Statistics Canada conducted a survey Canada's licensed cannabis producers in the fourth quarter of 2017 and early 2018. Businesses in this survey are cannabis producers that are licensed by Health Canada as of September 2017. The survey collected information on production, inventories, revenue, expenses, employment and capital expenditures for the years 2015 and 2016. Additional information was obtained from the Canada Revenue Agency's corporate income tax and payroll deduction records and from Health Canada's regulatory data.

History of licensed production in Canada

Health Canada established the Marihuana Medical Access Regulations in 2001, allowing physicians to prescribe cannabis for medical purposes. Qualified users of cannabis were permitted to grow their own product, designate someone else to grow it for them or purchase cannabis from a single Health Canada-authorized producer.

In 2014 Health Canada implemented the Marihuana for Medical Purposes Regulations permitting private businesses to apply for licences authorizing them to produce and sell cannabis to Canadians for medical purposes. Sales are made online or by phone to clients possessing a medical document from a physician. In 2016 the cannabis regulations were updated and replaced with the Access to Cannabis for Medical Purposes Regulations.

The Government of Canada has proceeded with legislation in the House of Commons with the intent to make cannabis use legal, later this year, for non-medical as well as medical purposes and this is causing rapid growth in the industry. Currently there are 102 licensed producers, although there were only 55 at the time the survey was conducted.

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Definition Statistics Canada considers a business to be an institutional unit that is capable of generating a profit for its owners and is set up for purposes of engaging in market production. A business may be incorporated or unincorporated. A single business may have multiple business locations. Health Canada licenses businesses that produce cannabis for medical purposes on a location-by-location basis. When a business wishes to start operating in a new location, or to move from one existing location to another, it must submit a new licensing application in its entirety for assessment. A single licensed producer can hold multiple licences.

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Employment structure

The number of licensed producers was small when the survey was conducted, with the 55 licensed producers reporting total employment of 2,399 persons as of December 2017 (see Table 1).

Table 1

Employment by job category, 2017

Table summary

This table displays the results of Employment by job category, 2017. End of 2017, calculated using number of persons units of measure (appearing as column headers). End of 2017 number of persons Total 2,399 Cultivation and harvesting 749 Administration 330 Sales 280 Processing and manufacturing 251 Quality assurance 165 Packaging 126 Branding, consultation and other marketing 96 Shipping, delivery and transportation 75 Research and development 63 Security 61 Engineering 34 Other job categories 169

The majority of the businesses had just one location, although a few had two or more locations. Of the reporting businesses, 16 producing locations were in Ontario and 10 in British Columbia. Most were in urban sites. Six of the businesses were established between 2001 and 2012 and all the others in the 2013 to 2016 period, reflecting the rapid growth in the industry happening more recently.

Business activities

Twenty of the responding businesses reported that although they had Health Canada licences to operate in 2016, they did not engage in cannabis growing, processing or researching in that year. Among those that did produce cannabis, some also reported consulting and public education among their activities.

Health Canada requires that all cannabis production, packaging, labelling and storage activities be conducted indoors. Producers reported that 8.7 hectares of greenhouse cultivation area were in use in 2016. About ten times that amount, 85.7 hectares, were available for production but not yet in active use. Fourteen of the active producers reported cultivation areas up to 1,000 square meters and 9 indicated areas larger than that.

Production of dried cannabis products was 80,535 kilograms in 2017, up from 35,912 in 2016 and 9,659 in 2015 (see Table 2). Production has been growing more rapidly than sales, with a corresponding increase in inventories. Again, this reflects the rapid growth in the number of licensed companies.

Table 2

Dried cannabis production, sales and inventories, 2015 to 2017

Table summary

This table displays the results of Dried cannabis production, sales and inventories, 2015 to 2017. 2015, 2016 and 2017, calculated using kilograms units of measure (appearing as column headers). 2015 2016 2017 kilograms Production 9,659 35,912 80,535 Sales 8,446 26,716 46,186 Inventories (end of year) 17,985 18,087 38,927

In total, licensed producers reported 42,106 clients in 2015 and 135,870 in 2016. Sales revenue of cannabis used for medical purposes were $239.4 million in 2016 (see Table 3). Sales in Ontario accounted for over half of sales revenue in that year (see Table 4).

