The outdoor production of high-quality marijuana on a small-scale isn’t particularly challenging with the right genetics and a bit of gardening know-how yet for recreational users, access to legal sources of seed is restricted and other than in Newfoundland Labrador seedlings are not available.
A couple of years back I spoke with the lead grower of one of the Canadian-based marijuana companies which at that point had invested in two different production locations in southwestern Ontario.
He and his associates were at a college job fair, looking for employees. Anyone with a decent work ethic could find ground-floor employment at $21 an hour, I was told.
That was just a few weeks after recreational use marijuana − the industry generally prefers the term cannabis − had been legalized. It was a time of optimism, and rising stock prices, for industry participants and their investors.
It’s a different story today. Cannabis stocks have plummeted and retail prices have fallen.
In Ontario, a group of eight cannabis company CEOs, wrote to Ontario Premier Doug Ford in November, complaining of the lack of retail stores in the province.
“Our ability to continue to invest and sustain the jobs that we have created is being severely challenged by the province's current retail cannabis policy framework.”
They have a point. There were only 24 stores at that point while Alberta, with about a third of the population, had more than 300. Yet the lack of retail opportunities is likely the least of the industry’s challenges.
Companies – there’s close to 250 with production – will be looking to streamline their operations or close their doors entirely. Others will be swallowed by a wave of consolidation as competition grows fiercer.
That competition is not just in Canada. A Deloitte study, estimates the global cannabis industry will be worth $194 billion annually by 2025. Companies that have invested in Canada are also investing in other countries, including in outdoor operations in Jamaica and Europe where costs are far lower, and an international trade is already established.
Another consideration is what government likes to refer to as the illegal trade, the foundation for much of today’s licensed production.
According to Statistics Canada data, 42 per cent of Canadians purchased at least some of their weed from outside the licensed trade and another eight per cent said they were growing their own, or getting their supply from someone who does.
In my own backyard garden, two plants produced roughly 1.5 pounds or 680 grams of quality dried bud. At $6.50 a gram, the starting price for many licensed producers, that adds up to a value of more than $4,000 and with Ottawa’s Cannabis Act, a household can grow as many as four plants.
Put all these factors together and it comes down to one thing. Too much supply.
Here’s what Stephen McBride, chief analyst at RiskHedge and a contributor to Forbes Media, had to say: “In just a year after Canada’s historic pot legalization, pot producers built up a massive surplus of pot. In fact, only four per cent of pot produced in Canada in July has been sold! . . . The rest has been stored in warehouses, just like crops during the Great Depression . . . Now there’s more pot in Canada than folks will ever need and it’s only getting worse.”
McBride is on track. His view on the expanding production capacity of marijuana is reflected in unexpected source, a report from the Toronto-based advisory firm Posterity Group that was commissioned by Ontario’s Independent Electricity System Operator.
Only eight per cent of 910 acres of greenhouse capacity was being used in 2018 and it’s estimated will only be fully utilized in 2023. For indoor production, capacity was put at 82 acres in 2018 with only 16 per cent being used.
Add to that outdoor growing capacity in Canada which, arguably, is the way of the future anywhere the climate permits. Some prospective entrants have put their per gram costs as low
While the federal government has legalized marijuana and it’s been embraced by the corporate world and a growing number of farmers, opposition remains as evidenced by this sign posted in a rural area near Sarnia, Ontario.
as 20 cents a gram.
Government did the right thing with legalization but the regulatory system is lamentable, and it’s not just employees who stand to lose their jobs.
Current rules make it difficult, if not impossible, for small players to enter the industry.
Robert Graham, a Guelph lawyer, has given consideration to the situation. “The fact is: It takes a lot of money and a lot of time to build a facility (indoor or outdoor) and to traverse the licensing process. I think we all have the right to try to enter into the industry. We should all have equal access rights. Practically, however, this doesn’t equate to the right to be successful in such an endeavour.”
The natural fit for marijuana production is with small stakeholders. Even a handful of plants could provide a lucrative return, supporting such enterprises as market gardeners and small farmers and still earn revenue for government through taxation on sales for the benefit of all Canadians.
Rather than supporting a bottom-up approach however, the focus has been to a significant degree on the corporatization of the industry which, ultimately, will result only in low-paying jobs for Canadians.
Another concern is the manner in which most of the weed is being produced through this model. Indoor and greenhouse production is inefficient from an energy-use perspective.
In a world waking up the crisis of climate change, why are fossil fuels being burned to grow weed?
Yet another concern relates to the federal government’s four-plants-per-house rule. While that is allowed, the starting material − seed or small plants − is at best difficult to obtain from the licensed trade.
Graham weighed in on this point as well. He said the federal government, through Health Canada, has recognized that licensed producers will acquire their starting materials from either the “black” or “grey” markets.
“If Health Canada and the legal authorities are not going to commit resources to prosecute commercial growers for obtaining their cannabis outside the legal market, then they are certainly not going to encourage local or provincial police forces to invest resources in pursing individuals who do the same.”
Graham said he’s spoken with individuals in law enforcement who have said that since late 2017, certain elements of laws have not been prosecuted or pursued, given the legal uncertainty of the situation.
— Jeffrey Carter