It’s not often that you see people queued up around the block on a Thursday afternoon in October near Edmonton’s trendy Whyte Avenue. But, of course, October 17, 2018 was no ordinary Thursday, given that it marked the official legalization of recreational cannabis in Canada.
And while people in other provinces had to contend with balky government websites and pitiful retail displays, Albertans were free – and apparently quite willing – to line up at any number of stores to get their fill. Indeed, in the first five days post-legalization, Alberta’s Alcanna did sales of approximately $1.3 million at its five NOVA Cannabis brand stores in the province’s capital city.
While October 17 represented the finish line for the government officials and industry leaders who made legalization a reality, it was merely the end of the beginning for Alberta’s cannabis industry and the communities that will be impacted by it. The question, both for Alberta businesses and the communities in which they operate, is how can they get their piece of the action and how big will those pieces be?
It could be more significant than some might expect. A Deloitte study estimated annual sales of recreational cannabis in Canada between $5 and $8.7 billion, and the market for the various services needed to produce it at $22.6 billion. BMO was even more bullish with its blue-sky scenario – one in which the United States and all 28 countries in the European Union legalize cannabis for both recreational and medical use – valuing the market at $194 billion by 2025.
Alberta is already playing an outsized part in the development of Canada’s cannabis industry.
“I know that, for a fact, Edmonton wants to be a cannabis capital of the world,” says Jeffrey Gossain, vice-president of operations at Edmonton-based Atlas Growers. “I even hear the same thing coming out of Calgary. I know that Alberta recognizes the strength that it has and the way it can attract the industry and build a cluster of companies that can compete globally.”
Atlas has already received cultivation and production licenses for its 38,000 square foot facility near Edmonton, which will be able to produce approximately 5,000 kilograms of dried cannabis a year and refine cannabis concentrates. The 160-acre site that it sits on has room for plenty of growth and a development permit for up to 1 million square feet of additional space. The company also has expansions planned for Vancouver Island, Edmonton and Europe. At full build out, Atlas expects to employ upwards of 600 people in the Edmonton region alone.
Aurora Cannabis, meanwhile, is putting the finishing touches on its Aurora Sky facility near the Edmonton International Airport. The company expects the 800,000 square foot space, which will be able to crank out 8,000 kilograms of cannabis a month, to begin operations in 2019. It’s also building an even bigger facility called Aurora Sun – 1.5 million square feet, with 850,000 square feet of flowering space – in Medicine Hat, a city of approximately 60,000 people in the southeastern corner of the province.
And in June 2018, Calgary-based Natural Health Alliance announced that it would build its flagship facility about 180 kilometres southeast of the city in the City of Brooks, a 30,000 square foot space that will support 70 new jobs.
The retail market is equally robust. Thanks to Alberta’s privatized liquor model, the province avoided some of the pitfalls that other provinces stumbled into as they moved forward with legalization. Seventeen stores were able to sell marijuana on the first day of legalization, compared to just one in British Columbia and zero in Ontario. The Alberta Gaming, Liquor and Cannabis Commission (AGLC) expects that figure to rise to around 250 by October 2019.
When it comes to cannabis, Alberta’s advantages are numerous. First and foremost among them is the cheap cost of electricity compared to other jurisdictions in Canada. For indoor grow operations like Atlas and Aurora, electricity can be as much as one-third of their overall costs.
“Alberta has cheap electricity rates, which is really nice — the cheapest in the country,”Gossain says. “That helps reduce our cost of production and make us more competitive on a global level.”
Alberta’s climate is also a boon to growers, both because it’s one of the sunniest in Canada and one of the coldest in the winter. “Contrary to popular belief, in the winter the climate here is actually good for our HVAC system,” Gossain says. “The plants themselves produce a lot of heat, so one of our biggest expenses in the summer is cooling. But in the winter, we actually become more efficient.”
