Experienced marijuana growers face plenty of challenges transitioning to the regulated market, but Canadian cannabis industrial park Sitka Weed Works pitches its business model as a way to help growers make the switch – and sell craft cannabis for a profit.
The industrial park is based in British Columbia, on the southern tip of Vancouver Island.
It does business as Sitka Legends and is located in the seaside municipality of Sooke.
Sitka serves two key roles for its partner growers, who have micro-cultivation licenses (a license type meant for small-scale producers):
- Micro-cultivators lease production space from Sitka.
- Sitka serves as the licensed processor for those small growers, processing and packaging their crops and selling it to distributors.
The site was originally an industrial park that Sitka repurposed for licensed cannabis production, said Michael Forbes, majority owner and CEO of the privately held company.
By the time the site was licensed, Forbes said, “we had missed a lot of the hype.”
Forbes said Canada’s micro-cultivation license category opened a new path to the legal industry for “legacy market” growers in B.C., a province famous for cannabis production.
“It’s very, very clear that the growers are in my neighborhood,” Forbes said.
“We interviewed over 400 growers and picked the best of the best to lease these units to them, that were built specifically for micro-cultivators.”
Partnering with micro-growers
Forbes said Sitka’s tenant growers pay about 9,000 Canadian dollars ($7,000) per month to rent each unit, which are roughly 4,500 square feet in size.
Sitka has the right to buy their cannabis output, process it, package it and sell it.
The revenue from those sales gets split with the growers, with Sitka taking a 30% cut.
Forbes said the business model is profitable for both Sitka and its tenant growers.
He believes partnering with Sitka helps small growers avoid the time- and capital-intensive process of securing and rezoning land and building out a production facility.
Sitka also provides its growers with market data to help them focus their production.
“They are their own companies, but they’re our tenants and they’re in contract with us to sell (us) their weed,” Forbes explained.
“(We’re incentivized) to make sure that they’re growing the right cultivars and the right type of weed so that it sells – because otherwise, how are they going to pay the rent?”
Sitka currently hosts six micro growers in its 10 operating units, with some leasing more than one unit.
Forbes said the company has 53 growing units approved, with plans to bring on more growers and add a cannabis nursery as well as farm-gate sales in the future.
The entrepreneur is also CEO of Canadian cannabis extractor and manufacturer Adastra Holdings, and his business portfolio includes cannabis retailers in B.C. and Alberta.
A tenant grower’s perspective
Licensed micro-cultivator Quadessence is one of Sitka’s tenant growers, leasing one unit in the industrial park.
Operations director and manager Carl Ketch, who owns part of the business, said he started growing cannabis under Canada’s old Access to Cannabis for Medical Purposes Regulations and “really developed a passion for it.”
After adult-use legalization, Ketch said he planned to develop a commercial cultivation facility on his own.
“I talked to every single municipality on all of Vancouver Island, and no one was even entertaining it, except for in Sooke,” Ketch told MJBizDaily.
“When we met (Sitka), that really opened the doors for us to be able to enter into the legal space.”
Ketch said the landlord-processor has “been very willing to work with us, and they understand the challenges that we are going through, obviously, no different than anyone else in this space.”
“They’ve been more than doing their part in trying to allow us to be successful at the same time as us working with them.”
Ketch said Quadessence and Sitka originally agreed on the 70%-30% revenue split from sales of finished cannabis.
“But we are negotiating within that contract,” he said.
He explained that Quadessence is interested in taking slightly less revenue in exchange for getting paid up-front, rather than waiting until after the wholesaler pays Sitka.
Quadessence has achieved profitability, Ketch said, and is starting to invest money back into the business with upgrades such as an irrigation system and environmental controls.
Asked whether he would recommend that other micro-growers partner with a landlord-processor such as Sitka, Ketch said it depends on the specifics of the business agreement.
“It depends on the people that you’re working with, and it depends on your experience level that you have going in,” he continued.
“Because if you don’t have experience and you’re trying to enter into this space, you’re going to get crushed very quickly unless you have very deep pockets.”
Quadessence’s arrangement with Sitka helped the grower enter the industry despite limited funding, Ketch said.
“Honestly, if we had started out as a (micro-cultivator) that was going to try to depend on our own sales, our own branding, and all of those things – I think we would very quickly have been trying to sell our product (in) bulk to a (licensed producer), and I know other micros who have tried to do that who have had those challenges.”
Third-party analysis
Lucas McCann is co-founder and chief scientific officer of Toronto-based cannabis consultancy CannDelta, which is unaffiliated with Sitka.
He said the idea of multiple cannabis growers under one roof – albeit with separate addresses to satisfy regulatory requirements – “was a common business model that we were pitched, especially at the beginning of adult-use legalization.”
That said, McCann is unaware of a similar business actually operating in Canada today. (One of CannDelta’s clients is working to open a similar business, he said.)
Many Canadian cannabis growers lease their production space, McCann added.
“Whether or not they’re paying the same person who’s also their central cannabis processor, I don’t really see as a significant detail.”
Although a micro-processing license type exists to accompany micro-cultivation licenses, not every micro-cultivator may want to process their own cannabis, according to Gord Nichol, president of Saskatchewan micro-grower and micro-processor North 40 Cannabis, who is also unaffiliated with Sitka.
“Unless you’re pretty good at it, you’ll lose money at it,” he said.
A micro-processing license requires a Quality Assurance Person (QAP), which can be a significant hurdle, Nichol explained.
“I’m not sure (processing) is a profitable move at a micro level, because you don’t get to scale anything up,” he said.
“If you want to automate it all, that’s very expensive equipment, and you’re not really going to get the most out of it,” Nichol continued.
“You can’t run it full-time and reap the benefits of that – and then, of course, you’re not getting the big deals on your packaging.”
Nichol believes Sitka’s revenue-split model could be profitable for micro-cultivators, provided the product fetches good prices.
Dried cannabis from Sitka tenant-grower Quadessence is currently listed on the Ontario Cannabis Store website for CA$47.95 for 3.5 grams, putting it on the higher end of OCS retail pricing.
On the BC Cannabis Stores website, a different cultivar from Quadessence retails for CA$36.99 for 3.5 grams.
Quadessence’s Ketch said pricing depends largely on THC potency as well as terpene content.
“We’re both incentivized to get the highest price possible for the gram of cannabis,” Sitka CEO Forbes said.
“So that’s why we’re very focused on high, high-quality cannabis.”
Solomon Israel can be reached at solomon.israel@mjbizdaily.com.
