The growth in demand for cannabis health and wellness, personal care, and non-smokable products is a positive sign, validating the commercial promise of legalization of adult-use cannabis. Yet, when we look at the legal offerings available, Canadians face a modest array of products. While the initial cannabis beverage offerings are impressive, limited selections of edibles and topicals speak to the challenges of developing new cannabis products.

For the past five years at the Applied Research Centre for Natural Products and Cannabis at Loyalist College, we have been helping companies develop cannabis products, technologies, and processes. Ranked one of Canada’s top 50 research colleges and #1 in the country for industry-led applied research income as a percentage of total research income, Loyalist College has played a significant role in the success of the nation’s cannabis and natural product sectors. Perfectly positioned between Toronto, Ottawa, and Montreal, Loyalist College has attracted partners of all sizes, ranging from start-ups to publicly listed licensed producers.

We’ve talked to a lot of consumer-packaged goods companies (CPGs), from owner-operated small and medium-sized enterprises (SMEs) to large multi-nationals. SMEs from across the consumer-packaged goods sector want to get into the cannabis industry. They have the capabilities and experience required to develop consumer-friendly cannabis 2.0 products. Yet most point to complexity, licensing, and perception as barriers to their participation.

Complexity

Developing cannabis 2.0 consumer products involves at least four steps: creating or acquiring a cannabis extract; developing a cannabinoid formulation; adding the formulation to an existing or new product (topical skin cream, shampoo, beverage, etc.), then manufacturing products in accordance with relevant regulatory standards.

“Asking a baker to develop a cannabis cookie is essentially asking the baker to become an expert in cannabis extraction, formulation development, and chemistry.” PHOTO BY SAGEELYSE / ISTOCK / GETTY IMAGES PLUS

Let’s apply this process to manufacture a consistent cannabis cookie that meets cannabis regulatory standards. The baker must turn an extract (oil) into a formulation for baking and then use the formulation to develop the cookie recipe. Recipe in hand, the baker must then manufacture a cookie that complies with regulations. Asking a baker to develop a cannabis cookie is essentially asking the baker to become an expert in cannabis extraction, formulation development, and chemistry.

If we want more cannabis 2.0 products, we need to find ways to overcome the complexity of product-making. In the CPG industry, complexity is resolved by specialization. Complex tasks are undertaken by unique and specialized entities forming part of the industry supply chain. Within the cannabis industry, extraction, formulation development, product development, and product manufacturing are, in most cases, the responsibility of a single entity.

We need to find ways to bring specialization into cannabis product making.

Licensing

Companies, large and small, consistently point to licensing as a barrier to their involvement in the cannabis industry.

Under the current licensing requirements, makers of cannabis 2.0 products obtain a processing license predicated on the holder possessing raw cannabis and transforming it into an extract or formulation. The processor then uses the base formulation to develop the cannabis 2.0 products — chocolate, topical, beverage, etc.

“The processing license is suited to cannabis processors, but is too demanding for the smaller and medium-sized CPG companies focused on making products.” PHOTO BY CHRIS HONDROS/GETTY IMAGES

Our experience in collaborating with cannabis 2.0 innovators, SMEs, and CPG makers suggests that their expertise lies in making products, not formulations. Their focus is on the product side. The processing license is suited to cannabis processors, but is too demanding for the smaller and medium-sized CPG companies focused on making products.

Bringing SMEs into the cannabis industry will require a different kind of license, one that’s built around product making.

Perception

Perception remains a challenge, despite legalization and the increased use of cannabis products among mainstream demographics (e.g. professionals and/or boomers). Being successful in this industry requires an acceptance of this reality and a willingness to be part of the solution. Our experiences suggest that large CPG companies are watching the cannabis industry closely, but their delayed entry into the market segment is in part a function of their capacity to wait while consumer attitudes change towards cannabis products. This approach creates opportunities for SMEs to innovate and develop award-winning products — and help the industry overcome the perception barrier.

More open to risk and less constrained by perception, SME participation in cannabis 2.0 products will lead to more CPG-type cannabis products.

Going Forward

With the statutory review of cannabis legislation set for October 2021, the time is right to explore how a new class of cannabis license can respond to the 2.0 product challenge. A license that supports cannabis product making and permits specialization required to harness the dynamism of Canada’s SMEs would be very helpful.

The Bay of Quinte region, to which Loyalist College contributes $382 million to the economy annually, is home to many global CPG companies and an ecosystem of suppliers, many of them SMEs. Our local economy is evidence of the ability of the CPG supply chain to create economic, social and cultural prosperity, and job opportunities for people and their communities. Facilitating SME participation in cannabis 2.0 is paving the way for much larger CPG involvement in cannabis 2.0 and the benefits that follow.