(This is the sixth installment in a series looking at the marijuana markets in each of Canada’s provinces and territories. Other installments: Alberta, Manitoba, New Brunswick, Newfoundland, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan.)
Cannabis businesses in British Columbia can leverage decades of market experience in cultivation, retail and research and development to maintain their dominant position in Canada’s marijuana industry when recreational use becomes legal later this year.
The province’s multibillion-dollar gray market includes hundreds of dispensaries and at least 4,000 licensed personal growers.
But how much of that will shift to the regulated market when it rolls out?
The government is off to a slow start: British Columbia was the last province in Canada to start scrutinizing its cannabis regulations, which were introduced April 26. And it’s on a tight schedule to finalize them.
Regardless of the regulations, British Columbia-based marijuana companies already have a competitive advantage.
“British Columbia cannabis is on its way to being a global brand, if it’s not already,” said Dan Sutton, CEO of Maple Ridge-based Tantalus Labs.
Market snapshot
British Columbia will likely have about 725,000 recreational cannabis users in the first year of legalization, according to a report released by the Parliamentary Budget Office in November 2016.
That number is anticipated to grow to more than 800,000 by 2021.
In that time, aggregate cannabis consumption in the province could increase from 91,000 metric tons to 103,000 metric tons.
Unlike provinces like New Brunswick and Alberta, registrations to purchase medical cannabis from licensed growers remain relatively low in British Columbia.
British Columbia has only about 210 medical registrants per 100,000 people, compared to 2,543 per 100,000 people in neighboring Alberta.
But that’s mostly attributable to British Columbia’s massive gray market and the high number of people licensed to cultivate their own medical marijuana.
British Columbia expects legalized cannabis to bring in 75 million Canadian dollars ($58.3 million) a year in tax revenue from legal sales of around CA$1 billion.
Retail
British Columbians in the market for recreational cannabis will have a choice between privately run and government-operated retail stores, potentially opening the door to hundreds of legal opportunities.
The rules give significant power to local governments to determine where, and if, adult-use stores can be located.
The application process is still being developed, but local governments will be required to ask nearby residents of the proposed retail location to comment on how the store would impact the community.
“By kicking authority to cities, they have grandfathered in everyone who is already getting along locally,” said Deepak Anand, vice president of government relations, Cannabis Compliance.
“You’ve put the people who are best able to judge the local reality in charge of deciding who lives and who dies.”
Vertical integration a no-go
British Columbia plans to ban vertical integration.
A license application guide from the B.C. government states: “Where there is a close association between a licensed producer and a nonmedical cannabis retail business, the retail business will be prohibited from selling any products from the licensed producer.”
Anand questioned the move. “If you’re a licensed producer, you can set up a retail operation, but you can’t sell your own product, which is just bizarre,” he said.
Mail-order losers
The government plans to monopolize online sales and ban home delivery by private retailers – a move that is drawing scorn from the province’s already-thriving, but unregulated, mail-order industry.
“The big losers in this are online stores, who are being cut out,” said Ian Dawkins, president of the Cannabis Commerce Association of Canada. “That’s a massive flaw in this plan from a private sector perspective, because it means they have to build their own Amazon.”
Anand thinks the province will have a hard time stamping out the entrenched online sales industry.
“Retail dispensaries that are illegal are easy to enforce because they’re operating in plain sight,” he said. “But existing online business operators have been doing it for years and have expertise.”
Cultivation
Despite being home to only 22 of Canada’s 102 licensed producers, cultivators based in British Columbia have inherent advantages.
Executives and analysts say these include:
- A climate with temperate winters.
- Market research opportunities with experienced cannabis consumers.
- A brand (“B.C. bud”) that’s already recognized across the country.
- A skilled agricultural workforce.
“Southwestern British Columbia is the best place to grow cannabis in a greenhouse,” said Sutton of Tantalus Labs. “We get sufficient light and a narrow temperature fluctuation.”
The province also offers substantial market-research opportunities because of the level of maturity that already exists in the industry.
Another advantage for Sutton’s company: human capital.
“We’ve had success taking deep cannabis insight, really elite cannabis understanding and then weaponizing it with some of the best and brightest in the agricultural, horticultural and operations community,” he said.
“When those brain waves combine, you get the specialization of cannabis understanding and respect. Then you get the processes and systems that create a successful horticultural environment.”
Micro-cultivation licenses
Perhaps no other province in Canada stands to gain more from from new licenses than British Columbia, because they’re expected to provide an avenue for thousands of the province’s gray-market participants in micro-cultivation and micro-production to access the regulated market.
Aaron Salz, founder of Toronto-based Stoic Advisory consulting firm, said “B.C. might be the best place to set up a micro-grow and micro-processing licenses. People there recognize that an important part of their economy relies on cannabis already, and it needs to come through legal channels.”
But the ability of the proposed micro-cultivation licenses to entice gray-market producers to join the regulated market remains to be seen.
The new regulated cannabis market could also create new opportunities for tourism, which is already a thriving industry in British Columbia.
British Columbia’s cannabis bill:
- Calls for a hybrid retail system that includes private and government-owned stores.
- Establishes a government-run wholesale distribution model.
- Allows adults 19 and older to possess up to 30 grams of nonmedical cannabis.
- Generally allows consumption in public spaces where tobacco smoking and vaping are permitted.
Matt Lamers can be reached at mattl@mjbizdaily.com
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