Cronos Group Execs Discuss The Challenges Of Exporting Cannabis As An Insurance-Reimbursed Product
Cronos Group Inc (CVE: MJN) (OTC: PRMCF) is one of the largest licensed cannabis producers in Canada, only trailing a few industry behemoths like CANOPY GROWTH CORP COM NPV (OTC: TWMJF), APHRIA INC COM NPV (OTC: APHQF) and AURORA CANNABIS IN COM NPV (OTCL ACBFF).
A few days ago, Benzinga had the chance to chat with the company’s president and CEO Michael Gorenstein, and its head of marketing and communications, Eric Klein. While there are many interesting aspects to this vertically integrated, geographically diversified business, we were particularly curious about one: exporting marijuana.
Cronos not only produces and sells cannabis in multiple Canadian provinces, but it also ships products to Germany for distribution by partner Pedanios. “We are one of the two Canadian producers that are currently distributing product there,” Gorenstein revealed, adding that roughly 200 pharmacies in the European country currently sell their products.
Javier Hasse: What are the challenges of being a cannabis exporter? What are the difficulties that you face to trade with this substance, taking into account that the U.N. still regards it as a narcotic?
Gorenstein: I think there are a few challenges. The first is really finding a solid and trustworthy partner; I think in the cannabis industry you’ve got a lot of different people that are entering. And, because of how young the industry is, there are a lot of aspiring entrepreneurs that maybe don’t have the most established business.
When we are looking to find a trade partner in a country like Germany, where the [legal cannabis] program is just starting, being able to find someone that actually is experienced and is a good and trustworthy partner isn’t an easy thing. So, we are really fortunate that we found the Pedanios guys.
I think the first step is finding someone to work with on the other side.
Next, you have to really be able to have a link between the two regulatory agencies and governments. You have to have a federally legal program in order for the government to recognize the ability to issue you an import permit and export permit.
Canadian & US Regulations
Discussing export permits, Klein pointed out that, one of the main differences between Canada and the United States is that, “In the U.S., you can’t transport cannabis across state lines, whereas in Canada we have the ability to export both between provinces and internationally (potentially) as the rules and regulations evolve on a global scale.”
Another noticeable difference between the two North American nations is that in the United States, there seems to be a much larger difference between medical and recreational cannabis, Gorenstein added. “I think you see it especially with Spicer’s recent comments.”
Medical & Recreational
Returning to the challenges of exporting weed, Gorenstein said, “we’re exporting under a medical framework to Germany; this makes it easier. But when you talk about recreational, that’s where you run into some problems with the U.N. Convention, and the views on things.”
“Going a step further [...] in order to go through some of the international trade barriers, you have to be up to speed with good manufacturing practices and really be a pharmaceutical grade producer and facility. So, we went through quite a bit of effort to make sure that we were up to spec with our sanitation, with our standard operating procedures, and with our recordkeeping, to have a pharmaceutical grade facility that went beyond the initial regulations and standards we had to meet.”
State Subsidized Weed
One of the most unique characteristics of the German cannabis market is that the state has approved subsidies for medical marijuana, Klein highlighted. “We think [this] opens the doorway for a much larger opportunity as doctors and that market progresses forward.”
“We see Germany and other places in Europe as extremely attractive [markets] because cannabis is treated as a medicine. Like any other medicine, you receive a prescription for it from your doctor, and insurance is mandated to cover it,” Gorenstein added. “That, I believe, is what separates it from other places where everyone is wondering when will recreational legalization come. I believe an insurance-covered medical market is at least as good, if not superior, to a recreational market.”
Only Cronos and GW Pharmaceuticals PLC- ADR (NASDAQ: GWPH) are trading cannabis internationally as an insurance reimbursed product, he concluded.
An International Footprint
Hasse: What’s your vision for the future?
Klein: Ultimately, we’re looking to build an international footprint like these big conglomerates, like Philip Morris International Inc. (NYSE: PM) and Diageo plc (ADR) (NYSE: DEO), which are internationally distributing their products on a global scale.
Gorenstein: The majority of the team started off in the U.S. and a lot of us moved up here, but really that’s what we saw in Canada: It was a very progressive system. We saw the ability, because of the federally legal-program, to have a first mover advantage internationally [and] thought that was huge.
Rather than the U.S. businesses, where you’re worried about the micro-economies within each state and you can’t do business between two states, we can ship among provinces and also internationally. That’s really why exports are so important to us.
Check Part 1 of this article, where Klein and Gorenstein share a look into recent capital raises, expansion plans, organic growth, internal technology developments and the future of cannabis in Canada.
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