B.C. Cannabis producers concerned about being shut out of market

Jul 17, 2018

Small-scale cannabis producers in British Columbia could be denied access to the impending legal market if the federal and provincial governments don’t make essential changes to the legalization policy. In an open letter to federal justice minister Jody Wilson-Raybould and B.C. Attorney General David Eby, five B.C. industry groups have claimed that this exclusion will negatively impact the province’s economy as well as prevent small-scale cannabis operations from effectively competing with the black market.

Ian Dawkins, acting president of the Cannabis Commerce Association of Canada and representative of one of the five signing industry groups, says it isn’t a “greenfield” economic activity, but that what they’re asking in their letter is for “people to be integrated into that system, rather than being shut out.”

Among their requests, the five groups are pushing for micro-producers to be given growing licenses that will help them compete with provincial wholesalers. Currently, wholesalers in B.C. have the jump on the competition, as unlike micro-producers, they’ve been given enough time to set up supply contracts with licensed producers so that they’ll be able to provide consumers with marijuana immediately upon legalization.

“All it’s going to take is the inevitable bread lines around the block and a lack of quality cannabis supply, before those liquor distribution boards have to add a bit more flexibility” – Dan Sutton, Tantalus Labs

Also, the group is requesting that the rules around micro-grow licenses be changed to remove the federal licensing limit on micro-grow facilities’ square footage, currently set at approximately 2,000 square feet. Dawkins says “clones and non-budding plants need to be accounted for in that 2,000 square feet as well, which means that you’re effectively much smaller than that,” and says 5,000 to 10,000 square feet is a much more commercially appropriate space restriction for small-scale marijuana producers.
“The first thing that’s going to happen upon legalization is that prices are going to [decrease],” he adds, “[and] not all micro producers will survive, but the ones that do need to be a little bit bigger.”

Additionally, concerns have arisen that small-scale producers will be left out of the competition by British Columbia Liquor Distribution Board wholesale cannabis prices. As Dawkins says, the BCLDB will be buying marijuana from producers at $3-$4 a gram, an amount that will squeeze small-scale profit to pennies. Even medium-scale producers will not see much profit at this wholesale rate, says licensed producer and CEO Dan Sutton from Tantalus Labs in Maple Ridge, B.C. According to Sutton, in an effort to attract investors, provincial wholesalers are pricing marijuana based on overly optimistic data produced by publicly traded licensed producers. “Essentially we don’t have a business at $3 a gram,” he says. “The micro, micro market won’t have a business at $6 a gram…Firms are claiming that they can grow at $1.60 or $2 a gram. Actually if you look at their all-in costs… it’s more like $4 or $5 a gram. And that’s the large guys.”

Sutton and Dawkins both think a solution could be found if the BCLDB allowed producers to deal directly with retailers and consumers, rather than have to resort to wholesaling and the “middle man” approach. This especially helps small-scale producers as they will then be free to sell cannabis to local consumers, not unlike the practice of micro-breweries or wineries.