Vancouver Sun

CANNABIS ‘FIRE­WALL’

Pro­duc­tion, sales separated

- MARK REN­DELL Business · Marijuana · Retail · Shopping · Consumer Goods · Narcotic Drugs · Society · Industries · British Columbia · Palo Alto Networks · Anheuser-Busch · Tokyo · Canopy Growth Corporation · Tokyo Smoke · Aurora Cannabis · Maple Ridge

You can’t grow your bud and sell it too, the gov­ern­ment of Bri­tish Columbia told cannabis com­pa­nies this week, in a move that could make it dif­fi­cult for mi­cro-pro­duc­ers to com­pete and im­pos­si­ble for larger pro­duc­ers to get in on the re­tail ac­tion.

On Mon­day, B.C. re­leased its plan for a pub­lic-pri­vate re­cre­ational cannabis re­tail mar­ket, with gov­ern­ment-run stores and on­line sales along­side pri­vate brick-and-mor­tar re­tail­ers. Cannabis pro­duc­ers will sell to the B.C. Liquor Dis­tri­bu­tion Board, which will sup­ply whole­sale prod­uct to its own stores and pri­vate re­tail­ers.

There’s no cap on the num­ber of pri­vate re­tail li­cences. How­ever, there’s an im­por­tant caveat: “Where there is a close as­so­ci­a­tion (fi­nan­cial or oth­er­wise) be­tween a li­censed pro­ducer and a non-med­i­cal cannabis re­tail busi­ness, the re­tail busi­ness will be pro­hib­ited from sell­ing any prod­ucts from the li­censed pro­ducer,” ac­cord­ing to a li­cence ap­pli­ca­tion guide put out by the B.C. gov­ern­ment.

In other words, the gov­ern­ment has put a com­plete fire­wall be­tween pro­duc­tion and sales, ex­plained Kirk Tou­saw, a B.C. lawyer spe­cial­iz­ing in the cannabis in­dus­try.

The move has prece­dence within the al­co­hol in­dus­try where “you don’t have the An­heuser-Busch store, un­less it’s at the An­heuser-Busch brew­ery,” said Tou­saw. “But it struck me as a lit­tle bit strange … LPs ap­pear to be able to own re­tail stores, but they can’t sell their own prod­uct.”

The an­nounce­ment has thrown a curve­ball at li­censed pro­duc­ers with re­tail as­pi­ra­tions.

“We could open stores, but we couldn’t dis­pense prod­uct that is cre­ated by our com­pany,” said Alan Gert­ner, chief ex­ec­u­tive of Hiku Brands Com­pany Ltd., which was re­cently formed by the merger of Kelowna-based grower DOJA Cannabis Com­pany Ltd. and Tokyo Smoke, a re­tail-fo­cused cannabis brand.

There are still op­por­tu­ni­ties for Tokyo Smoke cof­fee shops in B.C., Gert­ner said.

But his com­pany will be in the odd po­si­tion of hav­ing to sell only com­peti­tors’ prod­uct.

The rules won’t only af­fect re­tail-fo­cused com­pa­nies like Hiku. Large LPs like Canopy Growth Corp. have been look­ing to ex­pand their re­tail pres­ence with Tweed Main Street stores. Aurora Cannabis Inc. just spent $103.5 mil­lion to ac­quire a 20-per-cent share in Liquor Stores N.A. Ltd., with the plan of trans­form­ing stores into dis­pen­saries. Liquor Stores op­er­ates mostly in the Al­berta mar­ket, but also has stores in B.C.

Keep­ing these big play­ers out of the B.C. re­tail mar­ket seems to be the ra­tio­nale be­hind the re­tail-pro­ducer fire­wall. Ac­cord­ing to the gov­ern­ment ap­pli­ca­tion guide, “This re­stric­tion en­sures that the mar­ket re­mains di­verse and larger par­tic­i­pants do not con­sol­i­date and con­trol the mar­ket.”

How­ever the rules could neg­a­tively im­pact smaller play­ers too.

“We’ve had our abil­ity to in­ter­act with an end user re­stricted, and to me that is a se­vere com­pro­mise not only for a free and open mar­ket­place … but es­pe­cially smaller pro­duc­ers,” said Dan Sut­ton, CEO of B.C.-based Tan­talus Labs, a mid­size grower based in Maple Ridge, that had been con­sid­er­ing en­ter­ing the re­tail mar­ket.

It could prove even more prob­lem­atic for the thou­sands of smallscale grow­ers in B.C. who were hop­ing for a sales model sim­i­lar to vine­yards and craft beer dis­til­leries, said Tou­saw.

“The fed­eral gov­ern­ment has done a great job bring­ing in these mi­cro-cul­ti­va­tors … But the pro­vin­cial gov­ern­ment has put the brakes on that by say­ing, ‘look, you can’t have a vine­yard model here, you’re go­ing to have to sell to the whole­saler’,” Tou­saw said.

“The prob­lem with that is the whole­saler is prob­a­bly not look­ing to buy a pound or two at a time, and a small cul­ti­va­tor may not have the abil­ity to grow enough to get into the whole­salers,” he said.

The B.C. gov­ern­ment has in­di­cated it may “may cre­ate ex­cep­tions in the fu­ture to sup­port mi­cro-pro­duc­ers.” The tim­ing around this, how­ever, re­mains un­clear.

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 ?? NATHAN DENETTE/THE CANA­DIAN PRESS FILES ?? Alan Gert­ner, CEO of Hiku Brands Com­pany Ltd., says his firm will have to sell only ri­vals’ prod­uct un­der B.C.’s re­tail plan that aims to pre­vent a mo­nop­oly by big play­ers.
NATHAN DENETTE/THE CANA­DIAN PRESS FILES Alan Gert­ner, CEO of Hiku Brands Com­pany Ltd., says his firm will have to sell only ri­vals’ prod­uct un­der B.C.’s re­tail plan that aims to pre­vent a mo­nop­oly by big play­ers.

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