Canada’s largest medical marijuana company nearly quadrupled its investment in research and development from 2014 to 2015, according to its most recent financial statement. During the second quarter for fiscal year 2016, Canopy Growth Corp. spent nearly $250,000 on research and development, compared to just over $58,000 in that same time the previous year.

Canopy spokesperson Jordan Sinclair said most of that money was spent on increasing output and improving techniques to extract oil from the cannabis—both of which will be beneficial to the company when pot isn’t only sold with a prescription, something Sinclair said the company is always preparing for.

A portion of Canopy’s Management’s Data and Analysis annotated in DocumentCloud:
(click inside the annotation to see the entire document and other annotations)

Source: Canopy Growth Corp.

There’s also the recent $900,000 acquisition of Bedrocan—a Netherlands-based company Sinclair said has a more “medical-oriented” feel, compared to the parent company’s other branch, Tweed, which is more “approachable” and would “thrive in a recreational system.”

Consumer behavioural researcher Dr. Michael Mulvey said these distinctions are going to become more apparent as companies look to target recreational users.

“Just like if you go to your LCBO, your Beer Store, you’ll find different varieties,” Mulvey said. “Well, you’re going to find a similar parallel when it comes to marijuana use.”

In October, following the federal election and Liberal win, Canopy’s shares surged, reaching their highest point since the company became publicly traded in April 2014. During the campaign, Trudeau promised to legalize marijuana in his term, as long as it doesn’t get in the hands of minors. 

Canopy Growth Corp.’s stock prices:

Source: Tradingview.com

Canopy, one of 27 licenced suppliers in Canada, has also invested heavily in building up its infrastructure, spending over $3 million on additions and renovations—two-thirds of which was tied up in an expansion at the company’s Smith Falls’ location. According to an August news release, these additions included an extraction room, which will facilitate the large-scale production of marijuana by-products.

A portion of the news release issued by Canopy in August:
(click inside the annotation to see the entire document and other annotations)

Source: Canopy Growth Corp.

In summer 2015, Health Canada rewrote its rules, allowing for the production of marijuana extractions, such as oil and butter. Since then, it has provided 16 medical marijuana suppliers, including Canopy, with the proper licence to begin the process. Canopy is waiting for a final inspection from Health Canada, and hopes to begin selling oils, edibles, and other smoking-substitutes to its clients as early as February.

“We’ve already been producing it,” Sinclair said. “We have an inventory in our vault. We’re basically ready to go.” Sinclair expects extracted products to be popular in a recreational market, citing Colorado, which legalized marijuana in 2012 and generates a large amount of income from extracted product.

However, JP Caron, a habitual marijuana user, said he doesn’t plan on changing the way he sources the product upon legalization, and that’s something medical marijuana companies looking to break into the recreational market need to consider. “The government is going to tax a whole lot and there’s still going to be a market for people who grow their own and sell for more affordable price,” Caron said.

Mulvey said medical marijuana companies also need to address international competition, which it doesn’t consider in its analysis of the most recent financial statement.  

A portion of Canopy’s Management’s Data and Analysis annotated in DocumentCloud:
(click inside the annotation to see the entire document and other annotations)

Source: Canopy Growth Corp.

Sinclair said he isn’t worried, adding the company currently controls between 20 and 25 per cent of the market share in Canada, and is first focused on the sale of extracted products, and second, on the legalization and sale of recreational marijuana.

“There’s a pretty solid pattern that we’ve shown we’ve been able to increase sales quarter over quarter,” he said. “We’re excited for the next numbers to come out.”

Those numbers are scheduled to be released at the end of February.