As investors flock to Canada’s burgeoning marijuana sector, Prime Minister Justin Trudeau’s government is signaling recreational pot sales aren’t imminent.

Lawmaker Bill Blair -- the former Toronto police chief leading Trudeau’s legalization effort -- confirmed a bill is due in parliament this spring, but it won’t be the last hurdle as ample regulatory work remains. The federal government will take its time and work with provinces, territories and cities to build a framework and develop specific regulations, he said.

The government is also looking for ways to control production, distribution and consumption of legalized marijuana, while testing it for quality and keeping it out of the hands of minors, Mr. Blair said.

“We will take as much time as it takes to do it right,” Mr. Blair, the parliamentary secretary to Canada’s justice minister, said in an interview Monday. “I’m pretty reluctant to suggest a specific time frame, frankly, because I don’t know how long this will take in each of our 10 provinces and three territories.”

Mr. Blair’s comments come as Canada’s nascent marijuana industry balloons, with investor optimism being fueled by analyst estimates that recreational sales could start as early as 2018.

The government’s plan to introduce legislation in the spring of 2017 “could pave the way for the legal sale of recreational cannabis by 2018,” Canaccord Genuity analysts Matt Bottomley and Neil Maruoka said in a November research note. Canada’s recreational pot industry has the potential to reach $6-billion in sales by 2021 if legalization occurs along “expected timelines,” according to the note.

Canopy Growth Corp. became the first marijuana unicorn in 2016 and had a valuation of $1.9-billion on Monday. Other producers, including Aurora Cannabis Inc. and Aphria Inc.Inc., have seen their share prices surge more than 400 per cent in the past 12 months.

Canopy shares fell as much as 7.5 per cent in Toronto while Aurora tumbled 5.1 per cent and Aphria slid 3 per cent.

Dampened Buzz

“If they delay, there’s going to be a lot of eggs that are going to break in this business,” Chris Damas, an analyst at BCMI Research in Barrie, Ont., said by phone Monday. “The valuations are extreme.”

Licensed marijuana producers are in the midst of expanding their capacity and there will be a “huge amount” of excess cannabis if Canada delays legalization, Damas said. The analyst said Mr. Blair’s previous comments suggest it’s unlikely the government will introduce a bill by June and companies with huge valuations “won’t have any serious business” if the recreational market takes longer to come to fruition.

“There could be a lot of disappointment,” he said.

In a separate interview Monday with the Canadian Broadcasting Corp., Mr. Blair said the government was going to design a legalized marijuana system that included measurement and testing of products, as well as enforcement. While the proposed legislation is due this spring, “it’s not sufficient to simply come forward with a bill,” he said.

The government may also explore ways to direct revenue from marijuana sales to funding additional drug treatment, including for fentanyl as Canada grapples with an opioid crisis, he added.

Since taking a position on legalization ahead of the 2015 election, Trudeau has gradually turned toward emphasizing safety, saying regularly it shouldn’t be easier for youth to buy marijuana than to buy beer. Putting the file in the hands of a prominent law-enforcement veteran is another signal the government is approaching legalization with an eye to tight regulation.

Blair declined to comment on whether the regulations could be finalized by 2018 -- an expected election year in Ontario, home to Canopy and other companies -- or 2019, when the next federal election is scheduled.

The Task Force on Cannabis Legalization and Regulation issued a report in December that recommends the Canadian government regulate the production of marijuana while provinces control the distribution and retail sales, including through dedicated storefronts with well-trained staff or by mail.

Original Post: JEN SKERRITT AND JOSH WINGROVE

Bloomberg News, Published Tuesday, Mar. 07, 2017 2:10PM EST