Cannabis producers growing local economy, but challenges remain

By Sean Feagan, Local Journalism Initiative Reporter

They are inconspicuous, but two local cannabis cultivators are working to grow the best bud money can buy, despite challenges selling their product and competing with the grey market.

Joi Botanicals is a licensed cannabis producer with a 14,000 square foot facility located in Wheatland County. They employ 15 regular employees and about 10 more on-call workers during labour intensive periods of the growing cycle. While the company has been growing cannabis since May 2019, selling its product has been a challenge, explained Jeff Karren, president.

“We don’t have any product to market; we haven’t sold anything,” he said.

In Canada, the cultivation and processing of cannabis is licensed federally, but sales licenses are regulated provincially. The company attained its license for cultivation in April 2019, but it was not until July 2020 that the company received its sale license.

So, for over a year, the company was unable to sell its product directly to most buyers. “When you initially get a cultivation license you’re not allowed to sell – that is, you can’t sell to the AGLC (Alberta Gaming, Liquor and Cannabis), retailers or any other provinces.”

Without its sales license, the company had the option to sell to another company licensed for sale, though this option is far from ideal, explained Karren.

“They are challenging to deal with – their demands are difficult to say the least and they don’t pay well – sometimes their pricing is just embarrassing,” he said.

Joi Botanicals has largely avoided this route. 

“For the most part, we’ve elected not to even play in the business-to-business market,” he said.

Now with a sales license, the company will soon start selling its product directly, but “there’s still a lot of red tape,” said Karren. “Alberta has more red tape than any other province that I’ve come across – they’re quite bureaucratic.”

Alberta’s cannabis cultivators are located throughout the province, from the urban confines of Calgary, Edmonton, and smaller towns, to rural municipalities. So why did Joi Botanicals pick Wheatland County?

“It was mainly about cost,” said Karren. “The cost of land in Calgary is far more and there’s higher business taxes” than in Wheatland County.

The relatively low taxes are even more important today than when the company was starting out. In November 2019, the province changed the taxation model for cannabis producers, so that instead of being exempt from municipal property taxes as an agricultural land use, they now must pay property taxes as an industrial land use.

“That was quite the kick in the teeth,” said Karren. The change resulted in a 150 per cent tax increase for Joi Botanicals, from about $30,000 to $75,000 per year, he said.

But there were other considerations as well. The site’s proximity to Calgary is important because many of the company’s staff reside there, he said.

For its building, the company also wanted undeveloped industrial, which is “pretty tough to find,” said Karren. “We did not want to refurbish a building; we wanted a new build. It seemed easier to design a new building than it would be to start with a shell and then have to spend millions fixing it up to make it good enough.” 

Having a new build allows for greater control of the growing environment. 

“The materials are pretty important for maintaining good production practices,” he said. “You want materials to be impervious and be easily and repeatedly cleanable.”

Facilities sited in rural areas also have lower security requirements than those sited in urban areas, so the company saved some security costs by being in Wheatland County. Nevertheless, the facility employs a system that costs hundreds of thousands of dollars, that includes perimeter controls, surveillance, motion detectors, security doors, access controls and alarms.

Joi Botanicals was also attracted to Wheatland County because its administration was helpful in supporting the business, said Karren.

Municipalities now largely covet cannabis developments to generate tax revenue and provide diversification, but it was not always so, explained Stan Swaitek, the founder of both Sundial Cannabis, one of Alberta’s first production enterprise, and Choice Growers (for which he is also CEO and director), a newer venture that operates CSTAR Cannabis, a production facility located in Strathmore.

Initially, municipalities stated they would treat cannabis cultivation as a horticultural land use, no different from growing cucumbers. But shortly thereafter, some municipalities started taking “radical action” through bylaw changes, with the intent of keeping production facilities away, said Swaitek. “Rocky View changed the definition of marijuana, such that it was no longer considered a plant.”

Swaitek looked to change attitudes in the town of Olds. 

“It was all about educating the town – its bureaucrats and the elected (officials) – so they could put aside that it’s cannabis, and consider that it’s an industry, it’s up-and-coming and it could provide a tax base,” he said.

Eventually, they saw the light. Today, the Sundial Growers Facility in Olds contains over 800,000 square feet of gross space for cannabis production, employs over 1,000 people and accounts for about 20 per cent of the municipal tax base, he said.

Attitudes throughout the province then started to change.

“Eventually, municipalities started to ask, ‘what do we need to do to be helpful?’ rather than be resistant,” said Swaitek. “Olds set the stage for that, then Strathmore followed suit; their cooperation with us was very important.

“Now we are in Strathmore as a result of that, and we would like to expand in Strathmore and keep the economic development rolling.”

After attaining its production license in November 2019, today CSTAR Cannabis employs 12 full-time staff, with 12 more on-call, and produces cannabis continually on a seven-week cycle.

CSTAR Cannabis supports Strathmore’s economic development and diversification, said Kyle Wilson, a Choice Growers investor and co-owner and operator of cannabis retailer Beyond the Leaf in Strathmore.

“Let’s drive jobs (and) let’s provide opportunity – it’s proven to be successful. Just look at how many people we’ve hired locally.”

But operations like Joi Botanicals and Choice Growers still face major challenges.

The province is still offering unnecessary resistance by restricting and influencing sales, said Swaitek. “They dictate to us what we can do and make it very difficult to even sell, which then adds to our cost, which then adds to the price per gram.”

That in-turn makes it harder for legal operations, both growers and retailers, to confront the major problem confronting the industry: the grey market, which refers to a multitude of sellers, mostly online, that sell products supplied from illicit grow operations.

“There are more online grey growers that will deliver by FedEx to your house than there are retail outlets. Right now, 80 per cent of the cannabis sold is still coming from the grey market,” said Swaitek.

This has an impact beyond the cannabis industry. 

“There’s housing being wrecked, mortgage companies that are going to end up foreclosing – then you have to pay more bank fees – and insurance companies covering the costs of these places that are getting wrecked,” he said, adding there is also danger to the consumer.

“They’re getting stuff that potentially has mould, pesticide, heavy metals, and who else knows what else in it, and they’re consuming it,” said Swaitek. “Shouldn’t the government be advertising that if you are buying from the black market, you don’t know what you’re consuming? It’s your lungs.”

More enforcement is needed, he added.

“The federal government and the police departments need to enforce that you can’t be selling it illegally, and yet no one’s doing anything.” 

But Swaitek remains optimistic. “It is felt that these issues will inevitably get sorted out (and) the sooner the better, before there’s more collateral damage in our industry.”