Renewable diesel producers utilized 77 per cent of their total operable capacity in October, the highest since July 2024, the data showed. Biodiesel plant utilization rose to 89 per cent, the highest since June 2023.

Rising utilization rates and improving margins are a welcome relief for the biofuels industry, after operators endured a rough start to 2024 as demand growth slowed, leaving the market oversupplied and forcing a number of biodiesel plant closures.

Both renewable diesel and biodiesel are more expensive to produce than diesel, making suppliers dependent on government incentives such as tax credits. Among the two, renewable diesel has emerged as the preferred fuel for suppliers, as it reaps better incentives and can substitute diesel entirely.

Total biodiesel production capacity fell 4.2 per cent year-over-year to about 2 billion gallons in October, according to data released by the U.S. Energy Information Administration on Tuesday.

Renewable diesel output capacity rose nearly 19 per cent year-over-year to 4.58 billion gallons in October, the EIA data showed, as most new biofuel plants opened in the past three years were geared towards it.

Still, oversupply pushed renewable diesel output capacity six per cent lower in October from a record 4.90 billion gallons in June.

In addition to plant closures, profitability for the industry in October was boosted mainly by a surge in the value of credits required for compliance with federal biofuel mandates, said Zander Capozzola, vice president of renewable fuels at AEGIS.

D4 Renewable Identification Numbers, issued for biodiesel and renewable diesel production, rose from a low of 56 cents each in September to over 71 cents in October, improving profitability for making the fuels, Capozzola said.

Margins were also helped by stronger demand for diesel, which hit a one-year high in October, raising prices for both the conventional fuel and its alternatives, he said.

Prices for credits under the Low Carbon Fuel Standard program of California, where most biofuels are consumed in the U.S., also rose from below 60 cents each in Sept to over 70 cents each in October, according to AEGIS.

“You really had everything rowing in the right direction in October,” Capozzola said.

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Weakness in British Columbia’s LCFS credit market reflects growing pains in the international biofuels industry, where many regulators are cracking down on imports to protect their nascent domestic markets from oversupply.

Low-carbon fuels are more expensive to produce than petroleum-based gasoline or diesel. LCFS programs help to bridge the gap by issuing credits to suppliers of fuels with lower emissions intensity, which can be sold to those with higher-carbon fuels that need to bring down their emissions.

Canada has lagged the U.S. in setting up domestic renewable diesel production. British Columbia is the only Canadian province with an LCFS credit market, which helped encourage Calgary-based Tidewater Renewables to open the country’s first standalone renewable diesel refinery last year. Others are also betting on the credits to support construction of more facilities in British Columbia and other provinces.

At the same time, the LCFS has also made Canada an attractive outlet for a glut of U.S. renewable diesel.

U.S. producers shipped at least 530 million litres of renewable diesel to Canada in the first six months of 2024, a jump from 151 million litres in the same period last year, according to data compiled by Will Faulkner, founder of industry analysis firm Carbon Acumen.

British Columbia’s LCFS credits fell to C$207 in July and C$350 in August, after trading above C$400 for more than two years previously, ringing alarm bells for Tidewater.

The company said in August that the slump hurt its ability to generate revenues, and blamed weakening prices on a surge in renewable diesel imports from the United States. Tidewater subsequently sold some assets and future credits to its majority stockholder to avoid financial distress.

British Columbia LCFS credit values rose to C$456 in September, but credit market transactions reported last month could have been completed before the price crash in July, Faulkner said. There has not been a significant slowdown in U.S. imports, he noted.

Tidewater only produces renewable fuel at its 3,000 barrel-per-day, or about 170 million liters-per-year, plant in British Columbia, so is highly exposed to low credit values there.

However, falling BC LCFS credits will also weigh on returns for diversified energy producers such as Imperial Oil and Parkland, said Sam Harrison, senior analyst at Navius Research.

Imperial is building a C$720 million ($518.25 million) 20,000-bpd renewable diesel facility in Alberta, the largest in Canada, that will be partly funded by LCFS credits granted by British Columbia.

