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Does Cannabis Contribute $6 Billion to Canada's Economy?

We are about to find out

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One of the numerous reasons countries have put forth, over the years, for legalizing Cannabis, has been simply it was a massive source of economic activity that wasn't taxed. While you have to pay sales tax on everything, from shoes to a beer, the money being handed to drug dealers was not contributing to the government's finances. So when Canada was getting ready to legalize, (More on that here) the Director general of Statistics Canada had to figure out, while it was still illegal, how much this was contributing to Canada's Gross Domestic Product (GDP).

NPR's excellent planet money podcast, the indicator, did a great interview back in January with James Tebrake, the director general of Statistics Canada, asking him how he went about it which is worth listening to in its entirety. What's interesting more than anything is where they got their information from initially.

1. Health studies: These have been done for years on how many people smoke weed. The Canadian government has been running them for years and the most recent study says that around 4.6 million people aged 15 years or older have used weed in the previous 3 months. Which is around 15% of the population. Canada has close to 36 million people. The same studies showed the amount of cannabis consumed and places the number at around 700 tons annually.

2. Priceofweed.com: How much are they paying for that weed? Well that was taken from a variety of sources but the most interesting was priceofweed.com, which is a fun website where people self report how much they paid for weed and in what area of the world. It's clearly not as good data as say sales receipts generated by credit card companies, but it's what they had to work with. Also it's worth spending time on that website, it's fascinating.

3. Law Enforcement data. The reason this mattered more than anything was simply to figure out how much of that weed was grown in Canada. When you are doing economic analysis and forecasting you need to know if these goods are made locally or coming from out the Canada. From the sample size of drug busts, specifically those along the border, they were able to say that Canada is a net exporter of Cannabis.

All in all saying that the illegal market for Cannabis is around $6 Billion. Now that legalization has taken place in Canada, only the second country to do so, we will find out how accurate that forecast was. Of course Canada regulates everything heavily so Cannabis wont be any different. The current plan will involve a heavy excise tax and only be sold in designed stores owned by the same company that owns Canada's liquor distribution companies. Which is a state owned government monopoly on the sale of liquor. Which means their will be a significant amount of people who will probably opt to buy the cheaper weed that will be sold outside of the system.

Over the next year we will find out how accurate these estimates proved to be will be shown over the next year. Which will be a signifigant argument one way or the other if the United States should follow suit.

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Michigan Voters Approve Recreational Marijuana

Becomes the 1st midwestern state to join the green rush

This has been a long time coming for a state that passed medical marijuana laws in 2008.

Proposal 1, which outlines the legalization of an adult use market in the state, passed on November 6th.

Michigan is now the 10th state to approve recreational marijuana and joins the ranks of Washington D.C., Colorado, Alaska, Nevada, California, Vermont, Maine, Massachusetts and Oregon.

Let's take a look at what exactly this proposal says for the people of Michigan.

Proposal 1:

- Any person over the age of 21 may possess marijuana. If the amount is greater than 2.5 ounces (but less than the 10 ounce maximum), it must be kept in a locked container.

- Individuals may grow up to 12 plants for personal use. However, this grow operation must not be visible from public property to the naked eye. Operations must have locks and access to the public must be restricted.

- individuals may give away up to 2.5 ounces of marijuana, as long as no money is exchanged and they do not advertise it in public.

- Ban on consuming marijuana in public places or smoking in areas that are prohibited by the property owner

- You can be fired from your job for marijuana consumption and municipalities still have the authority to ban possession and sales entirely within their jurisdiction.

- Marijuana facilities must not be within 1000 yards of a pre existing school.

- One person may not operate more than 5 facilities before the year 2023.

One very important fact to remember if you are considering entering the marijuana industry in Michigan....

Only Michigan residents who already operate a medical marijuana facility will be considered for a retail license within the first 24 months of the passing of this act.

While it seems there are still a lot of kinks to be worked out, legal marijuana has hit Michigan, the question is who will be next?

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Pax Labs Raises $20 Million

Who would have thought a college experiment by two Stanford students would lead to a $15 billion vaporizer business?

San Francisco based startup, Pax Labs Inc., has raised $20 million in a special round of funding, and rumor has it their valuation has ballooned to over $15 billion.

In an effort to keep themselves lean on VC money, existing shareholders were asked to come up with the funds, and Pax was able to avoid giving away a large stake of equity. According to CEO Bharat Vasan "This is a deliberately small round, to avoid becoming overly dependent on venture capital."

In 2007, a small company named Ploom Inc. was formed by James Monsees and Adam Bowen. The goal was to make a sleek, and technologically advanced loose leaf vaporizer. At the time, it was described as for tobacco use only, even though it was clearly made for cannabis in its flower form (clearly a lot has changed in the last 11 years). The Pax was finally released and has been revised twice since then.

