All eyes are on the upcoming launch of derivatives in Canada
But over the next couple of months, all eyes are on marijuana legalization 2.0 in Canada. Our neighbor to the north officially launched adult-use weed sales on Oct. 17, 2018, making it the first industrialized country in the world to legalize recreational cannabis. Now, one year later, derivative cannabis products are readying to launch. Derivatives are nondried-flower products, such as edibles, vapes, infused beverages, concentrates, and topicals.
IMAGE SOURCE: GETTY IMAGES.

IMAGE SOURCE: GETTY IMAGES.
The biggest risk: History will repeat itself
On the surface, this looks like the perfect growth storm for the Canadian marijuana industry. However, marijuana legalization 2.0 is not without its risks. One of the more front-and-center risks that's been garnering a lot of headlines of late are growing health concerns surrounding vaping -- at least in the United States. As of this past Monday, more than 450 cases of vaping-related lung illnesses, resulting in five deaths, had been reported in 33 states. Though it's far too early to determine the cause of these lung illnesses, there are clear concerns that vaping may not be as safe as advertised. This is worrisome given that vaping projects as the leading source of derivative cannabis sales. But this health scare isn't the biggest risk facing the upcoming derivative launch. Rather, it's the possibility that history could repeat itself on the supply front, leading to the same headaches that growers have been dealing with over the past year.Persistent supply issues have plagued Canada since October
As some of you may recall, there have been persistent supply issues with dried cannabis since its launch on Oct. 17, 2018. These supply concerns have manifested in three ways. First, Health Canada has been absolutely overwhelmed with cultivation, processing, and sales license applications. It began the year with more than 800 applications on its desk for review, which has kept growers waiting many months, if not more than a year, for licensing approval. Select provinces have also been slow to approve licenses for physical cannabis stores. Combined, this application slowdown has kept marijuana off dispensary shelves despite strong consumer demand.
IMAGE SOURCE: GETTY IMAGES.
Supply issues are likely to manifest, again, when derivatives launch in three months
The good news is that many of Canada's supply issues are being tackled. Health Canada, for instance, announced a few months back that it would change its cultivation application process to reduce its backlog and, hopefully, expedite reviews. Previously, growers were free to submit cultivation applications well in advance of completing their grow site. In some instances, this meant Health Canada not being able to review a growing facility to ensure regulatory compliance. With the new regulations now in place, Health Canada will require growers to have their production facility complete prior to submitting their cultivation license application. This should remove underfunded growers from the equation, as well as help move along the review process. We've also witnessed a rise in capacity for third-party extraction-services providers. In the extraction space, MediPharm Labs (OTC:MEDIF) and Valens GroWorks (OTC:VGWCF) are in the process of building out capacity to 500,000 and 1 million kilos of respective run-rate processing of hemp and cannabis biomass per year. MediPharm landed a contract to extract concentrates for Cronos Group that could be worth up to $60 million, while Valens netted aggregate extraction deals with Tilray and HEXO for at least 120,000 and 80,000 kilos, respectively, over a two-year period.
IMAGE SOURCE: GETTY IMAGES.