Marijuana clones at a Licensed Producer in Canada.
If there’s one thing hotter than cryptocurrencies these days, it’s the cannabis industry in Canada and abroad.
What started as a highly risky clutch of tiny companies in 2012 has now turned into the fastest growing industry in Canada, with no fewer than five companies boasting multibillion dollar valuations.
The value of these companies is soaring even higher this year, as Canada prepares for full legalization. The temptation to transform one’s existing farm property has never been higher, but is it a good bet right now?
To be blunt, if you’re starting from scratch, it would be very difficult indeed to go through the licensing process with Health Canada and become a Licensed Producer (LP). And, if you did, the likelihood is that the large companies out there today will already have dominated the Canadian market.
That does not mean, however, that there’s no hope for farmers wanting to get into the lucrative cannabis trade.
As someone who has worked in this industry almost since its inception, I’m approached almost daily by people who want to convert either a greenhouse complex, a farm property, or an industrial property into a massive weed farm. It is my sad task to inform folks that, unless they are very lucky and very clever indeed, it is not likely they will be buying Ferraris or private islands any time soon.
To give you some idea of how difficult the licensing process is, consider there have been 1,665 applications for a cultivation license in Canada, as of May 25, 2017. Of those, only 86 companies have been approved as Licensed Producers under the Access to Cannabis for Medical Purposes Regulations. The rest were either rejected, abandoned, or sent back because there was some defect. As of last year there were 428 applications still in process.
Most of the people in the industry that I know actually believe that getting the cultivation license is the end stage, but it’s not. The task of getting your license to sell cannabis is almost as hard.
Of the 86 Licensed Producers in Canada, only 35 are licensed to both grow and sell, and just going from the cultivation license to the sales license takes more than a year on average. In some cases, it may take several years.
On top of all that, if you applied for a license today, you have to realize there are about 400 companies ahead of you in the queue.
All of that sounds pretty hopeless, but in fact one can see a glimmer of hope through the darkness, depending on one’s location or the stage they are at.
The most obvious way forward is through the new ‘craft grow’ program announced by Health Canada in November. While it will definitely be very difficult to start a large-scale Licensed Producer at this late stage, Health Canada has opened the door to the possibility of small-scale growers.
Under those proposed regulations, the government would allow small grow ops to exist, operated even by low-risk criminal offenders, who could then sell into the larger industry. One way that might happen is selling through another Licensed Producer, such as the Tweed Mainstreet online portal operated by industry giant Canopy Growth.
It may also be possible to sell to local licensed dispensaries in your area, provided you live in a province where private dispensaries are allowed. For example, Ontario will have publicly owned and operated stores, but Manitoba will have private retail stores.
These regulations have not yet passed, but they are expected to be part of the new legislation taking effect in July this year.
The other option is doing what’s known in the industry as a second site license, which involves approaching an existing Licensed Producer, and essentially selling out a significant interest to that producer. Normally you’ll end up with the producer taking over the licensing and construction process, and will likely end up with shares in the new company, and may continue running your operation under the new owner’s supervision.
In my experience, second site applications are much more likely to get approved, and they are also approved more quickly.
This may seem unfair to the hundreds of companies still stranded in the queue, but the truth is, these existing LPs have already been through the security clearance process, and more importantly they already have established systems to get through the various inspections required by Health Canada.
Pretty much every major Licensed Producer in Canada is looking for partnerships on second site applications, but they tend to look for companies that are already in the licensing queue, rather than those who have not yet made an application.
So, if you have already submitted your application your best bet is generally to partner with an existing LP. If you have not submitted your application, you would have to first push your application through to a certain point before a partner would seriously look at you.
Under the current ACMP process (which has seen three major rewrites since 2012) there is a six stage process to getting your license. The Intake and Initial Screening looks at the quality of your application, and to do an application you will need to hire a certified Quality Assurance person and a Master Grower to design your Standard Operating Procedures (SOPs), your Quality Assurance Protocols (QAPs), and your Good Growing Practices.
There are also a number of companies that specialize in putting together applications, and it’s worth looking at hiring one of these companies unless you find a QA expert who’s been through the process before.
You then have to go through a security clearance stage to make sure you’re not actually a Colombian drug lord going through a career change. The next step is to build your facility, and in this regard I personally differ from most consultants.
I recommend building a very small facility first, for a couple of reasons. First, the smaller the facility, the less there is to go wrong. If Health Canada finds even one small defect, you won’t pass, and you’ll have to then fix those defects and wait for them to come back. Secondly, why spend a huge sum on a facility, when you can’t be absolutely sure the growing method you choose is the one you’ll stick with long term?
Health Canada has made it much faster and easier to amend your license these days, so it’s just smarter to build small, get your license, and then amend your license after you achieve both your cultivation license.
You then have to go through at least one or two grow cycles (another good reason to stay small at first), and you must go through every single SOP, QAP and GGP process perfectly to get your sales license. Again, this is very difficult, and most companies take a year or more to go through it.
However, once you get your Pre-Sales Inspection complete at Stage 5, you then qualify for the full License to Sell.
Summing up, there are really two ways forward if you are either new to the process, or in the early stages of your application.
First, if you’re new, you’re probably better off applying for a Craft Grow license when and if these become available under the new laws in July. Such a license might not replace your farm income, but it could greatly supplement that income.
If you are in process as an LP applicant, seriously look at working with an existing Licensed Producer on a second site application. You can find the entire list of licensed producers online, which you can find easily by searching for “Licensed Producers Canada” on Google.
The final things you’ll need are enough capital to last through this long and arduous process; a healthy stubborn streak, and luck. Lots and lots of luck. ■
Gary Symons is President of Deep Incite Consulting Ltd., and has worked in the cannabis industry since 2012. Among other things, he is Director of Communications at Delta 9 Cannabis Inc. The opinions expressed in this article are those of the author, and do not reflect the opinions of Delta 9 Cannabis Inc.
