A major Canadian producer of greenhouse-grown fruits and vegetables plans to turn at least one of its B.C. greenhouses into an enormous marijuana production facility.

Village Farms, based in Delta, B.C., has announced a joint venture with Emerald Health Therapeutics, the parent company of licensed medical cannabis producer Emerald Health Botanicals, also based in B.C.

Under the terms of the deal announced late Tuesday, Village Farms will provide Emerald with an existing 1.1 million square foot greenhouse in Delta, in exchange for $20 million cash and a 50 per cent stake in the joint venture. If approved and licensed by Health Canada, the greenhouse could yield more than 75,000 kilograms of marijuana per year, the companies say.

Emerald has the option to lease two more greenhouses from Village Farms in the future, for a total of 4.8 million square feet of growing space with an estimated annual yield of 300,000 kilograms. Village Farms CEO Michael DeGiglio said he expects the first greenhouse to converted for cannabis farming by 2018.

Avtar Dhillon, executive chairman of Emerald Health Therapeutics, said his company hopes for Health Canada approval of the site "fairly quickly." The federal agency recently announced it was speeding up the application process for new licences and facility expansions.

Cost advantages of greenhouse growing

"Using exclusively greenhouse growing facilities, we are confident that we can be the low-cost provider in the industry," Village Farms CEO DeGiglio said during a Wednesday conference call. Greenhouses, DeGiglio noted, can harness free sunlight instead of relying on costly electric lights, and don't require energy-intensive heat extraction.

"Based on our extensive modeling, we believe we can achieve a cost of production less than $1 per gram," said DeGiglio. "For context, the average cost of production of the largest licensed producers in Canada is currently above $2."

An Ontario cannabis greenhouse facility run by Supreme Pharmaceuticals, as seen in 2015. (Euan Rocha/Reuters)

Keeping growing costs low will be important once the recreational marijuana market comes into force, according to Cannacord Genuity analysts Matt Bottomley and Neil Maruoka.

"We believe the key differentiators between high and low cost cultivators will be the efficiency in the method of grow (outdoor greenhouse vs. indoor cultivation) and the input costs of hydro, water and labour, which can vary significantly from province to province," wrote Bottomley and Maruoka in a November 2016 report on the future potential of Canada's cannabis industry.

The joint venture between Village Farms and Emerald Health Theraputics won't be the first legal Canadian marijuana operation to take advantage of greenhouse growing.

Licensed producer Aphria, based in Leamington, Ont., also touts its medical marijuana as being greenhouse-grown, with the slogan 'powered by sunlight.' Tantalus Labs, a recently licensed company based in Vancouver, is also focusing its business model and marketing efforts on greenhouse growing.

A number of other licensed cannabis producers are already operating greenhouse growing facilities, or building them out for the future, like Aurora Cannabis is doing with an 800,000 square foot greenhouse in Leduc County, Alberta. ​