Why It's So Hard for Small Farmers to Enter Canada's Legal Market

Much like California's Emerald Triangle, Canada's Kootenay (pronounced koot-nee) region in British Columbia (BC) is known for its small, off-the-grid pot growers, who are famous for their high quality, black market weed.

This past April, the Kootenay United Cannabis Association hosted an inaugural symposium in Nelson, BC, that was jam-packed with farmers and policymakers. All levels of the Canadian government were in attendance, recalls Kelly Coulter, a Vancouver Island-based advocate for small cannabis farms with a focus on women. “Easily over 200 farms were represented, which is a lot for people to come out and participate in that kind of government relations," she said.

The importance of having bureaucrats in attendance should not be understated, since the goal of the conference was to iron out the details of a new tier of cannabis licensing vital, in particular, to small farmers. And that's the micro license.

This type of micro licensing allows farmers to cultivate a canopy area of up to 2,150 square feet, or to process up to 600 kilograms of dried cannabis annually. Micro licensings was the result of conversations held by Health Canada and community stakeholders, including growers and local officials, but since the definition of a micro license is still loosely defined, it seems the devil is in the details.

Ian Dawkins, co-founder of Althing Consulting and a director for the BC Micro License Association (BCMLA), says that farmers applying for micro licenses face three primary challenges that have not been adequately addressed by the Canadian government: 1) access to land to grow legal crops, 2) the high price of applying for a micro license, and 3) stalling maneuvers from local municipalities, causing licensing delays. 

Since Canada legalized cannabis for adult-use last October, the market has been dominated by huge corporate players with deep pockets, including Aphria, Acreage, and Canopy Growth. Even though these companies could easily deliver legal weed to Canadian consumers, most Canadians, quite literally, aren’t buying it. In fact, 80 percent of cannabis-related commercial activity in Canada is still happening on the illicit market, as is most of the production.

But micro licenses, which have been in the works since the day Canada legalized, may be a solution to bring grey and black market growers into legal compliance. “One of the major concerns amongst the industry is that before legalization, it was very costly to get into [the legal market], and there weren’t really options,” Mathew Columbro, president and cofounder of Ontario-based Vindica Cannabis Corporation explained. “So, it’s having new licenses help to diversify the marketplace as well as bring mom-and-pop type operations on board.”

Dawkins, however, has his doubts about the viability of micro licenses. “Health Canada never wanted to include micro licenses,” he stated plainly. “Micro licenses were not part of the original framework. It was rolled out after extensive cultivation, after conversations with consultants.”

Nevertheless, Dawkins says he would like to see growers on the fringes of the cannabis industry participating in the legal market, noting that the existing illicit market is already a big part of Canada's marijuana economy. “They are a multibillion dollar economic segment,” he said. “Bringing them in means they can pay taxes [and] hire people. It means we no longer have such a robust black market because competition will come from the craft market, just like it did in beer.”

But first, there are some obstacles for regulators and farmers to clear.

Land Use Zoning Issues

Cannabis farmer Dustin Steckle said that in his experience, many Canadian municipalities have limited knowledge about micro licensing themselves, and do not seem to have any plan at all for zoning small, legal cannabis grows.

In British Columbia, the micro licensing process has been delayed even further because of local elections and disagreements about policies and procedures. Coulter, who believes that land-use issues are of genuine concern, said that “if the municipality chooses to restrict cannabis business licenses on different types of land — [for example] industrial, agricultural, or residential — then those businesses would have to seek out other parcels of land." In other words, if a farmer is currently growing on a particular plot, the municipality could step in and rezone it, displacing the entire operation, forcing farmers to seek out new growing areas.

An additional wrench in the works for aspiring legal farmers in BC — home to the Kootenays — is the Agricultural Land Reserve (ALR), a 1973 law that protects 4.7 million hectares of farmland from industry and residential development. Some cities, like Richmond, BC, have passed laws prohibiting concrete from being poured on ALR land, which cannabis growers frequently do to avoid pests like yeast, bacteria, and mold, as well as to protect crops from Canada’s cold weather.

High Price

Columbro explains that on its face, it is less expensive to get a micro license instead of a standard license. If you are Canada’s largest grower, Aurora Cannabis, with a net worth of $8.91 billion, coming up with the cash to apply for a standard cannabis license is a drop in the bucket.

“A large facility needs more staff, more upfront cash. A standard [license] has a lot more security requirements, which has a lot of upfront costs, construction, and equipment,” said Columbro. One micro license applicant, who requested anonymity, told Marijuana Business Daily that he estimates the up-front costs of obtaining a micro license could reach $1 million CAD. These costs include lawyers and consultants; the application fee of $2,500 CAD, a fully built-out facility (which must be in place to be eligible for a micro license), facility rent and other overhead costs while waiting for licensing approval, and a facility that meets GMP (Good Manufacturing Practices) standards.

To maintain their licenses, both standard and micro license holders are required to meet physical security measures, ongoing GMP standards, packing, labeling, and shipping requirements, and security clearances. So, even though the upfront costs for a micro license are smaller when compared to a standard license, when a micro license applicant is working with less starting capital and has been making their living quasi-legally in the black or grey market, those costs are significant.

A representative from the BCMLA said in an email that they were “extremely disappointed to see that micro license applicants would not have a ‘low barrier to entry’ as promised,” but are instead inching closer to the price of a standard license.

Licensing Delays

Last May, in a move industry insiders view as yet another licensing approval delay, Health Canada changed the cannabis licensing process to require applicants to obtain municipal approval before they can seek federal approval (prior to this policy change, this could have happened simultaneously).

Columbro, whose company Vindica works with prospective micro license applicants to manage the application process, said that the government started taking applications late last year. Estimating that Health Canada has around 150 applications to consider, he added, “I think because the licenses are so new, Health Canada is waiting to see a large number of them before approving. I think before they start approving people, they want to have a good swath of applications to refer to.”

So far, only one applicant has received a micro license — a BC-based company originally licensed for the Canadian medical marijuana market, now transitioned under the micro license rules.

Given the onerous and exorbitant application requirements, the foot dragging by Health Canada, and the zoning issues, why would anyone apply for a micro license at all? Steckle believes that many growers simply won’t and will continue to operate as they have already — on the legal fringes. “I feel that a large majority of the current underground market growers will continue to grow and capture that market as long as they can,” he said. “There are lots of costs involved for them to shut down while waiting to obtain their license. They work in cash, and cash is king!”

Dawkins says he would like to see small growers taken more seriously by both the government and the large corporate players. “We need the big guys to come to the table and say, ‘This market isn’t healthy, and that won’t happen until we get the craft guys to the table.’ And it’s high time that government at all levels start treating cannabis seriously."

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