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CannaInvestor Magazine Editor-in-Chief Louis Kyron joins James West in the Midas Letter studio to talk about the Canadian Medical Association’s recent declaration that it expects “the existing medical use framework to be dismantled, phased out, once legalization stats on October 17.” The pair address the impact on patients transitioning from medical teams, licensed producers, and special strains, to relying on retailers for information and guidance. Kyron discusses the growing body of research supporting cannabis as an alternative treatment to opiates. They examine cannabis taxation and what that means for the black market. The segment concludes with a discussion of cannabis brewing companies to watch.

Transcript:

James West:   Hey, welcome back to Midas Letter Live. My guest in this segment is Louis Kyron; he is the Editor-in-Chief of CannaInvestor Magazine, which you can find online at cannainvestormag.ca. Louis, thanks for joining me today.

Louis Kyron:  Thank you, James. Pleasure to be here.

James West:   Yeah, so Louis, there’s some issues with the whole idea of the entire Federal medical regime that you seem to believe represent some level of risk to patients and/or, I guess, by extension, investors. Can you give me a bit of an explanation of what you’re sort of fishing for there?

Louis Kyron:  Certainly, James. There’s a whole bunch of, obviously, smaller challenges that we read about, whether it’s the taxes being on medical cannabis, lack of benefits coverage, the black market threat, availability, and we can go on and on. I would say recently, the Canadian Medical Association has come out and declared – it’s on their website as well – that they expect the existing medical use framework to be dismantled, phased out, once legalization starts on October 17th.

I just don’t see, from a patient point of view, how patients are expected to transition from their medical team and licensed producers to get special strains, especially high CBD, for example, to a dispensary network, you know, relying on retailers, if you will, for that same information.

From an investor perspective of course, is we’ve all been led to believe the markup, the margins, to be more on the medical side, and there’s a bit more branding there as well. I mean, strains and so forth. And what would happen to those strains and all of that if it’s strictly recreational?

So I see a number of concerns, and you know, those patients as well – you’ve got to think of the greater good. The investor side, I think, is collateral, if you will. The greater good, of course, is a lot of people have migrated from pharmaceuticals over to cannabis, and for a lot of them, they found is superior, better, less symptoms…

James West:   Less addictive, less side effects…

Louis Kyron:  Of course, especially the whole opioid treatment side of it too, right? And now they may be expected to migrate back to those pharmaceuticals. So overall, I just see a lot of questions the CMA, I think, needs to answer.

James West:   Sure. Has the CMA issued any kind of language in support of cannabis as an alternative treatment to opiates, for example? Or are they more or less still of the ‘let’s wait for the research to bear this out’?

Louis Kyron:  Yeah, everything I have found states just that. There’s not enough clinical studies, not enough research, and we’ve had this framework in place since 2001. And since that time, there’s been a growing body of research, not just in Canada but, you know, worldwide. And we’re seeing the endogenous cannabinoid system, or the endocannabinoid system, you know, we’re seeing more and more of that: it modulates inflammation in the body, and we’re seeing how CBD and, you know, THC-A and stuff also contribute to anti-inflammation. At the same time, we’re seeing more evidence that chronic inflammation is an underlying thread to so many medical conditions. It just seems strange to me that when the biggest risk of migrating to medical cannabis or trying it, is it probably does little for you. That’s the biggest risk. And then you can then migrate back to the more traditional treatments.

James West:   Sure. So I mean, from personal experience and observation, I was actually in attendance at a City of Toronto Council Meeting where Council was planning to debate the issuance of licenses to dispensaries. And the one Councillor moved to dismiss, which was carried, because there was no – they felt there was no right of the City to debate this measure while it was still Federally illegal, which at the time it was. There was an entire gallery of patients in attendance, who were protesting the difficulty, financially and sort of procedurally, to accessing cannabis through the existing medical system back then. So I hear what you’re saying, and especially, I mean, I know from firsthand experience and contact with these people that they’re not going to, you know, re-enter a complicated and complex and overcrowded medical system just to try to get cannabis when they’re going to be able to get it off the street.

So, do you think that – it’s kind of like everybody is of the expectation, to some degree, that the black market will survive for a while in the recreational sort of sense, but in the medical sense, everybody’s just sort of saying ‘it’s a done deal, we’re all good there, there’s no competition from these people’ but there is. And I think from an investor perspective, that’s certainly going to be a risk to the balance sheets of companies post-2019, and so I’m curious as to your thoughts on, you know, so is the Canadian Medical Association planning to basically force this issue, and do they have the support of Health Canada?

Louis Kyron:  I do not know the answer to the latter. I’ve actually reached out to the CMA to discuss it and haven’t heard back yet. But what we do know, of course, is, as you were saying, the challenges back then with medical cannabis and affordability, more benefits companies have announced they’re going to start covering it, or will be soon. On your medical taxes, it is a medical expense, and even people who do have benefits, the health spending account portion will typically cover medical cannabis, so there is some offset.

