Health Canada had announced that it will be introducing certain changes to its cannabis licensing requirements.
They will now be requiring cannabis growers, processors, and sellers who are applying for a license to have a fully built site. This site also needs to meet cannabis regulations criteria at the time of the application.
The goal for adding this prerequisite is to alleviate the massive backlog that has been built up since recreational cannabis was legalized in the country in October last year. As of March 13, there were more than 600 applications waiting in the queue.
However, many experts in the cannabis industry believe that the new licensing rules would only worsen the supply shortage. They also said that these rules would make raising capital more challenging than it already is.
Cannabis supply problem
Even during the first day of recreational pot sales, the supply shortage was already apparent. With the long queues of eager customers, the websites swamped with online orders, and the number of stores temporarily closing doors because they’ve run out of inventory, many have predicted that the supply issue is going to be a long-term one.
The problem on cannabis supply, however, did not just affect recreational cannabis users. It has also left many medical cannabis patients scrambling for their medication.
What’s more, the shortage is nationwide, and it has led certain provinces like Ontario to restrict the opening of stores.
New requirement may exacerbate supply shortage
According to cannabis lawyer Trina Fraser, the fact that businesses need to have a fully built site before even applying for a license means that they are going to construct very small initial phases in order to try to minimize the amount they need to spend and to mitigate risk.
She explained that once an initial site is approved, producers can then expand it by applying for license amendments. This would only transfer the backlog from the licensing queue to the amendment queue.
Fraser also said that this could worsen the problem on cannabis supply because it is going to be difficult for producers to grow plants fast enough to meet the high demand and to expand their site.
Raising capital will be challenging
Meanwhile, Deepak Anand, consulting firm Cannabis Compliance Inc.’s former vice president and now CEO of global cannabis supply and distribution firm Materia Ventures, said that the new regulatory changes might discourage new members of the industry.
According to him, raising capital is challenging enough, and this new regulation will make it even more so. It really “disincentivizes” micro-cultivators and producers to set up and apply for license, he added.
Anand further said that this will significantly impact small businesses.
What Health Canada sees
Health Canada defends its move by pointing out that it approves applications and grants licenses almost every week, thus bringing the total number of licensed sites across the country from the initial 132 in October to the current 175. They also noted that there are now more than 600,000 square meters under active cultivation. This space is enough to produce around 1 million kilograms of marijuana annually, matching the amount of cannabis that Canadian users consume.
Health Canada spokesperson Eric Morrissette said that the regulatory approach to weed has been designed to encourage a diverse range of small and large participants from across Canada.