Table 3

Revenue, 2016

Table summary

This table displays the results of Revenue, 2016. 2016, calculated using thousands of dollars units of measure (appearing as column headers). 2016 thousands of dollars Total 245,733 Cannabis revenue 239,363 Other cannabis-related revenue 3,088 Non-cannabis revenue 3,281

Table 4

Sales revenue shares, 2016

Table summary

This table displays the results of Sales revenue shares, 2016. 2016, calculated using percent units of measure (appearing as column headers). 2016 percent Canada 100.0 Newfoundland and Labrador 2.4 Prince Edward Island 0.5 New Brunswick 7.9 Nova Scotia 17.4 Quebec 3.2 Ontario 51.3 Manitoba 1.2 Saskatchewan 1.1 Alberta 11.9 British Columbia 2.9 Yukon 0.0 Northwest Territories 0.1 Nunavut 0.0

Cannabis producers had a variety of expenses in 2016 as recorded in Table 5. Total expenses were $302.8 million compared to revenue of $245.7 million, implying a loss for the year of $57.1 million. Wages, salaries and employee benefits accounted for about one-third of total expenses. Other substantial expense categories included raw materials (11%), rent (11%) and professional and business fees (10%).

Table 5

Expenses, 2016

Table summary

This table displays the results of Expenses, 2016. 2016, calculated using thousands of dollars units of measure (appearing as column headers). 2016 thousands of dollars Total 302,820 Wages and salaries 94,211 Employee benefits 4,358 Sub-contracts 11,571 Research and development 6,198 Raw materials 34,246 Fertilizers 1,485 Seed and plants 2,566 Rent 33,140 Professional and business fees 31,498 Marketing fees 24,627 Internet expenses 17,006 Energy 13,251 Security 3,326 Other 25,337

Looking forward

The industry has been growing rapidly in anticipation of higher demand after the legalization of cannabis for non-medical purposes sometime in 2018. Many of the existing companies currently producing cannabis for medical purposes intend to produce and sell cannabis for non-medical purposes as well, after legalization. New cannabis businesses are continuing to be licensed and some existing ones have merged.

Each licensed producer was asked about its investment plans for 2017. In aggregate, the responding companies said they intended to spend $788.6 million on new capital goods and land (see Table 6). Businesses in the industry reported $704.3 million in total assets at the end of 2016, so this planned investment would be roughly a doubling of productive capacity. Investment in new structures accounted for more than half of the capital spending.

Table 6

Intended investment expenditure, 2017

Table summary

This table displays the results of Intended investment expenditure, 2017. 2017, calculated using millions of dollars units of measure (appearing as column headers). 2017 millions of dollars Total 788.6 Structures 427.7 Land 66.4 Locations with existing structures 75.1 Equipment 91.9 Inventory accumulation 39.7 Other 87.8

The businesses were also asked whether they were planning to increase inventory in preparation for the potential cannabis for non-medical purposes market in 2018. Seventy-five percent of responding businesses said they were very likely to do so and 18 percent said they were somewhat likely to, with only 8 percent responding they were unlikely to do so.

Finally, each business was asked whether it was likely to seek additional investment financing in order to sell cannabis for non-medical purposes. Most responding companies indicated they were indeed likely to seek investment financing, through a variety of vehicles as indicated in Table 7. Personal finance, American private venture capital and angel investors were the most frequently-mentioned sources of potential new capital.

Table 7

Likelihood of seeking investment financing

Table summary

This table displays the results of Likelihood of seeking investment financing. Very likely, Somewhat likely, Somewhat unlikely, Very unlikely and Total, calculated using percent units of measure (appearing as column headers). Very likely Somewhat likely Somewhat unlikely Very unlikely Total percent Canadian private venture capital 26 13 29 32 100 American private venture capital 63 14 17 6 100 Other private venture capital 32 32 18 18 100 Financial institutions 50 6 32 12 100 Initial public offering 33 17 22 28 100 Personal finance 65 3 18 15 100 Partners from strategic alliance 32 15 26 26 100 Credit from suppliers 53 12 12 24 100 Angel investors 57 17 11 14 100 Government sources 50 21 21 9 100 Other Table 7 Note 1 60 7 7 27 100

Concluding remarks

The number of licensed cannabis producers in Canada is quite small, but growing rapidly. This survey, combined with administrative data, paints a portrait of what it looked like in the fall of 2017, when there were just 55 licensed producers. The number of producers has continued to grow since then and will undoubtedly increase further as the date approaches when the production of cannabis for non-medical purposes will also be legal. Statistics Canada plans to conduct another survey similar to this one later in 2018 in order to update the picture of this nascent industry.