Agriculture Committee on June 20th, 2022

[The Chair, Liberal, Kody Blois]

This meeting is called to order.

Welcome to meeting number 26 of the Standing Committee on Agriculture and Agri-Food.

Dear colleagues, this is our last meeting before the House rises for the summer. I hope you had a good weekend in your ridings. I notice that there are a lot of community events happening right now. I want to thank you for your cooperative and constructive work, while bearing in mind the interests of our farmers.

I will start with a few reminders.

Today's meeting is taking place in a hybrid format, pursuant to the House Order of November 25, 2021. The proceedings will be made available via the House of Commons website. Just so you are aware, the webcast will always show the person speaking, rather than the entirety of the committee.

As usual, screenshots or taking photos of your screen is of course not permitted.

Again, colleagues, let's just make sure we're respecting the health and safety rules put forward by the Board of Internal Economy.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, May 30, 2022, the committee is commencing its study of the micro cultivation of cannabis and cultivation of hemp. Of course, we're going to be hearing about this as it plays into the regulatory process that Health Canada is conducting five years after the legislation was introduced.

I'd like to now welcome our witnesses to the first panel.

Joining us by video conference from the BC Craft Farmers Co-op, we have David Hurford, who serves as the secretary; from the Cannabis Council of Canada, George Smitherman, president and chief executive officer, and Jacqueline Menezes; and from Sweetgrass Cannabis, Timothy Deighton, director and owner.

Welcome.

Each of the organizations will have up to five minutes for opening remarks.

I'm going to start with Mr. Hurford, from the B.C. Craft Farmers Co-op.

You have five minutes.

[David Hurford, Secretary, BC Craft Farmers Co-op]

Thank you, Mr. Chair.

Thank you to the committee for the opportunity to speak to you on this important topic.

The BC Craft Farmers Co-op was established two years ago to help B.C.'s legendary craft cannabis farmers transition to the legal market and maintain our province's global brand for cannabis excellence. We operate under the co-operatives act of B.C., in the tradition of thousands of other agriculture co-ops across Canada.

Our B.C. cannabis farmers are truly a national asset. They are the best in the world at what they do, and they should be celebrated. Unfortunately, the federal government's micro-licensing regime is excluding thousands of them, not just in B.C. but across Canada. In the first three-plus years of legalization, barely 80 of B.C.'s craft farmers have completed Health Canada's micro-class regulation maze. By comparison, 6,000 medical farmers in B.C. are licensed with Health Canada. A cannabis policy reset is definitely required to realize the full potential of legalization in Canada and unleash B.C.'s craft cannabis community.

In April our organization hosted a summit in Kelowna with the Association of Canadian Cannabis Retailers. Over three days, about 400-plus leaders in the sector came together to hash out some of the challenges created by the federal regime, among other things. Today I'm honoured to present just a couple of the constructive policy proposals that were reviewed, voted on and prioritized by delegates during the summit. There are three of them, and I'll touch on them quickly.

First, the federal government should officially recognize across all legislation that cannabis is actually a legitimate and legal farm activity and product. Canada still does not define cannabis in this way. The B.C. government is planning to exclude structures for use in producing cannabis in the agricultural land reserve. This reality is keeping craft farmers from being eligible for most government assistance.

Second, we need to help these craft farmers transition into this new legal regime and create thousands of rural jobs across Canada. A thousand licensed farmers in B.C. have the potential to create three to four thousand jobs and hundreds of millions of dollars in new revenue for taxpayers over the next two to three years. These farmers and processors should be able to access capital, grants and small business loans that other agriculture sectors can access. We believe that with the new Pacific economic development agency, a craft cannabis partnership can be created with all the players involved to really grow the sector's capacity. We think there should be economic development grants for indigenous and local governments that want to expand craft cannabis.

Finally, the Cannabis Act needs a reset. It is up for review this year. It continues to rely heavily on the punitive and authoritarian approach that we saw during prohibition. This review does present an opportunity to reset. We believe an all-party House of Commons committee should be the one reviewing the act instead of Health Canada, as oversight is required. We also believe there are some small changes that the minister can make immediately to the act without any disruption in advance of the review, particularly related to the micro production caps, security pre-clearances and so on.