“This correction downwards in the market will affect Imperial’s cash flow from the renewable diesel that they’re able to sell into the British Columbia market,” Harrison said.

Construction on Imperial’s project, which is expected to start production in 2025, is progressing and the project is highly attractive, a spokeswoman told Reuters when asked about the decline in credits.

Parkland declined to comment on how a renewable fuel producing unit at its 55,000-bpd Burnaby refinery would be impacted by declining LCFS credit values, but said a stable policy environment had helped incentivize low carbon fuel manufacturing in British Columbia.

Regulatory challenges

Biofuels are set to play a major role in global efforts to cut climate-warming emissions from transportation. The International Energy Agency forecasts global renewable diesel demand will grow to 26.4 billion litres per year by 2028 based on current policies, from an estimated 18.6 billion litres in 2023. More aggressive policies could see demand surpass 39 billion litres.

British Columbia aims to produce 1.5 billion litres of renewable fuels by 2030.

The provincial government told Reuters it is not currently considering changes to the program, as credit prices naturally fluctuate based on supply and demand dynamics.

In contrast, the European Union this year began levying anti-dumping tariffs on Chinese biofuels after complaints that Chinese producers benefit from artificially low output costs. The EU has also levied tariffs on U.S. and Canadian biodiesel imports since 2021 following similar complaints.

Some analysts expect British Columbia’s LCFS market to remain under pressure, with oversupply from the U.S. compounded by lower biofuel feedstock prices that make renewable diesel cheaper to produce.

Low-carbon fuel producers and importers can now also claim Canada’s Clean Fuel Regulation (CFR) credits for actions that earn them LCFS credits. Introduced last year, the CFR credits are adding to British Columbia’s attractiveness as an outlet for excess U.S. renewable diesel.

Higher government support for renewable diesel producers in the U.S. has the potential to limit Canadian industry growth, the U.S. Department of Agriculture said in a report last year.

“At issue is the fact that U.S. producers can claim the $1/gallon U.S. federal Blenders Tax Credit which is issued for producing and blending biomass based diesel in the U.S., along with Canadian CFR credits, which are issued for selling renewable fuels in the market in Canada on top of B.C.’s LCFS credits,” Faulkner said.

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The Cannabis Administration and Opportunity Act floated by Senate majority leader Chuck Schumer, finance chairman Ron Wyden and New Jersey Senator Cory Booker, would expunge federal non-violent marijuana crimes, further medical research and allow cannabis companies access to essential financial services.

While adult use of cannabis is legal in 18 states, and allowed medically in 37 states, it remains illegal under U.S. federal law, deterring banks and others from dealing with companies that sell marijuana or related products.

The draft set the minimum age required to buy cannabis at 21 and limited retail sales transactions at the state level to 10 ounces of cannabis at a time or the equivalent amount of any cannabis derivative.

The draft also states that a new definition of cannabis would be established and proposes moving cannabis oversight to the Food and Drug Administration and regulators that overlook alcohol and tobacco, away from the Drug Enforcement Administration.

States will control the possession, production, or distribution of cannabis, the draft says, while shipping marijuana into states that have not legalized it will be prohibited. However, such states can not stop shipments going to other legalized regions through their borders.

Senator Chuck Grassley, the top Republican on the Judiciary Committee, said “This new bill puts the cart before the horse.” He added that marijuana use needs more research.

A final legislative draft will be introduced later and feedback on the discussion draft can be provided until Sept. 1.

To become a law, the measure will have to pass both the Democratic-controlled Senate and House of Representatives and be signed by President Joe Biden.

“It is hard to see how this can pass, but nonetheless it is positive to see progress and momentum,” said Greg Heyman, founder of cannabis investment firm Beehouse Partners.

A major cannabis banking reform bill that was approved by the U.S. House of Representatives in April has failed to make any progress in the Senate.

