Micro-cultivation canopy limit clarified for Canadian cannabis growers

Proprietors who obtain micro-cultivation licenses in Canada under a new proposal won’t be able to circumvent the canopy limit by growing cannabis on vertically arranged spaces.

The proposed limit of 200 square meters for micro-cultivation licensees would be based on the surface area occupied by all of the parts of cannabis plants, not just the floor space of the area in which the plants are grown.

“Therefore, under the proposed approach, if plants are arranged on multiple surfaces in a given area – such as on shelves vertically arranged one on top of each other – the area occupied by the plants on each shelf would need to be included in the calculation of total canopy area,” Health Canada confirmed to Marijuana Business Daily in an emailed statement.

“In other words, vertically arranging plants would not enable a cultivator to get more plants into an area measuring 200 square meters.”

No such canopy limit exists for current licensed producers of cannabis.

The proposed new micro-cultivation and micro-processing licenses are separate from the marijuana legalization bill currently before the Senate.

Health Canada also confirmed the rules as part of a memo circulated among industry sources, according to Deepak Anand, vice president of government relations for the consultancy Cannabis Compliance.

Anand has seen significant interest from gray-market growers in micro-cultivation licenses.

“I think (the 200-square-meter canopy limit) is more than enough to make a profit. If you truly want to run a craft, then this is a good way to do it,” Anand said.

However, Cannabis Growers of Canada spokesman Caleb McMillan called the 200-square-meter number “arbitrary, too limiting and unfair.”

The industry group represents over 100 current cannabis-related businesses.

McMillan said gray-market growers are “just going to keep breaking the law.”

Matt Lamers can be reached at [email protected]

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5 comments on “Micro-cultivation canopy limit clarified for Canadian cannabis growers
  1. Brett Roper on

    The micro-cultivation (grower) license type will, over time create significant value and opportunity for those wanting to set up with a focus on lower cost cultivation with a high quality resultant. I would suggest that based upon our analysis of the roughly 2,200 SF of canopy as currently envisioned in the Canadian based micro scenario, an efficient grower should be able to generate about 3,000 pounds of flower and trim (90/10).

    We would also suggest that the cost of cultivation, less real estate based operating costs (rent, lease, or ownership) and the capital investment to build out and start up the facility/operations (obviously much larger than the 2,200 SF of canopy) will run in the $1.50-$2.00 range per gram depending upon the finish level and local environmental conditions/infrastructure requirements.

    By comparison, if you dive a little deeper into say Canopy Growth’s (WEED) 3rd Q performance (2018), you will find that they grew approximately 3X+ more material than they sold (sold 2,330 kg while growing 7,961 kg), generated approximately $8.9M (2,330 kg at $8.30 per gram as stated) of the $21.7M in revenues in the form of cannabis sales and, by assigning 40% of the operating expense base along with the proportionate share of cost related to inventory production costs ran about $13 per gram to produce on a grossed up basis with an $8.30 per gram selling price.

    The value of $1.03 per gram to grow cost reference in the MD&A seems to be based upon expenses prior to assignment of costs related to shipping and fulfillment would only seem to represent the tip of the cost ice berg that will over time with scale move much lower. In this simple assessment I have not included unrealized gains or fair value information as reflected in the revenue cycle (gross margin adjustments) nor have I included stock compensation expenses in the operating expense base calculation which would have added approximately $18M to the expense base.

    These values were taken from the financial statements provided by the company and are ‘napkin style’ based quick assessments and may be subject to debate and correction. My hat’s off to Bruce Linton, his team, and Canopy for all they have brought to this industry, to Canada, and elsewhere globally. https://www.canopygrowth.com/wp-content/uploads/2018/02/Canopy-Growth-Corporation_Q3_2018_Financial-Statements_FINAL.pdf

    I strongly suspect the efficient micro-cultivator will become the mouse that roared but only time will tell.

    Reply
    • clayton mccann on

      “…[O]f the roughly 2,200 SF of canopy as currently envisioned in the Canadian based micro scenario, an efficient grower should be able to generate about 3,000 pounds of flower and trim…”

      Okay, so let’s see: 3,000 lbs X $50/lb* = $150,000, less operating expenses of $500/lb ($1.5 million) = you’re only $1.35million in the hole! Wow, that is “significant value and opportunity!”

      * Oregon’s current pound price in their dramatically over-supplied cannabis market.

      Reply
      • Brett Roper on

        Clayton … not sure where you are getting your pound numbers but I think your math is abit wonky … current pricing in Canada is running in the $8 a gram range or closer to $5,000 … even in a depressed market like Oregon quality indoor products were still holding up at just under $1000 a pound and yes, outdoor oversupply in Oregon drove flower prices down that were destined to be blasted/extracted.

        Once again, check your math as I did specifically refer to Canada and even with competitive pressures, my point was that a micro cultivation without the additional massive overhead of a large LP could become quite the competitive influencer done right.

        Reply
    • Brett Roper on

      My bad in that as noted, subject to correction the gram weights in my calculation were in pounds rather than KG (stuck in pounds mode) so the revenues were correctly stated in referencing $21.7 in Cannabis sales … they did overproduce in the quarter by growing almost 8,000 KG and only selling the 2,330 as noted.

      Generally, once they begin to scale their cost per gram will begin to fall sharply but the $1.03 per gram value clearly does not include operational expense of $44M absent of the changes in biological asset and fair changes on financial assets as positive offsets which would have resulted (on actual grams produced of about 8,000,000) in an additional cost of about $5.50.

      Apologies for my flawed initial math!

      Reply
  2. Eldon on

    So my biggest question about all the grow`s going on line if and when the product does not pass the
    lab test what happens to the spoils of the failed crop? Say the crop is 500 kg.fails quality test what is the plan for disposal or can oil be extracted with out the pesticide or nutrient lock that is bound to happen .

    Reply

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