If significant improvements are not made over the coming year and Health Canada continues to approve licences at the current slow rate, summit delegates resolved that jurisdiction should be transferred to an agency mandated to support the industry and help it flourish. We have submitted all these proposals to the various ministers of health, innovation, agriculture and rural development.

To conclude, there's been a lot of speculation about why Canada's industry has not taken off since legalization three years ago and why the illicit market is still such a significant element. The reason is that cannabis legalization has deprived consumers of what they want. They want fresh, locally grown cannabis by farmers who respect the plant and are passionate about their craft. Canada's legalization task force anticipated the risk of excluding these micro farmers. Otherwise, the task force predicted the development of unhealthy monopolies and large conglomerates, and that's what we're experiencing now in our industry.

Our proposals are designed to be practical measures that can achieve win-win scenarios for consumers, small businesses, rural economies, agriculture industries and Canada's tourism sector as well. Working together, we can ensure that the legacy of cannabis legalization is not just that people are no longer arrested for possession of small amounts of cannabis. Instead, the legacy should be tens of thousands of Canadians who are proudly employed and making an honest living for their families doing something they love to do for the benefit of others.

Thank you, Mr. Chair.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Hurford. You're right on time.

We'll now turn to the Cannabis Council of Canada.

Mr. Smitherman, it's over to you for five minutes.

[George Smitherman, President and Chief Executive Officer, Cannabis Council of Canada]

Thank you very much, Mr. Chair.

Let me begin by saying what a privilege it is to appear before the committee today. I would like to say that the Cannabis Council of Canada would be well aligned on significant portions of the previous witness testimony, and thank you for that. As an industry that enjoys so many regulatory relations with Health Canada and CRA, we feel very at home amongst those who focus on Canada's growers.

Cannabis and cannabinoids are a value-added agricultural crop contributing billions to a sector that is rapidly leveraging research and technology to create innovative products for millions of adult Canadian consumers. Through the leadership of the government and parliamentarians, including so many of you, our products are trusted globally and we are quietly exporting millions in medicinal cannabis products to welcoming nations and patients. That global market for cannabis exports is rapidly expanding and is estimated to reach $100 billion U.S. by 2030. At least 55 countries currently have or are considering purposeful cannabinoid regulations. Canada's remains the most consequential global cannabinoid legalization initiative, but first mover advantages are proving perishable.

Considering that there are more than 800 licences issued under the , Bill C-45, it's fair to say our licence-holders can be found in all of Canada's regions, and with more than 3,000 retail stores and a truly diverse ancillary services sector, our industry is everywhere, just like our consumers and our community. During our industry lobby day we met with parliamentarians and focused on five key asks where we need to see change if the fuller potential of the goals of legalization are going to be achieved. I want to draw your attention to the threat of the very sustainability of many licence-holders of all sizes posed by unsustainably high taxes, fees and markups that leave almost nobody cash-flow positive. Undercapitalized micros are the most vulnerable.

Just as a quick reminder, licence-holders—sometimes referred to as “LHs”, especially by Health Canada—come in various sizes of operations. Prior to the Cannabis Act, the medical cannabis regulations in place created a very high bar for facilities and operators, and were an important element that made the legalization of adult recreational cannabis possible following 2015. The regulatory model did not create avenues for historic or legacy producers to find their way into the new legal cannabis supply chain, and in response the micro category was introduced. The trade-off was simple: in exchange for a very small footprint, micro cultivators or throughput micro processors were born with watered down regulations in areas ranging from internal and external security, through to the requirements to have a quality assurance individual on staff.

Previously, it was presumed that the legacy grower with the micro licence would produce cannabis and sell it up the food chain to a larger scale licensed producer with brand and market reach. That marketplace, dominated by a few large players, has not emerged and the numerous micros, including C3 member HRVSTR, led by Ashley and Michael Athill, have fought for the direct-sale-through-distributor model to the provincial boards. In response, Health Canada recently shifted approaches and proactively provided sales licence status to all applicants, including micros, which implied an understanding that micros would be directly involved in sales to distributors, namely, to the provincial boards.

