Should Kamloops try to attract a cannabis production facility?

I will preface the following with that I could be wrong about this:

In the last few months there has been a lot of excitement about the emerging cannabis industry in Canada with the anticipation of legalization in 2018.  According to Deloitte the legalization of the cannabis industry could be worth up to $8.7 billion in production alone and $22.6 billion when all ancillary services and taxes are considered.  They estimated demand at 600,000 kg of marijuana per year (16 grams/Canadian or approximately 50 joints).  That’s a lot of money and production.   (https://www2.deloitte.com/content/dam/Deloitte/ca/Documents/Analytics/ca-en-analytics-DELOITTE%20Recreational%20Marijuana%20POV%20-%20ENGLISH%20FINAL_AODA.pdf).

Recently I have been spurred to think about this a little further for a couple of reasons.  One is that a number of communities I work with, both First Nations and municipalities, have said they either want to pursue the industry which makes sense given that even a relatively small slice of the pie could result in substantial economic development opportunities or have been approached by businesses looking at potential locations.  So far, most of this has resulted from facilities producing medical marijuana but with the potential legalization of marijuana, there is likely significant potential for more of these facilities to be developed.  Being someone who assists many communities with economic development initiatives, an industry that brings investment and jobs is worth getting to know in a little more detail.

The other is that at least one candidate in the upcoming byelection for City Council in Kamloops has had the attraction of a cannabis producer as part of their platform.  The candidate recently asked on Twitter whether the City should dedicate resources to attracting a cannabis producer.  At the time I disagreed.  While I applaud the candidate for having economic diversification as a key component of anyone’s platform, my reason for disagreeing was based on the idea that there are already many communities, both local governments and First Nations, trying to attract cannabis producers and there are likely only going to need to be a few production facilities needed throughout Canada in order to meet demand.   Given this environment, it appears there could be an intense competition between communities to try and attract these producers.  This may result in producers choosing locations, at least in part, based on access to affordable land and access to cheaper, but qualified labour.  While Kamloops is not the most expensive place in Canada for industry, it also isn’t the cheapest.  Based on these factors, I feel that the odds of Kamloops landing a large facility are not amazingly high and is definitely far from a sure thing.  While communities must sometimes swing for the fences in terms of economic development, I don’t know if working hard to attract this industry to town is an effective use of City and Venture Kamloops resources.

Though I initially disagreed with the idea of trying to attract the industry, I was compelled to do some research and thought I would share what I learned.  As mentioned earlier, the marijuana industry could be worth $8.7 billion in production and could result in 600,000 kg of cannabis being produced.  The big questions, in my mind, is at what scale can these producers operate and how many producers will be needed to satisfy demand.  Based on some quick research I did, I learned that up to one-third of the cost of operating a marijuana production facility is energy.  Many of the commercial facilities I could get information on are either operating completely indoors with heat lamps being used to help with growing the cannabis or have a combination of greenhouses and processing facilities.  Cannabis facilities appear to be great employment generators with some facilities employing 200 people.  The Aurora Sky facility in Edmonton is expected to be 800,000 square feet and will produce 100,000 kg of cannabis every year (http://globalnews.ca/news/3534220/construction-underway-on-800k-square-foot-cannabis-facility-near-edmonton-airport/).  This will make it the largest cannabis production facility in the world.  Another facility operated by Tweed in Smith Falls, Ontario, took over an old Hershey factory, to use for medical marijuana with plans to expand into recreational marijuana once it is legalized.  Most other facilities that I could get information on are large enough to produce 15,000 – 50,000 kg of cannabis in a year.  It appears that greenhouses are likely to preferable to totally indoor cultivation, particularly as laws loosen on the production of marijuana, thus making it less necessary to hide.  This reduces energy costs, particularly for lighting.

One of the fundamental questions for me is how many of these producers will be needed across Canada?  One article I read suggested that there would be hundreds of these facilities.   This number seems high to me.  Even if we are conservative and assume that the average facility produces 15,000 – 20,000 kg of cannabis per year, there will need to be 30 – 40 facilities across Canada to satisfy the domestic demand which isn’t a lot.   Having a number of larger scale facilities such as the Aurora Sky facility would mean that fewer facilities would be required.  As legalization takes place in other countries, the production patterns may change and importing and exporting of cannabis will also be likely.  It will be interesting to see if Canada, as an earlier adopter, is able to get a head start and become a net exporter of product which would be great for our economy.

Another question is whether Kamloops would even be attractive for someone to invest in a facility?  It’s hard to find a ton of information about what makes a great location and with the Edmonton area being an attractive site for the largest facility in the world, it’s hard to imagine what a producer actually needs.  One can assume low energy costs, the ability to take advantage of natural lighting where possible, large areas of flat land, access to transportation and availability of a highly technical and skilled labour pool are all helpful characteristics.  Kamloops has all of these characteristics with the potential exception of available land though there is a lot of suitable land on the Tk’emlups te Secwepemc reserve if they were so inclined to pursue this investment.  The other thing that some producers need, who want to produce indoors, is an old large factory such as what Smith Falls had with the old Hershey factory.   As far as I can tell, Kamloops doesn’t have any of these but my old hometown of Trenton, Ontario has dozens of abandoned factories!

So, back to one of the original questions – is this an industry the City of Kamloops should actively pursue?  First, we must recognize that there are few things that a municipality can do to attract a specific industry and even less to attract a specific business so it might be a moot point anyways.  I am completely supportive of a large-scale producer coming to the area – it would create jobs and generate property tax for the City, Tk’emlups or the Regional District.  That being said, I still question whether it is worth the time and energy of City staff and Venture Kamloops staff to try and attract the industry to Kamloops.  Based purely on the numbers, it seems that there could be a relatively low number of facilities that may need to be developed nationally to satisfy demand.  If this is indeed the case, this will create significant competition amongst communities.  One producer I read about indicated that producers don’t really have to ask for locations – communities are coming to them to try to recruit them.  This puts pressure on communities to have lower industrial tax rates, good availability of land, and affordable but skilled labour.  While Kamloops is potentially attractive to a producer due to low power rates through BC Hydro, excellent transportation access and good growing conditions, the City does not offer any advantages in terms of cheap land, cheap taxes and cheap labour.

While it may be difficult to attract a major producer, it may be more possible, and perhaps likely, to attract a smaller producer.  One thing that was interesting from the research I did was that a few people mentioned that the legal production of cannabis could resemble the brewery industry in that there are a few larger producers (i.e. Molson’s, Labatt’s) and innumerable boutique producers that will sell much lower volume, but much more specialized products.  So, even if Kamloops did not attract a major facility, there would still be room for a smaller, boutique producer.

In closing, after all of this, I still think it would not be a great use of resources to try and attract a cannabis production facility to Kamloops.  That being said, I could be wrong about all of this so I would be interested in any constructive feedback in order to learn more about this industry.

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