Health Canada recently proposed numerous changes to the federal cannabis regulations, including increasing capacity for micro cannabis cultivators and processors, as well as cannabis nurseries.
The industry’s response to these proposed changes has generally been positive. Many of the proposals will streamline specific aspects of the regulations, arguably saving industry and the regulator time and money. The proposal also contains some changes that are likely to benefit consumers, such as allowing more than one gram in a pre-roll or allowing view windows on some dried cannabis packaging.
The increase in the amount of space someone can grow cannabis under a micro cultivation limit is something many micro cultivation licence holders tell StratCann is not a priority, or even something they can afford to take advantage of.
This distills down to several key reasons, says Jeff Aubin of Smoker Farms, a micro cultivator in BC’s interior. The significant issues are the federal and provincial taxes and regulatory fees. But another issue is the challenges small growers like him face in balancing all the stops in the supply chain before their product reaches consumers, and the small portion of that total consumer price that they get to keep.
“It’s completely tone-deaf from the government to even think this is the problem that everybody is facing in the cannabis industry,” says Aubin. He says other micro growers he talks with echo the same sentiment.
“Nobody says ‘Oh I don’t have enough space to grow more weed’. No, it’s always the same. I’m being overtaxed and over regulated to death. And it’s completely unsustainable.”
Aubin says even if he could afford to build more, he likely won’t, noting that he is currently only using about 3/4s of his allowed 200m2, something many other micros tell StratCann as well.
“We’d love to increase the size of our footprint, but just the construction of a new building and the price of construction these days is so daunting compared with price compression of cannabis. Raising capital to expand four times is pretty extreme for a micro cultivator like ourselves.”
Kevin McBride, Kootenays Finest Craft Cannabis
Not all micros are entirely opposed to the change, though. Kevin McBride, the general manager and QAP at Kootenays Finest Craft Cannabis, another micro cultivator in BC’s interior, says he would consider expanding his footprint if he could afford it. However, he also says he would likely build a second micro facility rather than expand his existing footprint.
“It seems like a double edged sword,” says McBride. “We’d love to increase the size of our footprint, but just the construction of a new building and the price of construction these days is so daunting compared with price compression of cannabis. Raising capital to expand four times is pretty extreme for a micro cultivator like ourselves.”
In addition, expanding that much would mean hiring more people to manage the extra grow space, or risk quality dropping, he continues.
“We’ve got about as much as we can handle here. For us to quadruple our staff, genetics, quadruple everything, I don’t think we could do it even if we wanted to. Not to mention the raising of the capitol to do that.
“If you think about micro, craft growers trying to be as hands-on as possible. Bigger isn’t always better. The bigger you are the more automated you are, the less hands on you are. The quality seems to go down. I don’t think bigger is always better with growing.”
Instead, McBride thinks the offering may be more about benefiting smaller and mid-sized standard cultivators who would gain from some lower fees by being classified as a micro.
“To me, this seems more of an offering to medium to smaller standard LPs to lighten their load as opposed to helping micros.”
“If they wanted to really help us, where’s the help on the excise tax?”
“Nobody says ‘Oh I don’t have enough space to grow more weed’. No, it’s always the same. I’m being overtaxed and over regulated to death. And it’s completely unsustainable.”
Jeff Aubin, Smoker Farms
Aubin at Smoker Farms agrees with the concerns about excise tax but adds that there are many other issues preventing growers like him from profiting, too.
“Excise is the number one thing on the tip of everyone’s tongue,” Aubin continues. “But it’s not just that, it’s provincial taxes and fees as well…So it’s not just the excise tax, it’s the provinces that are really greedy on it, too.
“The provinces are affecting us just as much as anything else. All these provinces have such different rules. There’s no standard when it comes to trying to get your product in a province and there’s no standard how much it’s going to cost, or when you get paid.”
Josh Beckett, the owner of Magi Cannabis on Salt Spring Island in BC, takes a similar view to McBride in that he sees the proposal as something more likely to benefit standard cultivators who are already operating within, or close to, the proposed 800m2 canopy, rather than helping micros like himself get bigger.
This is because micro cultivators pay a lower rate in terms of federal regulatory fees.
While micro cultivation, micro processing, and nursery licences pay an annual $2,500 regulatory fee to Health Canada, standard cultivation, standard-processing, and sale for medical purposes licences pay $23,000. And, while micros pay 1% of their revenues on sales up to $1 million (and 2.3% on any revenue over $1 million), standards pay a flat 2.3%.
“What is the benefit of having a micro that’s four times bigger? What does it matter? Why not just go for a standard licence, or would it be better to go for a second micro?
Josh Beckett, Magi Cannabis
Since the cost of adding four times as much cultivation space would be so high, especially with the added costs of construction (and nearly everything else) since COVID-19, he says he doesn’t think most micros will be expanding, but he does see some producers downsizing to a new larger “micro” licence.
“What is the benefit of having a micro that’s four times bigger?” asks Beckett. “What does it matter? Why not just go for a standard licence, or would it be better to go for a second micro? If you were going to quadruple space, wouldn’t it be better to go for another micro licence so you could take advantage of another $1 million of 1% instead of a 2.3% gross licensing fee?
“I’m trying to wrap my head around what the big advantage is here. What is the carrot they are throwing at us with this?”
The most significant current limit for his operation, explains Beckett, is that his location doesn’t allow him to draw more power that would enable him to expand even if he could afford to. Instead, he recently partnered with someone to build a second micro facility elsewhere on the island, an approach he says, like other growers, will be easier to manage as separate sites rather than one large grow.
That’s not to say all micro cultivators won’t look to expand, adds Beckett. But he doesn’t see a trend of any current micros wanting to expand, or even being able to afford to.
These factors, of course, are different for outdoor micro cultivators, who don’t have the same added infrastructure costs, as long as they have the land available to expand. Collier Quinton, co-founder & cultivation director at Weathered Islands Craft Cannabis, a micro and nursery licence holder on BC’s Texada Island, says if the rules come into force, they will consider expanding, but notes they will need to put in more security fencing and extensive work to prepare the land, including excavation, and installation of beds and drip lines.
Similar to other micros, with the current state of the market, he says it can be difficult to justify those expenses or find outside investors.
“We would take a serious look at it,” Quinton tells StratCann. “It makes a lot of sense, but this is also a challenging market and investing more money at this point in time needs to be seriously considered.”