And of course, the irony is, you’re right: if people can’t find that medical strain that they prefer from the LP or through a dispensary now, they might go to the black market without really certain what they’re getting. And on the other side, you know, we see advocates stating how taxing it is wrong – and the irony is, you know, of course, as you mentioned on the black market an extended period of time for a period. And that may just be a function of chicken and the egg, because once you tax cannabis – HST, excise tax, and so forth – you’re raising the price, which makes the black market more competitive. And you’re raising the price, of course, they say, so it’s cost recovery, and for enforcement. So it’s almost a vicious circle, if you will. By keeping the price high, they’re perpetuating the very black market that they’re trying to enforce and shut down.

James West:   Right. And the only argument against the black market that really carries water with somebody who’s not necessarily concerned with the rule of law when it comes to obtaining cannabis, is this issue of pesticide and pathogen contamination. Now I’m going to bet you dollars to donuts that there are elements in the black market who will easily be able to meet those pesticide and pathogen-testing sort of standards, and then what’s the argument going to be?

So it’s all very interesting, but, so that’s some of the risk, but you also have some stuff you’re really excited about, like you mentioned beverages.

Louis Kyron:  Oh, absolutely. About just over two years ago, I think we were one of the first, and I’ll put an asterisk by that, to really start talking about the potential of beverages, especially alcohol substitutes. You know, people are already used to having a social drink; we have an aging population, and we know seniors are moving more and more towards medical cannabis. Often they’re in retirement homes or long term care where they cannot smoke, they can’t vape, they can’t even cook. So that might dissuade people from cooking with cannabis, and the whole decarb process. But a beverage, you’re familiar with it, it’s natural, there’s something nourishing about drinking. There’s something unnatural about smoking, inhaling – there isn’t anything natural about it, there’s a natural repulsion to the species.

James West:   I didn’t find that. I find the opposite, there’s an intoxication, an attraction. But yeah, no, I understand what you’re saying, that a lot of people have this natural aversion to smoking, and rightly so.

Louis Kyron:  And there’s a social stigma towards it too. And plus, the, just the smell and offending neighbours, especially in close proximity. I think there’s something natural with beverages. It’s already a social thing, you go for a few drinks at night, and we’re already used to it, it’s already built in to us.

James West:   Yeah, that’s a good point. So then, now, in terms of the beverage universe, for example, we saw the deal with HEXO and Molson-Coors last week, we’ve got Province Brands out there, who’s building, you know, a cannabis brewery, and so where are the big opportunities? Specifically, which companies do you think are going to really sort of have captured the opportunity?

Louis Kyron:  I hate promoting any company, but I just want to say, if I do mention a company, it’s just conversation, right?

James West:   Yeah. [laughter]

Louis Kyron:  I mean, you have the deal with Hill Street Brewery, and they have a deal with Lexaria Biosciences, and Lexaria’s technology, of course, masks the flavour and improves acceleration and the actual bioavailability, the absorption. So if that pans out, it would probably most mimic or mirror drinking. You have a drink and you feel it a few minutes later, not two hours later.

Tinley Beverage, there’s another one. They’re in California; they have a number of THC-infused replicas of traditional spirits, margaritas, rums and so forth. Of course, Phivida, they have that deal with WeedMD, and Phivida is supposed to be having their launch of their hemp products shortly, I believe. And of course, you have companies like, even Harvest One, for example, the whole Dream Water – they’re expecting to have a beverage line. Green Organic Dutchman’s another one. It’s just endless, endless, endless.

Of course, you want to say, you know, Molson with HEXO – well, already you have brand familiarity, brand loyalty, you have Canadian-wide distribution network in theory – Molson can move products pretty quickly, as can HEXO. And you can’t discount, I mean Aurora, there’s rumours about Aurora and Steam Whistle Brewery right here. You know, that was in the news two Fridays ago, I believe. It’s going to be huge, it’s going to be big, and that’s where the margins are, I think, because much like a can of pop or your favourite beer, there’s four ingredients that probably cost pennies.

James West:   Right.

Louis Kyron:  But you’re paying, you know, a buck a beer. But you’re paying anywhere from a dollar to three, four dollars for a beer, whereas the ingredients inside are pennies, and I think that will transfer over to the investor and that’s where the money will be: in that finished product.

James West:   All right, Louis, well, that’s a great introduction. It’s the first time we’ve had you here, but I can say we’re going to have you back lots.

Louis Kyron:  Sure, I look forward to it.

James West:   We’ll leave that there for now and come back to you in a couple weeks’ time. Thanks for joining me today.

Louis Kyron:  Perfect. So much, James. Take care.

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