For Alison Gordon, the next few weeks are crucial.
Other cannabis companies have spent the early days of the legal recreational cannabis era building massive growing facilities, but the co-chief executive of 48North Cannabis Corp. has been focusing much of her attention on a plot of land in Brantford, Ont.
That’s where her company hopes to launch one of the country’s first major outdoor cannabis operations, a 100-acre site that she said will, at capacity, be able to yield 40,000 kilograms of cannabis flower.
Gordon is banking on getting approval from Health Canada to begin outdoor growing in time for the spring planting season, which would give her about five months before the legalization of cannabis edibles, expected in October.
“Cannabis is meant to be grown outdoors. It went indoors because of Prohibition,” Gordon told the Financial Post recently.
The lure of outdoor cultivation rests on the hopes of producing huge amounts of cannabis at a low cost in a single harvest — cannabis from which oils and cannabinoids can be extracted and eventually used in beverages, edibles, beauty products and vape pens.
“The best reason to grow outdoors is cost,” Gordon said. “Our estimates are between three cents and 20 cents a gram. That’s far less than indoor growing and greenhouse growing which are between 90 cents and $2 per gram.”
But outdoor cannabis cultivation has never taken place in such a regulated environment, where any sign of pesticide drift from crops nearby, or a bug infestation could render a harvest useless. Moreover, Canada’s harsh winters mean that, at best, producers will have a four-to-five month growing period that will perhaps give them two harvests.
“The reality is that outdoor cultivation to Health Canada’s standards is going to be very difficult,” said Dan Sutton, chief executive of Tantalus Labs, a privately-held licensed producer operating a 75,000-square-foot greenhouse in B.C.
“A lot of firms are glossing over the genetic specificity, regional specificity and overall finishing risks that come with growing outdoors. And Health Canada is not getting any less intolerant of poor quality-assurance standards.”
Sutton said Tantalus Labs had at one point considered outdoor cultivation because of the “compelling” cost advantage, but he eventually concluded that Canada’s climate was too wet throughout the year to grow cannabis that would be compliant with Health Canada’s standards.
“We’re not Northern California, where growing outdoors is widely accepted and hugely prolific,” he said.
According to Cannabis Compliance Inc., a consulting firm that advises licensed producers on Health Canada licence applications, outdoor growing requires at least 75 to 90 frost-free days. But an LP seeking to grow premium cannabis with more desirable strains would require a longer grow period before harvesting — that could be a gamble given the long duration of Canadian winters.
“A lot of things grow in Canada only during the spring and summer months. And we’re estimating 40,000 kilograms from our farm, which is a huge amount. Realistically, if you’re doing that indoors, yes, you’re going to be able to grow it year-round, but to get 40,000 kilograms you’ll have to invest in a 3.5-million-square-foot greenhouse which will cost you upwards of half a billion,” she said.
In early March, 48North signed a licensing agreement with U.S.-based Arbor Pacific Inc. to be the exclusive supplier in Canada for its cannabis brand Avitas, which specializes in making pre-filled cartridges to insert into vape pens.
With much of the output destined for the consumables market, questions about the consistency are moot, too, Gordon said.
“The kind of flower you get growing outdoors won’t necessarily have that ‘shelf’ appeal in terms of how it looks, but that doesn’t matter when you’re turning it into extracts,” Gordon said.
But her first step is obtaining Health Canada’s approval for outdoor cultivation.
Prior to legalization, outdoor cultivation, even for medical purposes, was illegal. But that decree was reversed when the Cannabis Act came into effect in October. As of the end of March, Health Canada had received 191 applications seeking permission for outdoor growing, including from a number of licensed producers such as CannTrust Holdings Inc. and Aleafia Health Inc.
The kind of flower you get growing outdoors won’t necessarily have that ‘shelf’ appeal in terms of how it looks, but that doesn’t matter when you’re turning it into extracts
Alison Gordon, co-CEO, 48North Cannabis
According to Health Canada’s cannabis licensing guide, outdoor cultivation is not a separate licensing category. A producer that has a standard cultivation or micro-cultivation licence is able to grow outdoors subject to Health Canada’s approval of the site.
Health Canada says that health and safety standards applied to outdoor cultivation is similar to indoor or greenhouse growing, “except some requirements, notably those related to buildings may not apply to the outdoor cultivation of cannabis.”
