Quebec is set to become the first province in Canada to sell legal cannabis grown outdoors. Toronto-based 48North Cannabis announced a letter of intent on Tuesday with the Société québécoise du cannabis (SQDC) to supply 1,200 kilograms of dried cannabis from the company’s 100-acre outdoor farm in Brant County, Ont., to Quebec’s government-owned retailer before the end of 2019. Jeannette VanderMarel, CEO of 48North, spoke with Cannabis Professional about what led to the deal, the operational challenges - and cost benefits - of growing cannabis outdoors, the state of competition in the outdoor cultivation space and where the company is looking to make its next deal. The full conversation, lightly edited for length and clarity, is reproduced below.
Cannabis Professional: Can you walk me through how this supply deal with Quebec came about?
Jeannette VanderMarel: We had responded to their product call like all the LPs do, but we were a little bit different because we said we were going to have outdoor products, which was unique at the time. I don’t think anyone else has come forward with a supply agreement for outdoor-based production.
CP: What was it about your proposal that appealed to them, was it a lower cost option or did they have customers in their stores asking for outdoor-grown varieties?
JV: The SQDC has been very proactive in the challenges they have in terms of both supply and their mandate of defeating the black market, so it was just in line with what their goals are. I think Quebec just realized that the volumes we could produce, though this agreement is just for a small part of our projected production.
CP: Is part of the appeal for Quebec the lower cost of outdoor-grown cannabis, or is your pricing comparable to what the other LPs are charging provinces for indoor-grown?
JV: We are very pleased with the projected margins on this. We negotiated a price that I think was very fair. It will certainly provide consumers with a lower-cost product but not significantly lower costs and also, there has been a lot of consumer preference for sustainable growth so because we are growing organically and without all the infrastructure and security needs that are required for indoor growing, I think there is a lot of consumer preference for quality outdoor-grown organic cannabis. It is kind to the environment [and] that is something that the legal cannabis industry has not been known for.
CP: Dealing with Quebec as an LP presents a unique challenge compared to the other provinces since you also need approval from their financial services regulator?
JV: It hasn’t been a challenge thus far, we are in the queue with the AMP and we haven’t faced any challenges with that so far, it seems to be moving forward nicely. And we are expecting that approval to come within the next month.
CP: You’re still looking for first cultivation by this spring or summer?
JV: Pending Health Canada license, absolutely. We are prepared and ready to go, other than there being a bit of snow on the ground. But the fence is in, security is in, we have sourced our equipment and our suppliers and our nutrients and our irrigation, everything is ready to go just pending Health Canada.
CP: Is that something you expect will come soon?
JV: We have no reason to expect a delay. We have had no negative feedback in any way whatsoever and we are certainly actively encouraging them to give us a licence. I also think this deal with the SQDC should demonstrate to Health Canada that their provincial partners are taking proactive steps to address the national supply challenge and that [granting us a license] will assist them.
CP: But even if you’re license was granted tomorrow, it is still February and this is still Canada?
JV: Absolutely, we would have to wait until spring [to plant the first crop] but there is a lot of work to be done in the meantime. Setting up irrigation, lots of hands-on labour but with the important criteria for Health Canada already done, but like any farm there is always a lot of work to be done. But this will address many of the challenges and it is a good alternative to greenhouses.
CP: What is your anticipated cost-per-gram for the outdoor farm?
JV: We are estimating 25 cents per gram at a dried bulk weight. That is just talking [operating expenses] not [capital expenses] and all those other things amortized in there. It is the production cost, though other than infrastructure in the form of a few pumps, there isn’t much else to spent.
CP: You guys are the first, but not the only LP moving into the lowest-cost outdoor growing medium, others such as CannTrust have expressed an interest at the very least, what is the state of your competition as far as you know?
JV: Well, we haven’t been to their sites but as far as I’ve been told, and obviously we have a lot of friends and colleagues in the industry, no one else is prepared for the 2019 season. I believe there are many who are projecting 2020 for their initial crops, but because I grew up in agriculture I knew that unless we got all the requirements into Health Canada in 2018, it would be almost insurmountable to be ready for planting in 2019 so we were very fast off the mark. As soon as the Cannabis Act came out and we saw that outdoor was listed we acquired the farm and jumped right into putting in the infrastructure and security that we needed.
CP: One of the issues often raised with outdoor versus indoor grows is that the tradeoff for lower production costs is lower quality, or even just a lack of consistently in product quality. How are you attempting to mitigate that?
JV: Choosing great strains is important because most of the cannabinoids come from the plant genetics. They are somewhat impacted by the environment but it is mainly from the plant itself. We are also planning for only about 10 per cent of production from the farm to go to dried flower, but we are having just a limited number of strains so that within those strains you should have consistent cannabinoid profiles. Ninety per cent of the products from the farm we expect will be extracts for use in next-generation products. Your cannabinoids don’t matter as much therefore, simply because as a blended product you will still have a consistent batch quality for your entire product line. It is funny because so many people are still questioning outdoor grow, but I always use the analogy for any plant-based extract like ethanol, canola oil or hops for beer, they are all grown outdoors and cannabis only moved indoors because of its illegality. It grows fantastically well in southern Ontario.
CP: Are you in talks with any of the other provincial distributors?
JV: Yes we are. With more than one.
CP: Could I get you to be more specific?
JV: The largest distributors in the country, we are speaking to all of the large ones.