Here are some of the current challenges that micros are facing even beyond the overall burden of taxes, fees and distribution markups that fundamentally impair our ability to compete with the unregulated market.

The micro scale makes it difficult to generate enough revenue to support some of the services implied by a direct sales model. Our organization is on the record as favouring an increase in the footprint or processing volume of micros.

Quality assurance stands out as an area where our coordinated plan to build capacity through shared services and best-practices models should be developed with support from AAFC.

Financial services access, and especially very expensive requirements for boutique recall insurance from the provincial distributors, requires special attention.

The smallest players in a nascent agricultural sector need nurturing support, and a cannabis lens should be applied to current programs to ensure fairness. For instance, a micro cultivator with an outdoor grow would not enjoy the same protection from weather-related risks as adjacent crops, because cannabis is not on the list.

Finally, Mr. Chair, achieving the objective of eliminating the illicit market includes the need for the integration of legacy growers into a sustainable environment that includes support for BIPOC communities that have historically borne the greatest price for cannabis legalization.

Thank you for the time. I appreciate the opportunity.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Smitherman.

We'll now turn to Sweetgrass Cannabis.

Mr. Deighton, it's over to you.

[Timothy Deighton, Director and Owner, Sweetgrass Cannabis]

Thank you very much for having me.

My name is Timothy Deighton. I'm representing the micro cultivators of B.C. and Canada, and I want to give a little bit of scope on what I have been through and some of the process.

I'm the director of Sweetgrass. I live in Ymir, British Columbia. Our town has about 450 people.

My previous experience dealing with Industry Canada was running and operating a small aircraft charter with five airplanes from private charter to fire patrol for the government.

Sweetgrass Cannabis is a certified organic cultivation and processing company. We started in 2018. We started with one cultivation facility, and we have recently added a second. We have 15 employees. From the beginning, we've been hiring local contractors and local employees, trying to help benefit rural B.C. and our community.

We produce and sell dried flower. We are selling in British Columbia and Manitoba. It's packaged in-house through Sweetgrass Cannabis. We also sell business to business to a company in Nova Scotia, which provides cannabis to all of Atlantic Canada. Right now we're also exporting to Australia. As well, we've been working on a deal with Israel. Recently, we completed our medical sales platform. We've started working with the veterans of Canada as well as a variety of other medical patients.

I want to touch on a few of the issues and challenges we've had as a micro cultivator.

One of them is that even though Health Canada has been really helpful in trying to work with us in establishing this new industry, they just do not have the experience or the knowledge of working with plants. That's become an issue moving forward in an agricultural sector.

One of the major issues we had was that we became one of the first micro cultivators to get a federal sales licence. This process took 11 months for us. In that process, the 11 months, we were losing up to $50,000 to $75,000 a month waiting for Health Canada to go through our application. I think this was based on their lack of experience and knowledge in the agricultural sector.

Another issue we've had is the huge cost of becoming a micro cultivator. It's almost made it impossible for the legacy people to be transitioning to—what do we call it?—the white market. Part of it is that the security requirements for our buildings are so grossly overpriced. There's more money in a winery. There's more money in product at a winery than there is at a micro cultivation facility. The cost was $100,000 for us to do our two micro facilities. That's a huge roadblock for all future micro cultivators.

As well, what Health Canada has required is that the building has to be completed before we even apply. This is just a deterrent that makes it impossible for the small grower to move forward towards legalization.

Another major roadblock for us as a small company moving forward is our marketing and our packaging requirements. Right now, if we sell business to business, the business that we're selling to is not even able to put our logo on the packaging. For us to be developing our company and our brand moving forward as a small business, it's almost impossible to be recognized throughout Canada unless we have this federal sales licence. Since we are one of the first, it's been beneficial, but we're only in B.C. and Manitoba compared with Atlantic Canada, where we'd like to be growing as a company.

One other major issue that I'd like to bring up is the canopy size for a micro cultivator. In terms of the canopy size, we are restricted to a certain limit, but the production limits they give us are not even achievable with the size of the canopy that we've been given. We need to address this to allow us to grow at the proper canopy size for the proper amount of production. It's just not in alignment.

