From Dream to Bad Trip: Cannabis Isn’t the Golden Goose Canada Hoped For

The legalization of Cannabis in Canada brought hopes of a multi-billion-dollar industry full of thriving cannabis businesses. Things haven’t gone according to plan. However, there’s more to the story than a simple case of the market becoming flooded, with competition from the black market only exacerbating the costs of onerous security requirements and high taxation for legal growers.

Wednesday, October 17, 2018, is a day like no other in Canadian history. As of that morning, adult Canadians can legally purchase and consume cannabis for recreational use. Justin Trudeau’s government is thus fulfilling one of its campaign promises. And the country with the maple leaf becomes the second state in the world to take such a step for its entire territory, after Uruguay. But the first among the G20, the most economically powerful countries on the planet.

Printing Money in Canada?

Just before legalization in Canada, the outlook is encouraging. Through various surveys, Canadian statistics evoke the figure of 5.6 billion dollars (about 3.8 billion euros) of cannabis that would have been sold in the country in 2017, of which a very large majority in an illegal way since, at that time, only cannabis for medical reasons is allowed in the country (not recreational cannabis). Moreover, according to these same surveys, the province of Newfoundland and Labrador, in the far east of Canada, is precisely one of those where adults buy the most cannabis on the black market.

In 2018, Rita Hall and her husband, Mark German, decided to go for it. They quit their jobs in the new technology sector and opened their own cannabis growing and selling company in Corner Brooke, a small town on the eastern side of the island of Newfoundland. It’s a double family story, as their 16-year-old daughter’s health was what initially led them to this business. Suffering from an autoimmune disease that could make her blind in the long run, she uses therapeutic cannabis to relieve her pain. This is how the couple became interested in the famous plant with serrated leaves, its virtues, and its economic potential linked to the general legalization of its use in Canada.

From Disillusionment to Disappointment

In November 2018, barely a month after legalization in Canada, their company “BeehighVE” (a play on words, since “beehive” means “beehive” and “high” is the expression used to say that one is “high” when one has consumed cannabis) is the first to receive its license to grow and produce cannabis in the province of Newfoundland and Labrador. The couple decided to also produce honey, hence the name of their company. A honey that they hope to eventually enrich with cannabis extracts.

The couple chose the niche of “craft cannabis.” They indeed boast of having a small-scale production where each plant is cared for, cut, and watered by hand, far from some huge farms/production plants active elsewhere in the country.

Not Everything is Going to Plan

But since the launch of the business, not everything has gone according to plan, or at least as hoped. First of all, there are the security requirements imposed on cannabis companies in Canada.

The small structure is, in fact, installed in… an old bunker that was used as a telecommunications center during the Cold War! “It’s true that it breaks the artisanal image a bit,” explains boss Rita Hall. “But it’s the only place we’ve found that meets the legal requirements in Canada for our business. You need a place that is hyper-secure. We’re surrounded by fences, almost like a military site.

Inside, you have to sign in and identify yourself to get through each door and into a room. We have 56 cameras that film the interior and exterior at all times, and we are obliged to keep all the images for at least a year. This is incredible. According to the authorities, this is to guarantee that there is no theft or black market that is organized with our production. It’s crazy! We have almost more constraints than a pharmaceutical production company. Even when we were only producing recreational cannabis. Today, we also do medical cannabis.”

All this is obviously expensive. “Very expensive indeed,” Rita adds. “There’s also the follow-up. As soon as we harvest the leaves of a plant, we have to keep a sample and send it to the Canadian health agency for control. All our products must be traceable at all times and by any customer. This, too, has a cost”.

But the worst part, according to the director, is the state of the cannabis market. “Once legalization was passed, the authorities let many small companies start growing the plant. Far too many, in fact. Canada overestimated the domestic demand for cannabis sales. It’s simple, since the end of 2018, 80% of all legally produced cannabis has not been consumed. It feels like we’ve been duped.” Some statistics from the authorities do indicate that since legalization, there has been a small increase in consumption in the country. But it is far from being a boom. And many users are occasional users, less than once a month.

Official and Unofficial Prices in Canada

So there is an overproduction of cannabis in Canada, according to Rita Hall.

“It’s easy to understand that, before legalization, recreational cannabis was bought on the black market illegally. It was to stop that they legalized it and to be able to guarantee the quality of the product for public health because everything is controlled by the state.”

“Now, after the Cannabis Act of 2018, this black market has not stopped. It has continued and is growing again at this time. And this illegal cannabis is much cheaper than the cannabis we sell. It makes sense because of all the requirements, the controls, the transportation, and the share taken by the stores. So we lose twice as much. Worse, we lose three times because, as a basic economic principle, as there is overproduction compared to the demand, the prices at which we have to sell have also collapsed over the years. We have gone from about 10 Canadian dollars a gram at the beginning to 20 dollars for 3.5 grams today. That’s almost a loss of half!”

“And that’s not all. On this subject, you must know that the national and provincial authorities of Canada take between 45 and 65% of taxes. In short, we can’t be profitable. We are only been losing money since the launch of BeehighVE. And I’m not talking about the energy costs that have exploded in the last few months when we have to use overpowering lights, heavy ventilation, and keep the temperature constantly above 20 degrees to allow the plants to grow. Even more so in a region where the temperature drops well below zero for a good part of the year”.

The Fight for Survival in Canada

The hope of survival of their company is now very low, according to Rita and Mark. Of the eight people employed at the start, “a certain number” have already had to pack their bags. We won’t know the exact number, but you can see it on the hooks to hang their street clothes, each of which has a first name on it, in the hallway, but which are now almost all desperately empty.

“It’s not a pretty thing to say, but our only hope today is that the other companies producing cannabis in Canada die off faster than we do if we want to have any chance of sustaining ourselves. Hopefully, by that time, the market will have reached its balance in terms of demand and supply, and we’ll finally be able to make a profit. But it is a risky bet. According to our information, about half of the companies that have launched since 2018 have already gone under. We have friends and family who have invested heavily with us in this project. We have already invested and injected several million Canadian dollars” (they refuse to disclose the exact amount).

“The Canadian authorities could help us, for example, by reducing taxes or giving us a license to make other cannabis products. We could also export to other countries. But there, too, licenses are required and are very difficult, if not impossible, to obtain. We also bet on a mushroom, the Chaga, which we discovered with the help of a local university that it could help to improve the yields in the growth of plants. But this is marginal. We are desperate. We really don’t know yet how long we can stay open.”

Cannabis Laws: A Review

In Europe, only Malta has recently legalized the cultivation and use of recreational cannabis. In the Netherlands, smoking is not legal but is tolerated. Germany and the Grand Duchy of Luxembourg may also soon relax their laws on the subject. In Belgium, growing and possessing cannabis is still prohibited, although the legislation remains unclear and subject to different interpretations from one police zone to another in recent years, particularly in the case of personal consumption and in small quantities.

As for Canada, it has recently launched a review that is currently underway to assess the results and relevance of its legislation that fully legalized cannabis.

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(Featured image by Ryan Lange via Unsplash)

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