“Our main concern over this current legislation (Cannabis Administration and Opportunity Act) is around the ability to get it passed in the Senate,” private equity firm Poseidon managing director Michael Boniello said, adding it may hinder other federal cannabis reforms, including the banking act, from being passed in 2021.

— Reporting for Reuters by Arathy S Nair in Bangalore.

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Shares of Canopy, up 15 per cent this year, fell around 4.6 per cent to $36 after it announced the cash-and-stock deal for Supreme, which owns pot brands including 7Acres, Blissco and Sugarleaf. Shares of Toronto-based Supreme surged 50 per cent, to 40 cents.

The opening of more retail stores and a rise in weed use during the pandemic has brought back investor dollars for cannabis producers after years of underperformance. Hopes of U.S. reforms allowing cross-border commerce are also boosting investments in the sector.

Smiths Falls, Ont.-based Canopy will continue to push for a higher share of the Canadian market while it prepares for a U.S. entry, CEO David Klein told Reuters.

“We’re a Canadian company… we’re going to use Canada as that kind of solid home base for us to be able to then bring our capabilities and our brands into the U.S. market as it opens,” Klein said in an interview.

He also reiterated that the company is on track to turn profitable on an adjusted basis this year.

The Supreme deal makes Canopy the owner of four out of the top 10 cannabis brands in Canada, with an estimated 13.6 per cent of the total recreational market share in the country, the companies said.

The deal would give Canopy control of Supreme’s 440,000-square foot cannabis cultivation facility at Kincardine in western Ontario and a West Coast extraction and processing plant at Langley, B.C.

Under the deal’s terms, Supreme Cannabis shareholders will receive 0.01165872 of a Canopy common share and 0.01 cents in cash in exchange for each Supreme Cannabis share held.

Including debt, the deal is valued at $435 million. The two companies said they expect to close their deal by the end of June, pending the usual approvals such as from shareholders and regulators.

— Reporting for Reuters by Arunima Kumar and Shariq Khan in Bangalore. Includes files from Glacier FarmMedia Network staff.

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Organigram, headquartered at Moncton, grows cannabis and makes cannabis-derived products in the Canadian market, where marijuana was legalized in 2018.

Big tobacco and liquor companies in North America have already made large investments in the nascent industry, with cannabis seen as a less harmful alternative to cigarettes.

With top Democratic lawmakers in the United States also promising to decriminalize marijuana use, analysts and experts predict record investment in the industry this year.

The deal will give BAT access to R+D technologies, product innovation and cannabis expertise, it said in a statement, with an initial focus on natural remedy cannabidiol (CBD).

“This move takes us into a new space and we are not ruling out any product innovation,” David O’Reilly, director of scientific research at BAT, told Reuters.

Organigram CEO Greg Engel said the companies will jointly develop new products for cannabis delivery, both oral and vapour based, and will be able to commercialize any products developed under their own brands.

Both BAT and Organigram will contribute scientists, researchers and product developers, BAT said. It will become Organigram’s largest shareholder and can appoint two directors to its board.

Natural fit

“We view this move as a strong positive. Cannabis overall provides a natural fit for tobacco and a big incremental growth opportunity,” Jefferies analyst Owen Bennett wrote in an note.

BAT has expertise in operating in a regulated environment and experience of growing a crop similar to hemp CBD, Bennett said, adding that the timing of the deal before Organigram’s possible entry into the United States is also a big positive.

Bennett estimates U.S. CBD market sales of over US$16 billion by 2025.

Organigram’s U.S.-listed shares surged around 30 per cent to US$3.75 in morning trading on the Nasdaq. BAT’s London-listed shares were up slightly.

BAT’s investment comes two days after the Lucky Strike and Pall Mall cigarette maker laid out environmental, social and governance (ESG) targets, including switching more people to less harmful products.

The group aims to achieve at least five billion pounds in revenue from sales of e-cigarettes, tobacco heating and oral nicotine products in 2025.

