Canada: Is The Future Of Commercial Cannabis Production Sungrown?

Last Updated: August 9 2017
Article by Matt Maurer and Whitney Abrams

Many believe that obtaining a license from Health Canada to cultivate cannabis doubles as a license  to print money. Indeed, the valuations being put forward by many cultivation applicants under the  Access to Cannabis for Medical Purposes Regulatfons ("ACMPR"}, who are seeking to raise capital are  causing many in the industry to do a double take.

In the immediate, and possibly not so immediate future, demand may very well outstrip supply in a  significant fashion. Some are predicting that every single gram produced in Canada for the  considerable future will be sold. In fact, some industry experts such as Ranjeev Dhillon of  Bennett Jones LLP believe the demand could go on for much longer. Mr. Dhillon recently expressed  the view that based on current estimates of demand and subject to certain assumptions, it could be  8- 10 years before supply catches up with demand in Canada.

At some point though, things will come crashing back to earth. We don't have to look much further  than our neighbours to the South to see where we might be headed once supply catches, or surpasses,  demand.

According to Forbes, wholesale cannabis prices in Colorado declined from $2,500 to $1,000 per pound  in 2016. In Washington State, sale of dried flower plunged from $25 per gram in the summer of 2015  to just under $6 per gram by early 2017.

Producers who are looking to stay in the game long term will need a long term strategy. One  strategy utilized in particular is to lower production costs so that survival will be possible when  margins begin to shrink.

The ACMPR obligates licensed producers to produce, package, label and store cannabis indoors.  Although outdoor growing is permitted for individuals growing cannabis for their own medical  purposes, it is simply not an option for commercial growers.

Indoor  operations  require the use of  artificial light, and elaborate heating and cooling  systems, all of which ultimately increase the demand for electricity in a significant way. As a  result, the interest in greenhouses, which offer a lower operating cost and smaller carbon  footprint, is growing among industry stakeholders.

Recently, British Columbia based Tantalus Labs became the 45th licensed producer in Canada.  Tantalus is known across the country for utilizing greenhouses for commercial cannabis production.  Tantalus' greenhouse, cleverly nicknamed "SunLab", utilizes sunlight to fuel cannabis growth  instead of exclusively artificial  lighting.

The Sunlab is not simply a greenhouse. In addition to having a translucent roof and walls that  enable sunlight to fuel growth,  the Sunlab also utilizes two 54,000 cubic feet per minute HAF fans  per bay to generate airflow that is 15 to 20 times that found in  a traditional indoor grow  environment.  Tantalus describes this airflow as a cornerstone of its quality assurance system  which prevents disease, strengthens plants and increases yields.

Dan Sutton, the Founder and Managing Director at Tantalus estimates that the Sunlab uses 90%  less  energy than a traditional indoor environment. This enables Tantalus to achieve a costs of goods  sold somewhere between 1/3 and ¼ of what traditional indoor growers are spending.

Traditional indoor growers may insist that the lack of environmental control in greenhouse grows  leads to less harvests, inferior product and more risky results. Sutton says those criticisms are  largely unfounded but admits that until Tantalus' cannabis hits consumers' coffee tables he won't  be able to disprove his critics, noting "the proof is in the product."

In addition to the attractiveness of low cost production, Sutton says investors should be drawn to  greenhouse growers for another reason al together:

"the opportunity to touch a consumer base who are buying more than just a product; they are buying  the sustainability of our production methodology to protect our natural environment for generations  to come."

There is no doubt that the industry is anxiously awaiting to see what quality of product Tantalus'  SunLab can churn out.  If Sutton is right, and the SunLab is capable of producing cannabis of  a  quality level that rivals or surpasses that of other traditional indoor growers, many more might  start marching to the beat of Sutton's mantra:

"Sungrown is the future.  Adapt or perish."

To read more from the Cannabis Industry Practice Group at Minden Gross LLP, visit Canada Cannabis  Legal ("CCL") at www.canadacannabisle gal.com. CCL brings its readers timely content about legal  developments that impact stakeholders in the Canadian cannabis industry. CCL covers any topic that  touches the Canadian cannabis industry, whether the topic is municipal, provincial, federal or  international in nature. Whether you are a novice with no prior knowledge of the laws that shape the Canadian cannabis  industry, or an experienced industry participant looking to stay current with legal developments as  they happen, CCL is your online destination to become and stay informed about the laws affecting  the Canadian cannabis industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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