The Canadian Government has put regulations in place that will make cannabis legal in July 2018. Health Canada is scrutinizing companies that want to be in the cannabis cultivation market for both medicinal and recreational use and are issuing licenses to those who qualify.
GrenEx Pharms is one company who has received their license after a lengthy application process and are now preparing themselves to start cultivation and the sale of cannabis.
I conducted this interview with John Simon, CEO of GrenEx Pharms, to find out a bit more about the company, their vision and what’s happening in the industry ahead of this year’s change in legislation.
How did you get into the cannabis cultivation business?
Several regulatory changes occurred over the last five years. The biggest one was a move from what was the MMAR (Medical Marijuana Access Regulations) to the MMPR (Marijuana for Medical Purposes Regulations). That was a shift in 2013 to allow for companies to apply for a license to cultivate and sell cannabis. Previous to that, there was only one company supplying cannabis for all of Canada, after the MMPR came out, it allowed multiple companies to get licenses. GrenEx applied for a license. We were one of the early applicants and received a letter to build in 2013.
So the first inklings of a burgeoning legal cannabis industry in Canada would have been in which year?
In 2014, when they started issuing licenses, that’s when things start to become real. The only way to sell cannabis from 2014 to current day is through a medical license. A patient needs a doctor’s recommendation, then registers with the licensed producer to complete the transaction. Where things have taken off exponentially is the announcement that they’re going to have legalized cannabis in July 2018.
But it’s been legal for a medical purpose since 2014?
Yes, legal if you have a prescription or a recommendation.
What was the first legislation called?
The first one was called MMAR, then there was MMPR, and in 2016 the ACMPR (Access to Cannabis for Medical Purpose Regulations) was released which has a provision to allow home grow. You can grow four to six plants yourself, and you can designate and/or be a delegate for one other person. Unfortunately, the MMAR regulations were abused because multiple people were designated for multiple patients and that turned into a commercial business that wasn’t intended to be commercial. Health Canada replaced the MMAR with the MMPR, but the MMPR didn’t have any provision for a home grow. The ACMPR was introduced to allow for home grow as well as licensed production that included cultivation and extraction.
The commercial producers will eventually have to determine their distribution channels, won’t they?
Absolutely. There’s a lot of misinformation about this. What people don’t understand is that in July 2018 the sale of cannabis will be legal in Canada and you will not need a prescription to buy it. The manufacturing for both medicinal and recreational cannabis is still going to be federally regulated, while the distribution of recreational cannabis is going to be provincially regulated.
What models have been suggested for this?
There are 13 different jurisdictions in Canada, and there could be 13 different ways this could be introduced. In Alberta, the AGLC (Alberta Gaming and Liquor Control) will manage the supply to privatized retail. In Ontario, the LCBO is creating their own stores, so they’re not allowing any private retail in Ontario.
What would be the advantage of a private distribution system in retail?
That allows entrepreneurs to get involved in the industry to provide retail outlets across Alberta. The advantages of that model are multiple store locations, extended store hours and a different look and feel in each store. It wouldn’t be like a provincially-run store. it would be more like the difference between the LCB liquor stores in Ontario and the current model of privatized liquor distribution in Alberta.
When GrenEx Pharms is up and running, what are you hoping it becomes?
There are tons of opportunities in this industry. As a licensed producer, we are allowed to export to other jurisdictions where cannabis is legal. We can sell our product in any country that has a legal framework for cannabis import. We have opportunities for extraction of the dry bud to make oils, and there are likely to be further opportunities for a variety of dosage forms in the future. Right now, our primary focus is dried bud. We could also expand into oils, and then there are opportunities for expanding our facilities to increase our square footage under cultivation to have more product sold under our license.
Is your license currently restricted by the amount of product grown?
We have a restriction on our license based on what our forecasts are, but we can amend that if we increase our yield or increase our cultivation size. So there are opportunities for expansion.
Where is your facility?
Our facility is on 99th street, on the south side. You can Google it and find out where it is, but it’s pretty nondescript. We don’t advertise because we can’t sell from the facility.
Is this is a vertical farm?
No, we are an aeroponics facility. So there’s hydroponics which is an efficient way of growing the cannabis to maximize yield and then we’ve taken a spin on that which is aeroponics. We have these grow cubes where we spray nutrients to the root of the cannabis plant and have increased yield and lower pest burden because there is no dirt in the facility.
So hydroponics is different?
With hydroponics, you have a fertigation system (fertilizer and irrigation) and tables, or you provide the nutrients to the plant without soil. It’s all about that efficiency, and our aeroponics technology is focused on getting the nutrients right to the root.
So this is fairly sophisticated technology that you brought in.
Yeah, we’re still working that out.
The production yields you’re hoping to obtain when you’re fully operational, what do you think that might be?
We’re hoping to get a thousand kilograms per year, that’s our goal.
Has the pricing already been set?
No. The industry is highly regulated, so we have some idea of what the prices are across Canada for the medical market and they range from $5 to 10 dollars per gram. If you have a special strain or something that people are interested in, you might be able to get a premium for those strains, so more like $10 to $15 per gram.
How many square feet do you have at your facility right now?
We have 10,000 square feet under cultivation.