Elsewhere in the industry, Marlboro maker Altria has invested in pot producer Cronos Group, while Corona beer-maker Constellation Brands has a stake in Canopy Growth, the largest cannabis company globally by market value.

— Reporting for Reuters by Tanishaa Nadkar, Aby Jose Koilparambil, Shariq Khan and Siddharth Cavale in Bangalore.

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In a draft guidance issued for the consultation, Health Canada highlighted recent police raids and arrests at production sites where people were using licenses to “cover and support large-scale illegal production and sale.”

The move comes as Canada tries to fix its ailing pot market, where illegal producers sell more annually than hundreds of licensed cultivators, even over two years after the country became the first major nation to legalize weed in 2018.

Households spent more than $3.1 billion buying non-medical pot from illicit channels last year versus $2.9 billion of legal purchases, according to Statistics Canada data.

“Abuse of the medical purposes framework undermines the integrity of the system that many patients and health care practitioners rely on to access cannabis to address their medical needs,” Health Canada said in the draft document.

Reuters first reported the news earlier on Monday.

The draft guidance for the first time sets out factors that the regulator may consider in refusing or revoking a registration for “personal production.” Factors include authorization of unjustified amounts and “criminal activity and/or diversion of cannabis.”

In January, Ontario Provincial Police seized over 180,000 cannabis plants and numerous vehicles and firearms by raiding illegal cultivation facilities, many of which exploit Health Canada’s personal medical weed cultivation licenses.

Under the rules, people using cannabis for medical purposes must get a daily amount authorized by medical care practitioners — doctors, nurses and social workers — to either be bought from official retailers or grown personally.

Health Canada said in December it was seeing a surge in the amount of pot personal cultivators were being authorized to grow.

The number of patients registered for purchase from federally licensed retailers was 377,024 in September last year, a 24 per cent increase from June. Meanwhile, registrations for personal cultivation grew 29 per cent over the period to 43,211.

Even though personal cultivators remain a small fraction of overall patient registrations, these people are allowed to grow as much as 36 grams per day on average, compared with just two grams authorized for daily purchase from retailers.

As part of its public consultation, Health Canada said it was inviting Canadians to share their views on the factors that should be considered in “refusal or revocation of a registration on public health and public safety ground.”

The consultation will run for 60 days through May 7, the regulator said.

After the end of the two-month period, the regulator plans to finalize the guidance and make it public.

— Shariq Khan reports on the cannabis sector for Reuters from Bangalore.

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Cannabis producers have issued stock worth this amount in the first five weeks of 2021, investment firm Viridian Capital Advisors estimates, as prices have risen on a promise of federal decriminalization of marijuana and a host of other reforms by the incoming Biden administration.

Canadian pot companies have been the largest beneficiaries of the rally in shares, owing to the fact that they have been allowed to list on U.S. exchanges, while U.S. companies that harvest or sell marijuana within the country are forbidden from doing so.

Retail investors have also piled into the pot sector this week, with Tilray, Aphria and Sundial Growers emerging as the new favorites of Reddit’s popular WallStreetBets forum that was behind recent rallies in some shorted stocks.

In a vote of confidence in the sector, a single unnamed institutional investor this week bought $100 million worth of stock in U.S.-based pot producer Green Thumbs Industries’ initial public offering, according to a company filing (all figures US$).

Calgary-based Sundial, a medical cannabis producer, has issued over a billion new shares since September.

Considered by many analysts to be a bankruptcy risk earlier, the company has improved its cash position from $22 million to over $600 million in just four months and fully repaid its current debt obligations.

Market experts, however, have said the cannabis rally is already overdone and valuations are once again becoming unrealistic, especially for the Canadian companies that may not even get much upside from U.S. decriminalization.

Viridian said the turnaround in Sundial’s fortunes is good for them, but the advisory firm is “a bit skeptical about any fundamental changes at the company justifying this Cinderella story.”

AMC Entertainment and American Airlines were among a handful of companies to have raised funds from the market when their shares soared last month.

