Canadian CANNAINVESTOR Magazine July / August 2017 - Page 118

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IS THE FUTURE OF COMMERCIAL CANNABIS PRODUCTION SUNGROWN?

WRITTEN BY: MATT MAURER AND WHITNEY ABRAMS, MINDEN GROSS LLP

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 Regulations (“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.