What I would like for Sweetgrass is to have a reasonable business environment that allows us to help our rural community grow and flourish in Ymir, British Columbia, and throughout Canada.

Thank you.

[The Chair, Liberal, Kody Blois]

Thank you very much, Mr. Deighton.

We'll turn to our question period now. I'll start with the Conservatives for six minutes.

Mr. Epp, it's over to you.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for your excellent testimony.

I want to make a statement before I begin questioning. Given the experience of my local community and other areas, please don't perceive the questions I'm asking as opposition to the 2015 legalization of marijuana. However, there have been a number of downsides for a number of communities, as have been mentioned here, particularly on the medical side. I want to make that statement up front.

To begin, can I ask for a definition of what a micro licence is, versus a medical licence? I understand the stacking and those issues, but could I have a definition? I believe the last speaker was referring to concerns around that.

[Timothy Deighton]

The difference between a micro cultivator and a medical cultivator is the federal licence. The licence allows you to sell medically. There's no difference in growing for medical or recreational. It's the sale of it.

We have a federal sales/medical licence through Health Canada.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

There are no size restrictions on your operation.

[Timothy Deighton]

Yes, my size restriction is based on the canopy. If you look down on the plant canopy, in micro cultivation, we're limited to 200 square metres. It's about 2100 square feet of actual plant size. The building can be bigger, but the plant canopy is limited to that size.

For expanding and growing, every time you want to have another facility, you have to go through the entire application process again.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

One of the issues on the medical side is the Health Canada regulations around the conversion of a growing plant to prescriptions. I recognize, being in agriculture myself, that it's going to vary from cultivar to cultivar, but what would be an average yield in grams from a marijuana plant or from a square metre perspective?

[Timothy Deighton]

I don't know the square metre. I know the square foot. On average, it is....because it depends on your style of growing. You can either have large plants or small plants, depending on the style of growing.

I'd say that on average you'd have, per plant, in the style that we're doing it, about 60 to 90 grams per plant. That's in a micro setting, growing for medical or recreational.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Health Canada uses 28 grams per plant, whereas OPP expert testimony uses 84 grams.

Would you state for the record that the OPP estimate is probably closer to a growing reality?

[Timothy Deighton]

Yes. For an experienced, quality grower, I think that would be more reasonable.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Thank you.

One of the concerns from the legalization is that neither of the two stated objectives—the reduction of organized crime and the reduction of the black market—has occurred. We've heard testimony to that effect. Locally, we've had some input suppliers testify to us that they were being paid in large sums of cash.

To advance the interests of the micro industry, would you consider—and I am going to ask all three representatives—all payments in and out of the industry being tracked or done through a payment mechanism that's trackable?

[George Smitherman]

I'm happy to answer that question.

I'm also happy to offer—if it's appropriate—to Mr. Epp that I believe some of your questions pertain to the personal grow model that Health Canada allows as a separate licensing regime for individuals who have paperwork from a medical practitioner. We've taken issue with that, because sometimes those medical practitioners are issuing notes which call for a very significant number of plants that is well in excess of the number that Mr. Deighton would be allowed to grow, I believe, within his limitation of footprint.

Mr. Deighton has spoken about a medical licence from Health Canada within the Cannabis Act, but prior to that and continuing through, Health Canada also grants a grower's personal grow exemption. Some of the scale of that is very challenging to us in various parts of the country, and it was probably a focus of the OPP report that you've referenced, sir.

I hope that intervention might be helpful to the committee.

[Dave Epp, Conservative, Chatham-Kent—Leamington, ON]

Yes. Thank you very much.

I believe the maximum prescription is 244 plants. If Health Canada uses a conversion rate of 28 grams versus a far more street accurate rate of 84 grams, or as we've heard from testimony 60 to 80 grams, one can imagine how much excess cannabis is available for a market that is not legal. That's exactly the kind of information that I'm trying to get on the record here.

I'll go back to Mr. Deighton. What kind of regulations would you like to see, so that this industry is not tainted with the very same poor reputation that the other regulatory regimes have acquired?