GameStop could not seize on the Reddit-fueled rally to sell shares because of regulatory restrictions, according to three people familiar with the matter.

— Shariq Khan reports on the cannabis, oil and gas sectors for Reuters from Bangalore.

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Canopy’s U.S. shares, currently listed on the New York Stock Exchange, rose over four per cent in extended trading.

Years of high expenses and a lack of profitability have soured investor sentiment toward Canadian pot producers, forcing the companies to cut costs aggressively this year by shuttering facilities, laying off employees and resetting portfolios.

The transition to the Nasdaq gives the company greater cost-effectiveness and better access to tools and services to connect with current and future investors, Canopy CEO David Klein said in a statement.

The change also suggests Canopy — whose Canadian retail brands include Tweed and Tokyo Smoke — had a difficult time raising capital on the NYSE, said Avis Bulbulyan, CEO of cannabis consulting firm Siva Enterprises.

“Nasdaq listings are a bit more volatile and used by fast-growth companies such as tech,” Bulbulyan said.

“Considering Canopy hasn’t really been that stable and doesn’t have much to show for their history, they may have a relatively easier time raising money with a Nasdaq listing,” he said.

Canopy’s shares, which fell three per cent this year through Tuesday’s closing bell, will start trading on the Nasdaq under the ticker symbol ‘CGC’ on Nov. 16.

Aphria completed its move to the Nasdaq in June. Among other major Canadian producers with listings in Canada and the U.S., Hexo Corp. and Aurora Cannabis remain NYSE-listed.

Both were warned by the exchange’s operator about a possible delisting earlier this year after their share prices slid below US$1.

Aurora’s shares rose above the threshold after it undertook a reverse stock split, while Hexo has detailed plans to carry out a similar consolidation around December.

— Shariq Khan reports on North America’s resource and energy sectors for Reuters from Bangalore.

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Nearly 11 months after regulators allowed their sales, very few brands have been able to reach shelves.

Canada at the start of this year allowed sales of so-called ‘Cannabis 2.0’ products, which include edibles, vapes and drinks. The products have been a big hit with customers during coronavirus-induced lockdowns, but producers have struggled to maintain timelines for the launch of the THC beverages.

Analysts and industry insiders had eagerly anticipated these beverages, hoping they would attract large swathes of the public to pot from booze, and bring back investor dollars after the industry fell out of favor due to a lack of profitability.

Common production challenges include short shelf-life, maintaining a consistent taste, inconsistent potency, and the length of time it takes to achieve the desired “high,” said Karan Wadhera, managing partner at cannabis venture capital firm Casa Verde Capital.

“There are also high production costs, expensive distribution, and a lack of dispensary infrastructure to intake and display the products,” he added, referring to cannabis shops without loading docks or refrigerators.

The COVID-19 pandemic has made funds even more scarce for a sector that has disappointed the market with missed financial targets and many producers forced to withdraw dollars from developmental products that promise future profits to focus on maintaining the core business.

“This is certainly true of Canadian LPs (licensed producers) who have had massive layoffs and reductions of production,” said Medical Marijuana Inc. CEO Stuart Titus.

“The drop-off in investor capital has also had a negative effect on product development, so the supply of effective cannabis-based beverages remains relatively small,” he added.

Getting it right

Technical issues involving basic chemistry have also slowed bringing some of these THC-infused beverages to market.

Most cannabinoids are insoluble in water, explained Joshua Swider, co-founder and CEO of Infinite Chemical Analysis Labs (InfiniteCAL).

To overcome that issue, companies use emulsions. But even if they can make an emulsion that gets the high-inducing cannabinoids to properly mix with the beverage, maintaining that mix is itself a challenge.

InfiniteCAL said its tests show some beverages can degrade in as little as a few days, leaving the THC that induces the desired high stuck to the can liner lowering the drink’s potency.

“Everyone has really great ideas in this market, but people are coming to find that actually executing the idea is much more difficult,” said Narmin Jarrous, vice president at Exclusive Brands, a Michigan-based cannabis retailer.

