Jameson Berkow is editor-in-chief of The Rise, the entrepreneurship publication of cannabis venture capital firm Canopy Rivers Inc.
Less than half of 1 per cent.
In a country where 98 per cent of all businesses are small businesses, that is how much of Canada’s total licensed pot cultivation space is controlled by small businesses. The figure also represents a generous estimate for the level of attention federal policy makers gave to aspiring entrepreneurs when they designed our legal cannabis regime.
Just 25 licences for micro-cultivation or processing of cannabis have been issued, according to the latest Health Canada data. Assuming every one of them is using the maximum 200 square metres of canopy space their licence allows for cultivation (many are opting in fact to become micro-processors, which involves turning the dried flower into extracts or distillates), you arrive at a total of 5,000 square metres.
As a proportion of the 1,211,615 square metres of indoor cultivation space approved by Health Canada as of Jan. 31, micro-cultivation accounted for a whopping 0.41 per cent. Add the 180 hectares of licensed outdoor cultivation space to the total and the micro-market share falls to a barely noticeable 0.17 per cent.
Seventeen months after recreational cannabis legalization took effect, the shockingly low rate of small-business participation feels like more than just a policy oversight. Willful disregard feels more accurate.
The clear ambivalence in Ottawa toward cannabis entrepreneurs is arguably already having implications for displacing the illicit cannabis market. How can the federal government possibly hope to rival the century-old illicit market – itself comprising mostly small, local entities – when they refuse to fight fire with fire?
Moreover, where is the public-safety benefit from denying countless Canadians the right to earn an honest living, create jobs and contribute to an exciting new part of the economy?
Health Canada didn’t even start accepting micro applications until recreational legalization took effect in October, 2018. That was despite announcing plans to offer those licences in November, 2017, with the goal being to “enable a diverse, competitive legal industry comprised of both large and small players,” according to a news release at the time.
The unexplained delay handed existing large-scale medical cultivators a head start in the race for recreational legal market share. Then, less than seven months after Health Canada started accepting micro applications, the regulator set aspiring small cannabis businesses even further back.
As of May 8, 2019, those seeking any sort of licence to grow cannabis could not even submit an application until they had a fully built facility ready.
Entrepreneurs now had to spend several hundred-thousand dollars and wait for months or even years before they could expect to start earning revenue. And yet, as the barriers to entry rose, the strict 200-square-metre canopy limit for micros kept the potential returns low.
Many have argued that limit makes it impossible for micro-cultivators to maintain a consistent supply chain and as a result, some have struggled securing wholesale deals.
In December, Kieley Beaudry of Alberta-based micro-cultivator Parkland Flower Inc. was told by her provincial wholesaler – Alberta Gaming, Liquor and Cannabis – that micros “do not produce enough product for [AGLC] requirements, therefore we would not engage in business with them at this time.”
The government agency was quick to reverse itself, telling Ms. Beaudry later that same day it had no minimum production requirements and was indeed willing to do business with Parkland Flower and other licensed micros. Such fundamental confusion, however, is indicative of the environment Ottawa has helped create, where small businesses are too often left grasping in the dark as federal officials remain unwilling or unable to illuminate the path forward.
In the absence of national leadership, some provinces have taken on the task themselves. British Columbia has put $675,000 toward a program called the Cannabis Business Transition Initiative. The program offers free consulting and advisory services to help small-scale, legacy cannabis growers in B.C.’s famed Kootenay region – many of whom have been operating illegally for decades – transition into the legal regime.
New Brunswick, on the other hand, is making matters even worse for cannabis entrepreneurs. The province has put its entire chain of Cannabis NB retail stores up for sale, but only to a single buyer.
Given the choice between allowing local small-business owners to bid on individual stores and handing a monopoly to a single large player, it seems fairly obvious which option will foster a competitive market that maximizes both economic growth and consumer choice.
There will still be plenty of thriving craft-level cannabis producers in the future Canadian cannabis market once the anticipated wave of high-level consolidation is complete. They just, for the most part, won’t be legal.
Ottawa can help avoid that future by actively co-ordinating with other levels of government and clearing a path for entrepreneurs to make their way into the new system. Doing all that, however, will likely require at least one full percentage point of its attention.