extraction and product formulation. Valens has supply agreements with 10 major producers such as Canopy Growth, Tilray and Organigram. MediPharm also works with Canopy, as well as Supreme Cannabis and Indiva among others. Hollyweed announced its first extraction contact with Canopy in March. These agreements usually involve either the producer paying a fee for the processor to take dried flower and return concentrate or the processor buying wholesale cannabis from the producer for use in white label production.
In April, MediPharm announced that it had signed its first white-label deal with a non-cannabis firm, although it declined to name its partner.
Maintaining the separate kitchen requirements “is a huge step up for us,” Mr. Knight said, noting Valens has just started construction on a 36,000 sq ft facility in Kelowna that “is really a white label manufacturing operation.”
“Everything we learned [from the final regulations] just secures the advantage we already had,” he said.
MediPharm just completed a bought deal financing that raised $75-million, which was increased from the original size of $60-million due to strong demand. In a note to clients published Monday morning about the company’s fundraising, GMP Securities analyst Ryan Macdonell said the regulations Health Canada published last week means “a hurdle has been lifted for the signing of white-labelling contracts.”