Canada’s current market leader in the cannabis industry is at risk of surrendering its extensive competitive advantage to corporations based in Alberta and Ontario, executives and analysts told Marijuana Business Daily.
Businesses in three key areas of the industry – retail, craft production and ancillary – say British Columbia is dragging its feet on essential regulations.
British Columbians will have a choice between privately run and government-operated retail stores when legalization lands this fall, but the province has yet to outline how the licensing system will work.
“What’s the avenue that’s going to take them from where they are today, which is completely illegal, to be able to apply for legitimate licenses to retail cannabis?” asked Deepak Anand, vice president of government relations for Toronto-based consultancy Cannabis Compliance.
“Time is running out. Oct. 17 (the date when legal sales begin across Canada) is quickly approaching us,” he noted.
British Columbia is staring down an industry that will one day be dominated by massive corporations at the expense of entrepreneurs, industry sources say.
“The craft producers that are the backbone of the British Columbia’s cannabis economy have no business here in the current regulations,” said Dan Sutton, CEO of Maple Ridge-based Tantalus Labs.
“The government is saying to us, ‘We want large firms to succeed, and if you’re a small craft producer and you want to become legal, there’s no room in this market for you.’”
Concern that the province’s wholesale monopoly is “lowballing” cultivators for supply also remain, with current prices being quoted in the range of 3 Canadian dollars ($2.28) to CA$4.50.
Such a move “would motivate producers to stay in the black market,” Sutton said.
“We are ignoring this massive multibillion-dollar industry that’s a critical opportunity for British Columbians. We’re shipping our industry to Ontario and Alberta.”
Allowing sales of cannabis directly to consumers on farms – known as farm gate sales – would vastly improve the economics for craft cultivators, who are expected to struggle with tight margins.
While micro-cultivation licenses fall under federal jurisdiction, provinces have the ability to enable farm gate sales – even if it is on a case-by-case basis.
While other provinces plan to allow these sales, British Columbia so far has not.
That could deter a significant number of the province’s illicit market operators from joining the legal market because they would struggle to be profitable.
British Columbia already lags Ontario in the number of licensed producers – 24 versus 59, respectively.
If the province fails to create an economic framework that allows craft producers to be profitable, that will have a negative impact on downstream businesses, including greenhouse suppliers, designers, lawyers and accountants, according to analysts.
The province has control over three key areas – allowing farm gate sales, the wholesale price and online sales.
“It all starts with the producer,” Sutton said. “If the producer is handicapped, that means the ancillary businesses they will support (will feel the pinch).
“We’ve been looking at this industry as an inevitable goliath. The truth is, none of these (legal) businesses have made money yet. None of these businesses are profitable.
“We cannot overestimate the necessity for nascent industry support from the government.”
Matt Lamers can be reached at [email protected]
To sign up for our weekly Canada marijuana business newsletter, click here.