Canada’s New Outdoor Grow Regulations Create New Risks, Opportunities

Canada’s cannabis industry is projected to reach C$22.6 billion over the coming years, according to Deloitte, driven by the legalization of adult-use cannabis nationwide later this year. Last month, the government surprised many industry analysts and participants by legalizing the outdoor cultivation of cannabis in an attempt to lower prices, increase global competitiveness, and better compete with black market products.

These developments have had a mixed effect on licensed producers. While many licensed producers have already invested hundreds of millions of dollars in indoor grow facilities, others like SpeakEasy Cannabis Club Ltd. (CSE: EASY) have shifted their focus to include outdoor cultivation. Investors may want to consider diversifying their portfolio across both types of cultivators to realize the benefits of each option.

Canada’s Controversial Outdoor Grow Decision

Canada, like most jurisdictions where cannabis has been legalized, has historically required cultivators to grow their crops in tightly regulated indoor facilities. Licensed producers invested billions of dollars in brand new indoor cultivation facilities in compliance with the country’s original cannabis cultivation regulations. The high cost of these facilities has translated to relatively high costs for products that ultimately hit consumers.

The Canadian government surprised many licensed producers and industry analysts by legalizing outdoor growing in the final cannabis legalization rules. The move was designed to help lower cannabis prices to better compete with black market products, while ultimately positioning the country as a leading supplier to the global market. Unfortunately, that leaves many licensed producers that spent billion on indoor facilities in a bind.

“Our decision to allow outdoor grow under strict rules is the result of extensive consultations and will contribute to creating a diverse and competitive legal cannabis industry with the ultimately goal of displacing the illegal market,” said Thierry Belair, spokesperson for Ginette Petitpas Taylor, the Canadian Health Minister, according to The Globe and Mail.

Despite the industry’s concerns, there could be room for both types of growing in the modern cannabis industry. Outdoor cultivation could become critical for the supply of extract products, such as cannabidiol (CBD) and tetrahydrocannabinol (THC) oils, which are used in vape and edible products. Meanwhile, indoor greenhouse operations could remain ideal for creating highly specific medical or high-potency cannabis strains.

Investing in LPs Focused on Outdoor Cannabis

Most licensed producers are focused on indoor cannabis cultivation since that has been the status quo since the MMPR regulations were introduced years ago. With outdoor cultivation legalized last month, there are only a handful of companies that are actively pursuing or adjusting their plans to grow cannabis outdoors. Investors may want to consider these companies as a way to diversify their portfolio across indoor and outdoor opportunities.

SpeakEasy Cannabis Club Ltd. (CSE: EASY), a late-stage ACMPR applicant, became one of the most high-profile companies to shift its focus to outdoor production. On August 1, the company announced plans to begin work on its first 60 acre outdoor plantation and processing facility in Rock Creek, British Columbia. The 2.6 million square foot outdoor production area would make it one of the largest licensed producers in Canada.

“The recent release of regulations allowing outdoor production is a dream come true for us,” said SpeakEasy CEO Marc Geen. “It has always been our plan to grow outdoors on a large scale, but we did not expect regulations to allow it to happen this soon. The climate here in Rock Creek is absolutely perfect for growing cannabis outdoors and we are thrilled at the opportunity to begin as soon as possible.

The company anticipates that development costs will be less than $10.00 per square foot. By comparison, indoor facilities can cost 20 to 30 times as much to build. Its production costs are also expected to be about one-quarter of the cost of indoor facilities, which range from $1.00 to $1.75 per gram for greenhouse production and $2.00 or more per gram for indoor facilities that are more tightly controlled than greenhouses.

Looking Ahead

SpeakEasy Cannabis Club Ltd. (CSE: EASY) is a late-stage ACMPR applicant that could become one of the largest cannabis producers in the country with 290 acres of land and plans to build a 60 acre outdoor cultivation footprint starting next Spring. Investors may want to consider the stock as a way to diversify their holdings from indoor cultivators to include outdoor cultivators that could benefit from lower development and production costs.
For more information, visit the company’s website at https://speakeasygrowers.com/.

About Ryan Allway

Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.