[The Chair, Liberal, Kody Blois]

You're on mute, Mr. Deighton. You have 30 seconds after you get off mute before we have to move on to the next question.

[Timothy Deighton]

I'm sorry about that.

I would like the regulations relaxed for cultivation, so that we can move forward in the same way as the wine industry as far as marketing and distribution go along those lines. I think that would be the biggest help for a small producer.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Epp.

Thank you, Mr. Deighton.

There is one other thing that I was reminded of by the clerk. To our witnesses, if you're not speaking, please mute yourself between when you're being asked questions. That helps for interpretation and feedback.

Mr. Weiler, from British Columbia, you're going to have six minutes.

I'd like to recognize that Mr. Morrissey is sitting in on the committee, as well.

Welcome to you both.

Mr. Weiler, you have six minutes.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you very much, Mr. Chair. It's a pleasure to be joining the committee today.

Thank you to the witnesses for the excellent testimony already.

I want to start by asking a question of the BC Craft Farmers Co-op. In terms of your policy proposals, you mentioned that one of the big barriers was the federal government not recognizing cannabis as legitimate farm activity, so it's not eligible for assistance.

I was hoping you could explain to this committee how that could change. How could that be recognized as legitimate farm activity, and what would the impact of that be?

[David Hurford]

I think Mr. Smitherman touched on it a bit, as well, in his presentation in terms of really looking at our lens across federal rules—particularly in the agriculture department, grant programs at Industry Canada and regional economic development agencies—to recognize what it really is.

This is farming, and this is highly skilled farming as Tim, I think, has pointed out. He's one of the best in the business. We have thousands of them here in regenerative farming, giving back to the soil. There are different agriculture techniques in play.

The land that we're growing on here in British Columbia is sacred land. Indigenous farmers have incredible techniques and a history of growing plants for medicinal purposes. We think it's as simple as putting that lens across all of the federal programs and legislation that is there. We're suggesting provincial governments do it as well.

Also, state the obvious. We had a lot of people who were surprised when this policy resolution came to the summit and said, “You mean cannabis isn't realized as a farming activity now?” Agri-tourism, in terms of cannabis, has a place, especially for craft farmers with farm gate sales. There are a lot of tourists who are very interested in agri-tourism, and cannabis fits very well into that box.

I think it's a matter of looking at the federal programs and legislation that exist now and taking the stigma out of cannabis. It has been stigmatized for so long, with the prohibition. It's very unfair. Start to look at cannabis in a different way and as a really cool agriculture commodity

It's attracting a lot of young people to farming. We talked to a lot of agriculture producers in other sectors. When they see our conference with a whole bunch of young people getting into agriculture, their eyes are opened to the fact that the cannabis and hemp industries can attract younger people into this business, because it is what it is. It's really farming.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you for that.

Moving on, one of the big challenges we've had over the last five years since legalization is that the black market's still there. It still has a huge market share. One of the challenges that has been raised already is the low limits of micro production, which make it difficult for the business case to work for a lot of small producers.

Through you, Mr. Chair, to Mr. Hurford, could you explain what level of production is allowed in micro productions right now? What do you see as being a reasonable increase of that level, such that it would make it more attractive and more feasible for a lot of the craft producers to get into the legal market?

[David Hurford]

The figure right now is arbitrary. It's, as Tim described: It's very small, or about half the neutral zone of a hockey rink, and it's very difficult to make a profit. What we've suggested previously to the government is that this should at least be doubled to 4,200 square feet, which would be the full neutral zone of a hockey rink—still very small and, from a municipal government's point of view, not that treacherous. The figure is arbitrary. Health Canada has told us that they just picked this number essentially out of a hat. It's very unfair.

We suggested 4,200 square feet as a doubling, but, frankly, it could go higher to 5,000, and maybe even 10,000 square feet. We have a lot of standard producers who are in that field who identify much more with craft growers than they do with the larger ones, so that would be a good place to start.

This is a very easy thing for the minister to change. They could literally do it in an afternoon and, with a stroke of the pen, dramatically increase the productivity and profitability of a number of farmers across the country without creating a lot of headaches for local governments with zoning, etc.