And then, of course, there are taxes – long a competitive edge for Alberta. With no provincial sales tax, a general corporate rate of 12 percent, and a small business tax of 2 percent, Alberta matches up favourably with its provincial counterparts. There’s also a new Capital Investment Tax Credit that offers a non-refundable credit of 10 percent of eligible capital expenditures up to $5 million.
Legalization, meanwhile, allows Alberta cannabis companies to access capital markets that their international peers can’t touch. Many of those companies have gone public – Gossain says Atlas plans to do it in 2019 – because it gives them the ability to both raise new money and create liquidity for their existing shareholders. It also opens doors to new markets that might otherwise remain shut.
“That access to capital allows you to move quickly,” Gossain says. “You’re not just there starting from scratch, trying to raise money to build something. You already have the cash and you can go in and move quickly.”
Finally, there’s Alberta’s well-deserved reputation as a place that celebrates entrepreneurship. And that intersection between entrepreneurship and agriculture finds a new outlet in the cannabis business. All told, it’s a potent combination of legal, financial, and cultural factors.
Walter Valentini, executive director of the Palliser Economic Partnership, is excited about what legalization could mean for businesses in his southeastern region of the province – an area that spans nearly 50,000 square kilometres of prairie and has a population of approximately 118,000 people spread throughout 21 communities.
One of the big opportunities for agricultural communities across the province is growing more hemp. That’s because the legalization of recreational cannabis also opens the door for the harvesting of cannabidiol, or CBD, from the plant’s chaff. Previously, that chaff and the valuable CBD it contained had to be left in the field to decompose. Now, Alberta’s hemp producers – who are responsible for over 40 percent of Canada’s total hemp crop – can add another revenue stream to the hemp grain they have already been selling.
Jan Slaski, team lead for crop development and management at InnoTech Alberta, says that’s going to be a game changer for communities in the Lethbridge to Medicine Hat corridor – a 170-kilometre stretch of prairie that has been Alberta’s traditional hemp sweet spot – as well as new hemp growing areas in Central Alberta and the Peace River region in northwest Alberta.
“October 17th was a great day for our industry,” Slaski says. “Why? Because now we can factor in revenues from CBD.” Those revenues, he says, could drive Alberta’s total hemp sales from $180 million in 2016 to upwards of $1 billion by 2023.
Better still, from the perspective of rural Alberta, those increased volumes of hemp will need to be processed somewhere. Slaski says he’s aware of three “serious undertakings” in Alberta that may lead to the construction of commercial-scale processing facilities, with one having already purchased land in the Vegreville region, a town of approximately 5,700 people just 100 kilometres east of Edmonton. All told, he thinks that the hemp industry could create 6,000 new jobs in Canada – a substantial increase from the 1,200 that it supported in 2016.
And while most of the attention of late has been focused on the recreational cannabis market, Atlas’ Gossain thinks the real upside is tied to potential therapeutic applications.
“We know, and have forecasted, that the majority of our production is going to be moving away from just dried flowers. We’re going to have oils, we’re going to have pills, we’re going to have creams, and we’re going to have edibles because a lot of people don’t want to actually smoke it,” he says. “Ten years from now, the industry is going to look very different.”
Barbara Mainville, an Ottawa-area ER doctor who’s been working in the field of medical cannabis at the clinical level for more than three years, thinks it might even put a scare into the pharmaceutical industry one day.
“As far as I’m concerned, this is the future of medicine,” she says, adding that it’s because cannabis interacts with our endocannabinoid system far better than opiates and other widely prescribed drugs.
By establishing a standardized industry, Canadian doctors can be at the leading edge of this medical research. “With our licensed producers, we really know what the patient is getting. We know how much THC, how much CBD, and we know what the terpene profile is. That’s a huge advantage,” Mainville says.
It’s an advantage that has people like Jim Hole, director of cultivation for Atlas Growers and a veritable legend in Alberta’s horticultural community, excited about Alberta’s cannabis industry and its ability to turn a first-mover advantage into a permanent competitive edge.