Pax 3

In 2016, the Pax 3 was released. On that same day, their newest device, called the Pax Era was released and Ploom Inc. became Pax Labs. The Era was designed specifically for use with cannabis concentrates. This device is almost an exact replica of the Juul, another massively popular nicotine vaporizer, also developed by Monsees and Bowen.

Pax labs has got a winner with the Era, which is used with pre filled pods that are available in dispensaries in select states out west. Users are able to control the vaporizer wirelessly through an app on any mobile phone. The app allows you to connect to the Era and set it a specific temperature. You can also monitor the battery life and change the LED lights to different colors when the device is in use.

Pax does not sell any marijuana or cannabis oil, but sells the empty pods to companies that fill them with their own oils.

Epidiolex, the first cannabis-based medication approved by the FDA, is now available by prescription nationwide

Many more are in the pipeline

The drug can be prescribed by doctors to treat both Dravet Syndrome and Lennox-Gastaut Syndrome. Both of which are types of epileptic syndromes that begin in very young children. Before a child's first birthday in the case of Dravet Syndrome and between ages 3 and 5.

GW Pharmaceuticals who create the drug got approval from the FDA back in June. The press release itself made clear the drug itself is derived from CBD and does not contain any THC. Which means the fact that it took this long to have a drug derived from CBD, which is not what causes one to get 'high', shows how much distance the United States still has to go. Of course, many products are currently on the market that have CBD in them. In fact, wandering around Brooklyn one can find many shops offering to add CBD to coffee.


Right off of the L TrainWilliamsburg, Brooklyn

Of course, one of the strangest parts of drug enforcement is that Marijuana is still classified as a Schedule 1 substance. Which as a reminder is as bad as drugs can be classified. It was only in September that the DEA was able to classify it as a Schedule 5 substance (or V as they tend to write it).

A bill currently before Congress, the Hemp Farming Act of 2018, which is part of the larger farming bill being considered. It would do many things, including allowing Hemp farmer to access certain water rights, but mainly it would remove low THC cannabis from the Controlled Substances Act. This would make the production of any CBD product way easier, since your CBD source would no longer be technically as dangerous in the eyes of the federal government as Cocaine or Heroine. It has a solid chance of success, largely in part, because two of the most powerful members of the Senate are both from Kentucky, which is prime real estate to grow Hemp in. It may also make the number of products with CBD in it multiply further as the price falls.

This may be needed even for those currently considering getting the prescription for this drug. The list price for a years supply of the drug is a whopping $32,500/year. Although the company is confident that is will be covered by most insurance policies that is no guarantee. Also, although the drug is able to be advertised for around these epileptic conditions, the drug can be prescribed for any off label use. This is the practice where once a drug is judged as safe by the FDA, doctors can try prescribing it for other conditions. The drug company just can't go around advertising for anything else, either on TV or when their drug reps go and visit doctors offices.

Whether this is a first step in a series of drugs, based on THC being approved, is still anyone's guess. However, with the medical properties of Cannabis well known, it will only be a matter of time until a drug company seeks to monetize the rest of the plant.

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Constellation Brands Considers Liquidating Wine Portfolio

New York based beverage giant, Constellation Brands, made headlines again this week, when it reportedly hired Goldman Sachs to help with the sale of its U.S. wine portfolio.

Worth an estimated $40 billion, Constellation Brands hopes to raise $3 billion, in an effort to support its shift from wine and spirits, to craft beer and cannabis.

According to the report, while wine sales are still the majority of its business, Constellation is looking to sell off its less popular assets, some of which are Clos Du Bois, Arbor Mist, and Cooks. The higher end wines like Robert Mondavi are not being included in the deal.

In recent years, wine sales have slumped in the U.S., signaling a shift in preference by the younger generation. It is also clear that craft beer and cannabis are here to stay (Constellation Brands Invests Heavily in Cannabis Industry).

When reached for comment, a spokesman for Constellation brands made the following statement:

"While we don't comment on rumors/speculation, what I can say is consistent with what we said on our earnings call on Oct. 4. We continue to focus on driving growth organically, and through acquisition and innovation at the higher end of our wine and spirits portfolio, which has consistently grown 3-4 times the U.S. market rate.

We are also considering a variety of potential actions to optimize value at the low end of our portfolio, so we can direct our growth efforts and investment dollars more fully towards our focus brands."

Constellation Brands began as a small wine producer in New York in 1945, but found massive success after it acquired the U.S. distribution rights to Corona and Modelo from AB InBev in 2013. Imported beers have soared in popularity in recent years, which has bolstered the brands sales, as domestic beer and wine lose significant market share every quarter.

After its $3.8 billion dollar investment in Canopy Growth (38% stake), and now this divesting of its wine portfolio, it is clear that the family owned business intends on moving into the nascent marijuana industry at full speed.