A GROW­ING CON­CERN

Mar­i­juana pro­duc­ers are scram­bling to ramp up out­put for ex­pected 2018 le­gal­iza­tion

Ottawa Citizen - - FP OTTAWA - SUNNY FREE­MAN

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 Van­cou­ver — 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.

PHO­TOS: GLENN LOW­SON

Be­leave is one of the last li­censed pot pro­duc­ers ad­mit­ted un­der an oner­ous reg­u­la­tory process, as Health Canada tries to deal with a fore­casted sup­ply short­age.

From left, Be­leave CEO Roger Fer­reira, COO Bill Pana­gio­takopou­los, CFO Bo­jan Kra­sic, di­rec­tor Gor­don Har­vey and mas­ter grower Shane Stubbs at their Hamil­ton fa­cil­ity. After years of hard­ship, co-founder Pana­gio­takopou­los and his friends are among the few to suc­cess­fully nav­i­gate Health Canada’s reg­u­lated ap­pli­ca­tion process.

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