Will Craft Cannabis Growers in Canada Succeed Like Craft Brewers?

The Canadian Cannabis Act of 2018 is a historic piece of legislation that, among other things, allows Licensed Producers in Canada to cultivate and process cannabis for recreational use instead of for medical use only. The act also defines new sub-classes including micro-cultivation and micro-processing, essentially opening the doors to legalized craft cannabis growers.

But how easy will it be to break into the cannabis market, and will “micro” operations be held to the same exacting standards of larger Licensed Producers?

Definition of “Micro” Under the Cannabis Act

Health Canada issues four types of licenses for cultivation (Standard, Micro, Nursery, and Hemp) and two types for processing (Standard and Micro).

For cultivation, “Micro” is defined as any operation up to 200 square meters in cultivation area. On a hockey rink, that would be about the area from the benches to the center dot wide, and between the two blue lines long.

For processing, “Micro” is defined as any operation that processes up to the equivalent of 600kg of dried cannabis per year. The act includes a table that lists equivalents. For example, 1kg of dried cannabis is equivalent to 5kg of fresh plants.

The Rise of Craft Cannabis

Many see these sub-classes as an important step to ensuring a quality product. The Globe and Mail quoted Lisa Campbell, a cannabis industry consultant, as saying that the focus of large Licensed Producers will be on producing as much product as possible at the cheapest price to meet demand at the lowest cost to the consumer.

Micro-cultivators on the other hand will be more likely to focus on quality over quantity – much as craft brewers do in the beer industry. Craft cannabis growers will also be more likely to delve into different strains. Brianna Humphrey of Radical Gardens in Timmins, Ontario told TVO that she hopes to corner the market in Northern Ontario with “some really nice craft strains”.

So craft cannabis operations will be very much like craft brewers – small, focused producers who want to find a market for their premium product, starting at the local level.

Most Rules Still Apply to Micro Licences

However, breaking into the industry won’t be easy. Most Health Canada regulations for safety and security will apply to micro-operations – and those regulations are quite stringent. The aim is to ensure public safety (just as it would be for any agricultural product for sale in Canada) and security so that legally grown cannabis is not diverted to the illegal markets. In fact, many see craft cannabis as a key part of reducing the need for a black market. The argument is that if large Licensed Producers do not do enough to offer a quality product, consumers will seek it out whether it’s legal or not.

Despite the necessity of such regulations, the reality is that they present a barrier to entry for craft cannabis growers. Micro-cultivators and micro-processers must go through the same rigorous process as those applying for a Standard license and meet the same requirements for background checks, quality control, and record-keeping. The only real difference is the size and scale of security measures. Those applying for a Standard Cultivation or Standard Processing license must include a visual monitoring system that keeps recordings up to one year and an “alarm or other intrusion systems” while Micro licensees do not. All must have a physical barrier – wall or fence – with secured access points.

Still, for small producers, that amounts to approximately $1.5 million in startup costs, Brianna Humphrey estimates. Although it’s no small investment, micro-breweries can easily reach startup costs of $1 million or more, so the startup costs for a craft cannabis operation are not wildly out of line.

No Direct-to-Consumer Sales

The major difference between craft cannabis growers and craft brewers is direct access to their customers. Unlike its brewery counterparts, craft cannabis growers under a Micro-cultivation or Micro-processing license will not be able to sell directly to customers for adult use. It is possible to combine a Micro-cultivation license with a Sale for Medical Purposes license, but the current wording is a little vague on whether or not that can happen on the same site (the wording hints that it may not). Also, there seems to be an opportunity for craft growers to partner with larger Licensed Producers, but there are questions as to whether two companies – which are essentially competitors – would actually partner on ventures like this.

The hope is that direct-to-consumer sales would happen in the future, but for the moment it appears that this will be difficult or impossible.

Another drawback to craft cannabis is that it will require plain packaging and limited marketing, unlike craft breweries that can create labels, giveaways, and merchandise. This will have an impact on the craft cannabis grower’s ability to make consumers aware of their product(s) and promote brand loyalty.

Conclusion: Craft Growers Offer Better Quality at a Price Many Will Pay

The financial barriers to entering the cannabis market at any level are significant, but not that much more than starting a micro-brewery. Craft cannabis growers operating with micro-cultivation and micro-processing licenses will ensure a better quality product and will be more likely to experiment with different strains. Not only will this benefit adult users, but it could also potentially benefit medical cannabis users as well, encouraging the development of targeted and/or more effective symptom relief.

Prices will likely be higher for the consumer, just as they are with craft breweries; the likelihood is that craft cannabis growers will also be able to thrive despite charging more, grossing approximately $1.3 million and $2.4 million per year.

In short, despite the limitations in terms of marketing and direct-to-consumer sales, craft cannabis operators do have an opportunity to produce a quality product at a price point consumers will accept.