Despite facing its own challenges and delays putting beverages on the shelves, Canopy Growth Corp., the largest pot producer by market value, has established a strong foothold.

The company had planned to launch its drinks in January, when sales were first authorized in Canada, but scaling up production and other issues delayed their introduction.

With backing from Corona beer-maker Constellation Brands, Canopy’s products did hit the market in March, well before major rivals got there. It now controls more than 70 per cent of the cannabis-infused drinks market, a company spokeswoman said.

The company has sold close to two million cans of its THC-infused beverages in Canada since March. The top three cannabis beverages in Canada are all Canopy products, the spokeswoman added.

CEO David Klein, a Constellation veteran who took on the top role at Canopy in December, told investors in August the company expected to double its drinks output for that month after having already doubled it the previous month.

The company announced plans this month to begin selling the products in the U.S. next summer, initially launching THC-beverages in the fast-growing California and Illinois markets through a partnership with New York-based Acreage Holdings.

“Given the choice of a traditional alcoholic beverage and a THC-infused beverage, I believe that THC beverages would rival alcoholic beverages for their popularity with consumers,” Titus said.

— Shariq Khan reports on North America’s resource and energy sectors for Reuters from Bangalore.

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Profitable cannabis companies want to buy their way into niche segments and expand their brands, betting that the November U.S. presidential election will lead to weed becoming legal across the United States.

Distribution deals could also help companies reach consumers who have shown an increased appetite for pot products since the onset of the coronavirus pandemic.

Aphria Inc., one of Canada’s largest producers, is open to making purchases if it adds a well-known consumer brand to its beverages portfolio or if it helps the company overcome a lack of chocolate production, CEO Irwin Simon told Reuters.

Canopy Growth Corp., the largest Canadian pot producer by market value, had about $2 billion in cash at the end of June. The strong balance sheet allows it to pursue acquisitions and the current market conditions would provide frequent opportunities, a company spokesman said. Canopy is backed by Corona beer maker Constellation Brands.

Rocky start

Since its peak in August 2018 in the run-up to Canada’s legalization of recreational weed, cannabis stocks tracker MJ ETF has dropped 70 per cent. M+A fell 80 per cent and capital raising slumped 70 per cent to $2.71 billion through July 31, according to the Viridian cannabis deal tracker.

However, as pot demand surged in lockdowns, stock prices have recovered, raising prospects that funding will be available for some deals.

“You’ll still see a lot of the same funding sources but they’re going to be much more diligent and cautious with their dollar,” said Avis Bulbulyan, CEO at cannabis consultancy Siva Enterprises.

All-stock deals are expected to be the trend, but companies with cash could also spend it on U.S. expansion after the election, Katie Ashton and Eric Berlin of the Chicago office of the Dentons law firm told Reuters in an email.

All eyes on elections

Scott Paterson, chairman of media company Miraculo Inc., says a Democratic victory would instantly set in motion significant expansion for U.S. multi-state operators. Canadian producers’ cross-border ambitions also hinge on U.S. legalization, which Democratic candidate Joe Biden’s base is seen advocating.

However, it could be another quarter before Canadian companies start making deals as they are still cleaning up their balance sheets, said Stuart Titus, CEO of Medical Marijuana Inc .

Among those most pressed to sell, MedMen Enterprises and iAnthus Capital Holdings, both restructuring to avoid bankruptcy, have valuable licenses and serve markets that can be new opportunities for buyers, Titus said.

MedMen and iAnthus did not respond to requests for comment.

New players that have been on the sidelines could also step in.

“When it becomes fully legal, expect ‘Big Food’ and ‘Big Agra’ to jump in, to a much greater extent than they have so far… they could try and develop their own name brands,” said William Gay, a lawyer at Wilson Elser Moskowitz Edelman + Dicker LLP.

— Shariq Khan reports on the North American oil, gas and natural resource sectors for Reuters from Bangalore.

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