Small scale cannabis growers could mean big money for local economies.
While ‘craft growers’ were recently added as a potential source of recreational cannabis production, the legalization framework is designed largely around the large ‘licensed producers’ model and many of the provinces have opted to utilize, and in some cases create, government run agencies for distribution and retail. I want to explain why I think these approaches are flawed and illustrate the benefits of a private small business model.
I should start by disclosing that I have no training or experience in economics, but I do have ideas and if implemented, I believe they will provide economic benefits to local economies that the proposed system does not.
The Licensed Producers or ‘LP’s’, were created in 2013 as part of the MMPR, Health Canada’s newly minted but short-lived ‘medical marihuana program’. Their role was to provide medical cannabis to authorized medical patients who had their right to grow their own medicine taken away. Health Canada currently lists 84 LP’s although it is unclear how many have reached the production and sales stage, and have recently promised to increase .the rate at which they license more applicants ahead of legalization. To add a little intrigue to the mix, a surprising number of these companies employ former high ranking police members and former politicians. A shockingly high number, actually.
The LP’s have been controversial since their inception, with allegations and investigations into the transfer of plants from organized crime directly to some of these new growers. Some offered to grow strain-specific medicine for individual patients and requested clones or seeds. No personalized medicine was ever grown and these LP’s essentially stole the plant genetics from the patients. Patients had spent thousands of dollars and many years developing a strain that helped their need, and LP’s stole it and are now profiting from it. They’ve used their government connections to gain favour and lobby against personal grows. They have been caught using banned chemicals putting sick patients at serious risk and have never been punished for it. Government connections again come into play – or at least that’s the perception.
Putting my personal disdain for LP’s aside, let’s focus on the economics.
A licensed producer, depending on size, will employ anywhere from less than 100 up to 1000 employees at various levels and positions. The vast majority of positions pay $12- $15 /hr, not exactly huge wages. Corporate cannabis, as I call the industry, may seem like a major employer in some communities but many factors cause it to be less of a benefit than having many smaller growers.
Corporate cannabis, or corporate anything, is by it’s very nature more expensive and less profitable than their smaller cousins. Corporations have 6-figure CEO’s and CFO’s and lawyers and shareholders who all need to be fed. They have larger work forces which translates to huge expenses for things like WCB, insurance and health benefits. Now none of these expenses would seem daunting for most businesses, they would just pass the cost on to the customer in the price of the final product. Problem is, with a government mandate to undermine and undercut the established black market, they will have very limited ability to adjust price under government regulations. The federal Liberals have indicated that they want.
a retail cost of about $10 per gram so the producers will be forced to wholesale to government distributors for much less. The only way to increase profit and satisfy shareholders is going to be by cutting overhead. Many LP’s are using or experimenting with robots and the facilities are almost fully automated allowing for minimal staff. Expect that trend to expand, resulting in fewer jobs, but higher profits for investors.
A corporate grower will require vast amounts of equipment and supplies to operate and will buy in bulk from overseas suppliers rather than locally in order to be cost efficient. While this practice isn’t new and makes financial business sense, it provides no benefit to local businesses.
Something that, curiously, has not been discussed (or at least publicly disclosed) is the problem of spoiled product. Cannabis is a perishable product with limited shelf life. Cannabis that is old and stale loses visual appeal as well as potency and taste and is un-sellable. Some will develop mould or other issues that will render it unfit for consumption. A shipment of cannabis to a distributor would be in the hundreds of thousands of dollars and when product goes bad, who is left holding the bag? Cannabis is sold by weight and stored product is continuously drying out resulting in a loss of sell-able grams. In the case of Ontario who are creating a separate government agency, my guess is the taxpayer is on the hook.
What happens when someone gets sick from chemicals used on the plants? Can the victim sue Health Canada for approving the product? The Province for selling a contaminated product? Or just the producer who used the chemicals. Sounds like years of expensive court cases with us taxpayers footing the bill.
So although there are a few low paying jobs created for local people, and a small gain to the tax base, the bulk of the benefit is enjoyed by few.
