Business
Canadian marijuana entrepreneurs shift focus to ‘micro’ licenses
Cannabis entrepreneurs are increasingly turning to smaller micro-cultivation facilities to manage costs and produce higher-quality marijuana at a time when the industry is facing a glut of “standard” product and falling prices.
That shift ultimately could help shrink some of the Canadian cannabis industry’s current supply glut, given that micro-class licensees operate smaller cultivation facilities.
At the end of 2022, Canada’s total indoor growing area was 28% lower than the all-time high reached in 2020.
Canada’s federal government last year handed out only 58 standard cultivation licenses, the lowest annual total since recreational cannabis was legalized in late 2018.
Unlike standard-class licenses – which face no size limits – micro-class permits allow cultivation only within a surface area of up to 200 square meters (2,150 square feet).
In 2022, the 130 new micro licensees outpaced standard ones for the second year in a row, and experts don’t expect that trend to reverse.
In 2021, there were 106 standard-class licenses compared with 134 micros.
That’s a reversal from the first three years of regulated cannabis production, when Canada handed out 396 standard licenses and 46 micros.
Experts say entrepreneurs are drawn to micro licenses because:
- Micro-class licenses generally have lower startup costs compared to standards.
- Micros can scale up to a standard-class license through a Health Canada-issued amendment.
- The industry is already swimming in overproduction of low-quality cannabis that generally comes from “standard” production sites.
Mitchell Osak, president of Toronto-based Quanta Consulting, said consumer demand for craft, or high-quality, cannabis is also a factor.
“Micro licenses became more popular, reflecting a transition in consumer demand to craft-type of products,” he said.
Another factor that might have contributed to increased interest in micro-class licenses is a rule change by Health Canada shortly after the launch of the country’s recreational market in October 2018.
In mid-2019, seven months after legalization, Health Canada said all new applicants would have to have their facility fully built out when submitting an application.
Previous to that, applicants were able to get approval for a building site before it was completed.
That effectively increased up-front costs for any large facility seeking a standard-class license.
More interest in craft
Consumers appear to be weighing price sensitivity with a desire for the highest-quality products they can afford at a particular price point.
Osak said that is leading consumers to mirco-cultivators.
“It’s difficult to grow craft, high-THC, premium products in a large grow that has a standard license; these products can be grown and processed easier and at target batch quality in a smaller facility, which is supported by a micro license.”
Generally, smaller production schemes have a reputation for producing better-quality cannabis.
Typically, standard licenses were secured for larger grows, Osak said.
“Many of the existing standard licenses were used to address growing the value, or low-cost, segment,” he said. “At the same time, some of the market shifted to premium, high-potency, craft-quality products.
“That makes sense financially. Their higher cost required more production to get a return on investment.
“Finally, like the wine industry, some consumers seek out and prefer authentic; but legal, craft products can only be found in a micro-licensed facility.”
Businesses with standard-class licenses are also seeking out production deals with micro-class license holders, such as Canopy Growth and Indiva.
“Some operators have figured out that getting a micro license, focusing on cultivation and using a large LP for distribution/retail activation or genetics is a more efficient and low-cost way of getting their weed to the market,” Osak said.
“It’s now very common for large LPs to outsource their craft production to micro licenses. Everyone wins.”
Too much cannabis
The shift to businesses with a much smaller growing area also in part stems from the fact that Canada faces a massive glut of low-quality cannabis.
Nationwide inventory of dried cannabis, both packaged and unpackaged, jumped to an all-time high of at least 1.47 billion grams (3.2 million pounds) as of December 2022, according to the latest data from Health Canada.
The federal regulator tracks overall unsold stockpiles of licensed producers, wholesalers and retailers.
The inventory, predominantly held by licensed producers, is approximately four times the amount of dried flower and pre-rolls sold at retail in Canada that year, according to Seattle-based cannabis data firm Headset.
Despite the record-high inventory levels, there are signs the growing focus on smaller cultivation businesses could alleviate the supply glut.
At the end of 2022, Canada’s indoor growing area where cultivation activities occurred stood at 1,595,724 square meters (17.2 million square feet), per Health Canada’s most recent data.
That’s 28% lower than the all-time high of 2,217,216 square meters reached in 2020.
Source: https://mjbizdaily.com/canadian-cannabis-entrepreneurs-shift-focus-to-micro-licenses/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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