Thanks to a recent change in Health Canada rules, B.C.’s small cannabis farmers may have to spend up to $2 million each to meet federal regulations before they can even think of applying for a government licence.

The new rules, announced by Health Canada May 8, require all new applicants — regardless of size — for licences to cultivate, process or sell cannabis to have a site fully compliant with federal regulations at the time of their application.

The regulatory change shocked cannabis growers already burdened with the complexities of legalization.

“They are putting craft cannabis producers in the same bucket as large producers,” said Natasha Kumari, project manager at Grow Tech Labs, a Vancouver-based company that works with craft producers in B.C. and specializes in cannabis entrepreneurship.

Micro-licences are intended for craft farmers growing cannabis or producing cannabis products at a small scale. Micro-licence applicants must comply with limits on the size of their growing spaces and production amounts. But they have less stringent security and operational requirements and lower application fees than standard-licence applicants.

Kumari said the new rule applies to both standard- and micro-licence applicants.

“That’s pretty dangerous, because what they’re saying is your access to funds and navigation of this system is exactly the same as [larger producers], where it isn’t.”

Pricy entry costs

The price tag of building a fully compliant site is estimated between $1 and $2 million.

To become compliant, the building, greenhouse or outdoor space must develop infrastructure to meet standards on the cleanliness and quality of premises, products and equipment (called good production practices) in addition to meeting security requirements.

But B.C.’s craft cannabis producers say they already have limited financial and human resources. Some craft farmers operate out of their farms, basements, barns, or garages and cannot afford the steep costs for compliance.

“Who do you know that earns maybe $50,000 a year that can plant a $1-million-dollar facility?” said Susan, a Kootenay-based prospective micro-cultivation and processing-licence applicant who did not want to reveal her real name because of the underground nature of her trade.

“You’re telling these small-scale producers to invest so much money with no guarantee that they’re actually going to get a licence,” Kumari said.

Jim Leslie operates two dispensaries based in Grand Forks and Nelson in the Kootenays. For years, Leslie has sourced cannabis from local cannabis farmers who have decades of experience in the industry.

He said his growers want to become legally licensed, but the compliant facility requirement presents a new “financial barrier to their participation in this industry.”

“[My growers] thought it was a terrible blow to the smallest people who typically already have the hardest time coming up with the money to apply,” Leslie said. “All it does is favour the bigger companies.”

Health Canada says it’s committed to fostering a diversity of producers in the regulated cannabis marketplace. The 2016 report from the Task Force on Cannabis Legalization and Regulation encourages “market diversity by creating a space for smaller-scale production.”

“We really want to see a diverse market,” said Joanne Garrah, director of licensing and security for the cannabis legalization and regulation branch for Health Canada, during a presentation at a Vancouver meeting with producers on May 16.

Only one of over 180 federal micro-licence applications has been approved since cannabis legalization came into effect on Oct. 17, 2018. Some members of B.C.’s craft cannabis community are saying that Health Canada is failing to deliver on its promise of market diversity.

“This move to have a building requirement is just a slap in the face. It’s a message saying ‘we don’t care about the small players,’” said Tracey Harvey, a Rossland-based doctoral candidate whose research with the University of Guelph focuses on the socioeconomic impacts of cannabis legalization on rural regions of B.C.

Small craft cannabis farmers must now develop entrepreneurial skills in order to attract potential investors and raise capital to become legal, whereas larger producers already “have the skill set, experience and network to be able to raise the capital required to have a production facility,” said Sophie Mas, former director of the BC Cannabis Regulation and Legislation Secretariat and CEO of Vancouver-based SoMas Consulting, a company that helps cannabis licence applicants navigate regulatory rules.

Health Canada said it was not concerned that the costs of meeting federal regulations could hinder small cannabis farmers from entering the legal marketplace.

“Health Canada is confident that applicants for a cannabis licence with a good business plan will be able to secure appropriate funding as many applicants have already done so,” said Tammy Jarbeau, senior media relations adviser with Health Canada.

Not enough consultation, producer says

In the week following the May 8 announcement, Health Canada hosted three information sessions in Victoria, Kelowna and Vancouver targeted at micro producers to address the changes in the cannabis licensing process.

But the execution of the consultations was questionable, say some cannabis experts and producers.

The sessions were announced with less than a week’s notice. For producers based in rural communities where cannabis has historically made a significant economic contribution, such as in the Kootenays, Sunshine Coast, Gulf Islands, Fraser Valley and Cowichan Valley, the notice was insufficient to accommodate their needed travel time.

“People have to travel 10 or 12 hours to get to one of these meetings, and that’s the notice they give us. Really?” said Susan.

Health Canada announced the information sessions via a cannabis stakeholders consultation list. Large producers and consultants comprise most of this list and excluded many craft producers from the notification, according to Susan. By the time many craft producers were informed of the sessions, registrations for some of the events were full.

Researcher Harvey said that the information sessions were more accessible to “large, deep-pocketed, medical producers” than they were to rural craft producers. Susan was one of the lucky ones that attended two of the information sessions.

In addition to the information sessions, Health Canada produced three new application guides specifically for micro-licence applicants. It is also hosting online sessions on June 11 and June 13 for those unable to attend the in-person sessions.

But Susan argues that thorough consultation between the federal government and B.C.’s micro producers was not achieved.

“They gave us a lot of good information,” she said. “I’m just sorry they gave it to the wrong crowd.”

A call to reset

The licensing process change was designed to reduce the wait times of applications based on a review of Health Canada’s prior licensing process.

The review found that “more than 70 per cent of applicants who successfully passed Health Canada’s initial paper-based review of their application over the past three years have not yet submitted their evidence package to demonstrate to the department that they have a built facility that meets the regulatory requirements.”

“As a result, a significant amount of resources are being used to review applications from entities that are not ready to begin operations, contributing to wait times for more mature applications and an inefficient allocation of resources,” Health Canada noted in its May 8 statement.

However, the three-year waiting period established before legalization and the problems that developed during that time had nothing to do with micro-licence applications — the micro-licence program wasn’t introduced until October 2018, said James Walsh, president of the BC Micro License Association, an organization dedicated to helping B.C.’s craft farmers transition to a legal, regulated industry.

He said the new site requirement is unfairly being applied to micro-licence applicants. “The reason why they did make these changes had nothing to do with the micro-licence applications,” said Walsh.

He said that grouping micro- and standard- licence applications together under the new facility requirement furthers the already uneven playing field between craft and standard producers, hindering micro licences from being issued.

The BC Micro License Association is one of six cannabis growers’ organizations calling on the federal government to reset cannabis policy. It’s pushing “to ensure and accelerate the inclusion of the craft cannabis sector in the legal marketplace.”

These organizations believe that craft cannabis producers in B.C. are “missing out on a lot of opportunities” because of the “heavily flawed” federal regulations and the new facility requirement, Walsh said. But a change in cannabis policy based on engagement between federal officials and craft farmers could allow craft cannabis to enter the regulated market. “We remain hopeful that there will be some changes made — some alterations to the existing cannabis act that will stimulate the micro-licence programs,” Walsh said.