To date, however, the department has only granted one outdoor cultivation licence, though Zara Munir, a consultant with Cannabis Compliance, believes that it will approve more outdoor growing spaces in time for the 2019 farming season.
“Health Canada responds well to producers that already have licences, or have their facility at a stage where they will be ready to grow as soon as they receive a licence,” Munir said.
48North meets those criteria — it already has a licence to cultivate, process and sell at DelShen Therapeutics, one of its indoor facilities, and has a licence to cultivate and process at Good House, a 46,000-square-foot facility located 10 minutes away from the outdoor farm.
Gordon also said the security protocols are ready for the farm, so all 48North needs to begin planting is the green light from Health Canada.
We were looking for a low-cost, high-volume supply of CBD … That’s how we found ourselves in Uruguay
Chuck Rifici, CEO, Auxly Cannabis Group Inc.
In the months leading up to legalization, a number of large licensed producers including Aurora Cannabis Inc., Aphria Inc. and Canopy Growth Corp. actually lobbied against allowing outdoor cultivation, arguing that it would be difficult to execute because of Health Canada’s stringent security requirements.
But at a recent appearance in Toronto, Aurora’s chief corporate officer Cam Battley said his company would not rule out outdoor cultivation in light of the forecasted demand for edibles and concentrates, once they become legal.
There’s another strategy these licensed producers have employed in order to pursue outdoor cultivation: setting up shop in Latin American countries where cannabis is legal, temperatures more manageable, and labour costs significantly lower.
Canopy Growth, Aurora, Tilray Inc., and Aphria have multiple investments in Latin American countries that have either legalized cannabis for medical or recreational use, and most of those investments are in domestic outdoor cultivators.
“We were looking for a low-cost, high-volume supply of CBD because our regulatory team felt that CBD was going to become a large market regulated differently than other compounds. That’s how we found ourselves in Uruguay,” said Chuck Rifici, chief executive of Auxly Cannabis Group Inc., a Canadian licensed producer that owns 80 per cent of Inverell SA, a Uruguayan cannabis cultivator.
Rifici and his team, through Inverell, are growing cannabis on a 460-acre plot of land just outside Montevideo, with the aim of selling pure CBD isolate in bulk to pharmacies across the region. Rifici said that is the company’s short-term plan, until international trade rules that limit the movement of cannabis through jurisdictions where the drug is not legal start to change.
A Health Canada licence technically enables a company to apply for a permit to either import or export cannabis provided the partner nation agrees to the movement of product. But cannabis can only be moved across borders for medical or research purposes so each individual market is essentially landlocked, a strategic hiccup for many companies looking to expand abroad.
“Look, we’re not growing to sell flower to the domestic market, or to the Canadian market because while you technically can do that, it’s hard to do it in large quantities,” Rifici said. But in the short term, we thought if you have one molecule that can move through borders, CBD will be the easiest one.”
There are significant advantages to growing cannabis outdoors in a warmer region, according to Raul Urbina, the founder and operator of Inverell.
“First of all, you save on energy because it is always sunny. Second of all, we are growing at high density, 500,000 plants per acre. These plants shoot up really high because they are competing for sunlight and we’re able to use a harvesting machine to just harvest the top, instead of getting people to individually trim,” Urbina said via phone from Uruguay.
The cheap labour component of operating in Latin America is an added advantage — according to Urbina, it costs him US$22 per day per worker, versus upwards of $80 per day per worker in Canada, in line with the country’s average minimum wage. And by Rifici’s count, growing a gram of cannabis outdoors in Uruguay costs just a single cent.
But Gordon is skeptical of many investments licensed producers have been making in outdoor cultivation abroad.
“There’s just no indication to date that these products will be allowed to move across borders. When you’re growing domestically at three cents a gram, we don’t see a huge competitive advantage to operate in a country that might have political risk or other issues that we don’t obviously face here,” she said.
Sutton, for his part, plans to stay out of outdoor cultivation altogether.
“Look, for many firms, this might turn out to be a great story,” said Sutton. “If you want to grow cannabis in huge quantities and use that biomass as inputs into products, then sure, maybe you have a bit more of a compelling case to grow outdoors. But there’s been a chronic supply shortage, and the industry has made a lot of promises, so let’s just wait to see how this will play out.”