Cases of pot drinks, but no stronger edibles: Hexo CEO on 2021 legal review

·3 min read
Hexo, though its joint venture with Molson Coors Canada (TPX-B.TO), has emerged as a leader in cannabis-infused beverages.
Hexo, though its joint venture with Molson Coors Canada (TPX-B.TO), has emerged as a leader in cannabis-infused beverages. REUTERS/Chris Wattie

Ottawa's three-year review of cannabis legalization should grant at least some of the policy tweaks the pot industry has been asking for, according to the head of one of Canada's top producers.

Hexo (HEXO.TO)(HEXO) chief executive officer Sebastien St-Louis says he expects the federal government will loosen limits on personal possession that prevent pot drinks from being sold in larger cases as with beer. However, he also predicts that Ottawa will continue to limit the strength of single-dose pot edibles to 10 milligrams of THC, the compound that produces the cannabis high.

Lawmakers are set to begin their review of the Cannabis Act in October 2021, three years after Canada became the first G7 nation to legalize the drug for recreational use. The legislation has defined the development of the country's legal pot sector since it was enacted in 2018.

St-Louis says he expects "a lot of progress for the industry" as the government reviews the law's impact on everything from public health, to consumption habits, and pot grown in homes.

Hexo, through its joint venture with Molson Coors Canada (TPX-B.TO), has emerged as a leader in cannabis-infused beverages. However, the company said on Monday that its drinks sales fell 10 per cent on a quarterly basis to about $3.1 million due to increased competition and lower sales in Ontario.

The once hotly anticipated infused beverages category represents a small fraction of overall legal cannabis spending, which is currently dominated by dried flower products. The pot data firm Brightfield Group projects cannabis drinks will make up just 7 per cent of Canada's non-medical market by 2026.

Cannabis companies have complained that Ottawa's rules on how much cannabis can be purchased in one transaction unfairly limit the amount of beverages customers can buy at once. The current rules allow individuals to carry up to 30 grams of dried cannabis, but only 2.1 litres of infused beverages. This, they say, prevents consumers from stocking up enough drinks to supply friends at a backyard barbecue, for example.

"Specifically, I think case quantity for beverages is one where we will get some progress," St-Louis told analysts on a conference call after Hexo reported its third-quarter financial results on Monday. "I think we'll get progress on ways of consumption [and] personal possession limits."

One place where he does not expect the federal government to budge is on the strength of single-dose edible products, which include drinks, candies and cookies. The current rules cap the amount of THC at 10 milligrams per package.

While far stronger products are available illegally, St-Louis says Hexo products do not need more THC in order to convert black market buyers.

Lawmakers must table a report to both houses of Parliament within 18 months of the review starting in October. The process will be under the purview of Health Canada. Experts told Yahoo Finance Canada in December that the federal health agency is expected to largely stick to its harm reduction-first strategy, as opposed to focusing on improving the economic health of the industry.

"I do expect we'll see some positive outcomes," St-Louis said. "Health Canada has had other priorities in handling the pandemic, but I do think by the time they do come up for air... a lot of the decisions are pretty much de-facto made at this point."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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