Cannabis growers turn to small producers to diversify their product offerings

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Licensed cannabis producers seek agreements with small legal and black market traders to add variety to their leisure market product offerings.

Since October 17, potential producers have been able to apply for a micro-crop license from Health Canada. The license limits the size of the plant cover to 200 square meters, but applies less stringent safety rules than the standard crop license. Until now, Health Canada has indicated that it has received 15 requests for cultivation or processing of cannabis in the micro subclass.

Although the first micro-culture licenses are not expected to be issued for several months, established licensed producers negotiate with small producers and have sometimes signed supply contracts. Some of these small producers are new entrants, while others are currently illegally producing cannabis or growing up under medical license.

Some within the industry warn that small producers may place themselves in the long run at a disadvantage, but large companies entering into agreements insist on the benefits that a great partner can offer.

"If you have a micro-class license and you are limited to what you can produce, it will be difficult to have a brand, a packaging, a sales team – everything you need to be able to stand out in the minds of consumers, "said Jordan Sinclair, vice president of Canopy Growth Corp.

Canopy has a dedicated team that strives to market with artisan producers, who also work with them through its venture capital subsidiary, Canopy Rivers. Canopy Growth has not announced any finalized agreements, but is negotiating with micro-producers pending licensing.

"This is a very competitive space, even at the very beginning, so we have a lot of interest for micro-producers and future micro-producers who are wondering how they will market their products." "said Mr. Sinclair. coming from the black market and wanting to make the transition, or whoever was growing cannabis in the medical system. "

The deals Canopy negotiates are personalized, says Sinclair. A producer could agree to sell Canopy a certain percentage of its cannabis at a predetermined price, which could provide funding and support for licensing, as well as brand management, conditioning and distribution. If the cannabis producer already has its own established brand, it could keep it and use Canopy as one of its distribution channels, says Sinclair.

Cam Battley, General Manager of Aurora Cannabis, explains that his company obviously can not participate in activities other than those governed by the regulated legal system, but sees the possibility of working with micro-growers under the new authorized regime.

"We are in contact with a lot of people in the industry and we want to know the quality of the product from the various micro-growers," said Mr. Battley. "We will select the best craft producers and explore the possibility of helping them develop their market and allow us to provide high quality hand-made cannabis to our patients and customers. "

He says that with Aurora poised to produce 150,000 kilograms of cannabis next year, it does not need micro-growers to meet the company's supply contracts with its distributors.

"We do not miss supply, but we are still looking for interesting craft products and interesting genetics."

BC Craft Supply Co., a company in the process of becoming licensed, works primarily with black market producers who want to legalize. To date, the company has hired half a dozen producers to help them obtain a license from Health Canada for $ 25,000. Producers agree to grant BC Craft Supply a right of first refusal on cannabis at market rates.

BC Craft Supply's Bron Hogan said producers were very interested, but many are eagerly awaiting because they are waiting for municipalities to determine the zoning rules for cannabis production facilities to find out where they can legally grow.

Based in Surrey, British Columbia, Zenabis is another producer authorized to offer growers the ability to comply with regulations, distribute them and fund them. To date, six artisan producers have joined the Zen Craft Grow program.

Jaclynn Pehota of Vancouver's Althing Consulting believes that some of these provisions are good for independent producers, but she recommends caution. "The licensing process is new and a lot of fear for micro-growers. This is a lot of paperwork for people who are not used to this type of paperwork, and people think they need someone to do it for them. many people who fear not to enter the legal market otherwise, and I do not think that is true. "

James Gallagher, a producer of medical products in the Fraser Valley in British Columbia, said that agreements between the biggest players and artisan-producers could have a long-term negative impact. He feared that if an actor came to dominate the market, he would be able to set prices for the smaller ones.

Instead, Mr. Gallagher is looking to create a cooperative with other artisan producers, which would allow them to grow and share costs. The ideal, he says, will be to be able to find a property that can be subdivided to allow multiple licensees to operate close to each other and obtain a standard treatment license to pack the cannabis.

"By bringing together a lot of craft brands, it will be much stronger and more investable," he says. "If we build a processor ourselves, we can control our own distribution and as long as we are not tied to any contract, we are more free to do what we want and set our own price. "