On a provincial scale, provinces who have opted for stand alone government retail stores have just handed their citizens a potentially huge bill to cover cost overruns, executives making six figure salaries, and an expensive workforce with government unionized workers with the wages and benefits they enjoy. The ability to make a profit with the cost of doing business in this manner is questionable at best and some would say impossible. When has a government ever been profitable in business? Don’t expect any different this time.
Now let’s compare that to the alternative of an industry led by small entrepreneurs.
Canada has some of the most skilled cannabis growers in the world and an army of workers that have decades of experience in cultivation, production and sales of cannabis and related products. In some instances, black market cannabis is the towns’ biggest industry. You will have growers and then teams of ‘trimmers’, you will have some who’s sole job it is to grow clones, you will have people making oils and hash and shatter, you will have others making edibles for sale. You have all of these folks buying equipment and supplies from local retailers. You have private dispensaries offering local product and knowledgeable staff to inform customers. All of this makes for a booming economy, except it is all happening illegally and contributes nothing to the taxman. What if government were to redirect their attention from catering to the LP’s to facilitating the transition of the black market into legitimate businesses? The result would be thousands of brand new taxpayers. It seems like this would have been the logical approach given the advertised goal of eliminating the black market, but The lobbying efforts of former cops and politicians were louder than reason and common sense.
The first obstacle that needs to be addressed is the rule banning craft growers from operating in a ‘dwelling house’. There is no reasonable explanation to justify such a restriction and it unfairly leaves out many smaller growers. In many ways a garden in your home makes the most sense. For an operation of less than 500 plants, it is not economically feasible to buy or rent separate space. For a craft or hobby grower, having your business in your home provides the opportunity to earn a secondary income. It also allows for more attentive gardening and provides 24 hour security. Home gardens are common place in every neighbourhood in the country, some are legal medical grows while others supply the black market. Most have been operating successfully and largely hidden for many years with minimal negative consequences. Legal licensed growers would be subject to safety and health inspections like any other business and would be required to carry liability insurance.
It doesn’t stop at cultivation though, they also won’t allow Mary to make cannabutter for retail in her kitchen and Jane’s canna-chocolate chip cookies won’t be baking in her house. Why? Anyone can build a kitchen that can be approved by the health inspectors for making food for sale. Grandma can bake pies to sell at the farmer’s market and aunt Sally can make her jams. What changes when one ingredient is added? All products sold in Canada are subject to testing by Health Canada and all food manufacturing and preparation facilities are visited by health inspectors. All the safeguards are already in place to ensure the public is not at risk.
A craft grower will utilize other local small businesses to purchase supplies, do construction or renovations and to repair broken equipment. They will also employ local people. A necessary industry off shoot to cannabis cultivation are the trimmers. With legalization comes the opportunity for new businesses to emerge offering teams of the most qualified trimmers to the growers at harvest time. The trimmers now also become taxpayers. By encouraging private retail outlets, you provide hundreds of private sector jobs therefore creating hundreds more taxpayers and remove any business risk to taxpayers. Many of the people who currently earn income from illegal cannabis production also collect social assistance as the income is hidden. By legitimizing the work you remove the anonymity and can reduce the abuse of our welfare systems.
The business possibilities are virtually endless in a world of legal cannabis. From edibles, oils and creams, to products most of us didn’t know were possible (or were needed). It’s an exciting time and government needs to be actively working to shape laws so they will benefit the largest number of Canadians. They have the ability to offer tax incentives, interest free loans and other programs to promote entrepreneurship and innovation among average Canadians, the question is, do they have the will. If they choose to support the ex-cops and politicians demand for control of cannabis in Canada, legalization is doomed to failure – along with their prospects of continued employment. Politicians have told us on many, many occasions that small business drives the economy so why are they now designing an industry that hinders such businesses? Were they lying then or do they just not care about the economy or small businessman now?
Cannabis has the potential to improve local economies in small communities right across this country like no other industry has done before. Anything that impedes this will be deemed a failure.
Please let your elected officials that their role in Ottawa is to help ALL of their constituents and if they choose to ignore that, you will need to find a new representative.