B.C. advocates warn craft producers could be shut out

Industry groups make appeal to ministers

British Columbia marijuana advocates are warning that thousands of small-scale producers could be left out of the upcoming legal adult market unless the federal and provincial governments change their approach to craft cannabis.

That would put a significant dent B.C.’s economy and make it difficult for legal growers to undercut the black market, say five industry groups that signed an open letter, released Friday, to federal Justice Minister Jody Wilson-Raybould and B.C. Attorney General David Eby.

“This is not a greenfield economic activity,” said Ian Dawkins, acting president of the Cannabis Commerce Association of Canada, one of the signatories. “What we’re asking for is people to be integrated into that system, rather than being shut out.”

The group wants microproducers to be granted growing licences so they can begin discussions with provincial wholesalers, now lining up supply contracts with producers already licensed to sell medical cannabis ahead of day one of recreational legalization. They’re also asking federal regulators to change the rules around micro-grow licences. Federal rules cap the size of micro-grow facilities at 200 square meters, or roughly 2,000 square feet.

“Your clones and your 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,” said Dawkins, who suggested 5,000 to 10,000 square feet would be more commercially viable for small-scale grow-ops.

“The first thing that’s going to happen upon legalization is that prices are going to go (down)... Not all micro producers will survive, but the ones that do need to be a little bit bigger,” he said.

A more fundamental concern is that small-scale growers will be squeezed out by low wholesale prices offered by the B.C. Liquor Distribution Branch, the middleman for all recreational sales.

According to Dawkins, the BCLDB has suggested, in preliminary discussions on wholesale pricing, that it will buy cannabis at an average of $3 or $4 per gram. Small scale producers are going to have difficulty making money at those prices, he said.

Even medium-sized growers are going to have difficultly generating profits at these prices, according Dan Sutton, CEO of Tantalus Labs, a Maple Ridge, B.Cbased licensed producer.

The problem, according to Sutton, is that provincial wholesalers are basing their prices on cost-data reported by publicly traded licensed producers. But this data, he argued, is being presented in an overly-optimistic manner to attract investors. “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,” said Sutton.

For both Dawkins and Sutton, the price compression problem could be partially solved if the BCLDB moved away from physical wholesaling and allowed producers to ship directly to retailers. Likewise, craft growers could potentially find greater margins if they can sell direct to consumers at their grow facilities.

NOT ALL MICRO PRODUCERS WILL SURVIVE, BUT THE ONES THAT DO NEED TO BE A LITTLE BIT BIGGER. — IAN DAWKINS