A GROWING CONCERN
Marijuana producers are scrambling to ramp up output for expected 2018 legalization
Bill Panagiotakopoulos was surveying construction on his gated property just outside Hamilton when he got the call he had been dreaming about for years: His company, Beleave Inc., was officially Canada’s 44th licensed marijuana producer.
The entrepreneur debated whether to answer the call from an unknown number that fateful mid-May afternoon, but as soon as he heard he was on a conference call with Health Canada representatives, he broke into a run, frantically searching for a quiet place to talk. Panagiotakopoulos jumped into his truck just in time to hear the news: Beleave had the green light to grow pot.
His long-sought approval was granted a month after Ottawa announced plans to introduce the world’s second federally regulated recreational marijuana market on Canada Day 2018, or as enthusiasts have dubbed it, “Cannabis Day.”
With a year to go and amid predictions of a looming supply shortage, Health Canada is scrambling to add capacity, partly through recent regulatory changes designed to quickly increase the number of licensed producers and dedicated growing spaces.
Beleave was one of the last licensed producers admitted under the onerous process developed for the Conservative government’s commercial-scale medical marijuana market in 2014. Back then, it quickly became clear Health Canada preferred to deal with a small number of large, highly regulated producers.
Even though that is changing, Panagiotakopoulos, Beleave’s cofounder and chief operating officer, was stunned by the licensing news.
After years of hardship — from forgoing salaries to remortgaging homes to keep the company solvent — he and his friends are among the elite few to successfully navigate Health Canada’s highly regulated medical marijuana application process.
“Everything stops, everything that was on your mind goes, because this is something we’ve been building for almost four years with a lot of sacrifice,” Panagiotakopoulos said. “It’s always been a hard fight, so the people who say, ‘Big companies are taking this over, it’s only people in the know,’ well, it’s not.”
The founders of Beleave liken themselves to scrappy underdogs who persevered to become members of one of Canada’s most exclusive clubs. But the men have yet to celebrate since they are focused on how much work there is still to do. Everything they planned has to be put into practice — from security clearances and health and safety protocols to hiring employees and arranging their first shipment of plants.
The countdown is on at Health Canada, too.
The department initially approved two per cent of applicants at a pace of just one or two per quarter, but as of June 21 had approved more than five new producers since Beleave secured a licence in May. Three of those were doled out on a single day in June.
One reason for the increased pace of approvals is that many industry watchers have raised concerns about the ability of licensed producers to supply enough product in the early days of a legal market. Some of Canada’s 150,000 medical marijuana patients are already complaining of product shortages and the medical market alone is expected to increase to 500,000 patients by 2021, a projected demand of 150,000 kilograms resulting in sales of $1.8 billion, according to Canaccord Genuity. Meanwhile, the firm estimates there will be some 3.8 million additional recreational users, consuming an estimated 420,000 kilograms worth $6 billion by 2021.
Some 40 licensed producers grew a total of about 31,000 kilograms of marijuana in 2016, just five per cent of the expected demand, said PI Financial analyst Jason Zandberg.
“Even with the current funded capacity expansion, new licences awarded and potential yield improvement, we believe there is still a shortfall in production capacity of almost 50,000 kg,” he said.
In an attempt to head off a capacity crunch, the government dropped a surprise announcement in May. It would implement a number of changes to streamline the complicated, often-confusing and convoluted licensed producer application process in an effort boost production.
“This will make applications go through quicker, this will get producers to market quicker and this will expand production quicker,” said David Hyde, security adviser at David Hyde and Associates, who has worked with more than 80 licensed producer applicants.
Health Canada will double its staff and resources, a much-needed increase since the understaffed department gets buried under hundreds or even thousands of pages per application, he said.
The changes also make it easier for current licensed producers to expand, because Health Canada no longer needs to inspect current sites if a producer wants to expand. They also end a government-mandated production cap, instead allowing companies to produce as much as their vaults will hold.
Finally, the department will speed up the process for applicants in the review phase by allowing two of the most time-consuming phases — the personnel security clearance and the application review — to go ahead concurrently.
“I think this is going to be the beginning of a new frontier,” Hyde said. “They’ve realized they don’t have the production they need, that perhaps the regulation had been slightly stifling.”
On the same day the government announced its changes, Dan Sutton, founder of Tatalus Labs Inc., was frantically refreshing his email during a panel at the Lift Cannabis Conference, waiting to announce his Vancouver-based company was the 45th licensed producer after spending five years manoeuvering through Health Canada’s “changing goalposts.”
“Now that we’re getting our licence, I can say the journey was worth it,” Sutton, said in an interview after he broke the news to a room full of marijuana enthusiasts.
Tantalus Labs, named for the mountain range outside Vancou- ver — an homage to both the company’s focus on environmental sustainability and the legendary B.C. bud grown in the area — was the final member of the licensed producer club to be approved under the old Health Canada rules.
Despite being the 45th company to get a licence, it was the 21st to apply for one in August 2013, and watched others leapfrog it in the queue. As the first companies started to go public, Sutton said there was also a shift in tone from the government. “Health Canada went dark on us for almost 18 months and that was a real struggle ...” he said.
Sutton and his team continued to construct their greenhouses even as they had to interpret the everchanging requirements on their own by learning from others’ public mistakes and private musings.
Health Canada’s changes will make it easier on everyone in the queue behind him.
Still, Sutton said he is “stoked” that the backlog of applicants is beginning to lessen because the industry needs as many players as possible out of the gate to address a supply shortage he sees as inevitable.
Beleave management also insist they’re not worried about the competitors. They figure that even if the application processing time is cut in half, Beleave still has a massive head start in an undersupplied market.
(Government officials) realized they don’t have the production they need, that perhaps the regulation had been slightly stifling.