Ten thousand square feet with a thousand kilogram annual production. So this could be a facility that’s producing somewhere between five and 15 million dollars a year of product. Do you see the opportunity to have multiple locations or is it going to be very restrictive?
That’s what everybody’s doing. There is a rush to get to get more square feet under cultivation, so we’re looking for opportunities to expand or for opportunities to get connections to other sites. So that’s the rush right now.
You’re a producer right now. Do you see an opportunity to open up a retail distribution channel as well?
Yeah, we’ve been approached by some companies that want to have a deal with us to tie up our supply. So the two opportunities that we have once we get our license next year to distribute is to sell to registered patients, that’s the first opportunity, and that’s one that exists right now, the medical opportunity. Then the second opportunity is to sell into a legalized market. Selling it to AGLC, and it then goes to a retail distribution network. There could be an opportunity for us to have our own stores but that is not our focus. Our focus is to sell into a distribution chain.
Do you think you could sell all 1,000 kilograms into medical, just by itself?
Yes, right now the number of registered patients in Canada is growing 10 percent per month. We see that in some of the statistics that Health Canada puts out, in the provinces where they haven’t closed dispensaries, illegal dispensaries, you see less registered patients, and it makes sense. In those jurisdictions when they close the illegal dispensaries, you’re going to see a lot more registered patients, or by that time, it will be legalized, and then the retail stores will get more business. That business will go to these the legal stores.
So the primary product you producing now, what is that called?
What do you do with the dried bud?
Dried bud is typically smoked. You can roll it in a joint or put into a vaporizer and burn it that way and inhale it. Or you can cook with it, but typically it’s inhaled. That’s not a dosage form that people are comfortable with, and that is not a typical way that we take our regular medicine. I think the opportunity in the future is to get into oils and other dosage forms that doctors are more familiar with and that people are more comfortable using.
Is that a bigger opportunity than the dried bud?
Right now if you look at the markets in the U.S. that are legalized, 60 percent of their sales are in oils.
Is Canada a leader in legalization or is it following the lead of another jurisdiction?
No, we’re the leaders in this. A lot of people are modelling their regulatory framework after what we’re doing. Once we get to legalization, I think a lot of people will be watching what we’re doing to see if we’ve got it right. There are some other jurisdictions that we can look at but I think in terms of our regulation as a pharmaceutical product, and our restrictions on sales and distribution, we’ll be at the forefront of that regulatory structure.
Colorado is already selling in retail, aren’t they?
They are, but they don’t control the manufacturing the way Health Canada does. So I think there’s an opportunity to learn from that and to make sure that we have this controlled pharmaceutical standard for manufacturing that we have. We are leaders in that area.
So you and your partners first saw this opportunity in 2013. What did you originally see happen in 2013 that suggested this might be an opportunity for you?
It was a change to the regulations. Before 2013, before the MMPR, there was only one company across all of Canada that could supply cannabis. There wasn’t a lot of strain variation, and there was a small number of registered patients. So that change to the framework where there would be multiple companies was the opportunity that everybody jumped in on in 2013-2014.
So you had one company that was producing marijuana for medical distribution, and then in 2013, the regulations changed. How many applications went in at that time?
I don’t know what the original number was. The last number I saw was 1700 applications had been submitted. They get ten applications per month, and there are 400 active applications. So a lot of applications that get submitted get rejected. If you don’t have the requirements for the application, your application gets sent back, and you have to start again.
What kind of requirements?
There are strict security requirements. That’s one of the big expenses in these facilities. It’s tighter security than a bank, so it would be more like Fort Knox where we have a Federal Reserve type of security. We have cameras everywhere cannabis is present. We keep that data from the cameras for two years. So we’re collecting a lot of data, we are storing a lot of data, and we can retrieve that data throughout that two year retention period. So a very sophisticated security system.
And that’s just for the cultivation facility. The other part of it is good production practices and quality assurance and regulatory. So we make sure that we have the pharmaceutical approach to the manufacturing of cannabis. It’s a horticultural product, but we’re applying the pharmaceutical techniques to this manufacturing process.
So 1700 applications plus ten coming in every month with very tight scrutiny. How many producers do you think could be operating in Canada within ten years?
We’ve seen a huge increase in the number of producers over the last three months. We are at 64 licensed producers across Canada, and as of right now we have four in Alberta. Anything that I say now is purely speculation, but I think to get ten times that amount would be realistic.
I saw in a news article just recently that Canada is not prepared for the demand for the product and would be severely undersupplied if we become legal in July of 2018. Do you foresee that as well?
All the Licensed Producers are trying to build inventory for legalization. There’s a huge opportunity right now to get a license, get built out and start cultivation to meet that demand. The worst thing that could happen is that we hit July 2018 and we don’t have the supply for the legal market, and then we open up all these legal dispensaries, either government-run or private run, and we don’t have the supply with a lot of empty stores or empty shelves.
Is there a framework for pricing?
The government of Canada is aware of is that there is an illegal market. So the intent is to provide a product that is higher quality and higher grade of material. We often compare to Moonshine versus ALCB liquor. What would you rather have? Moonshine, made out of rusted or corroded copper pipe, or controlled liquor manufacturing that’s licensed and distributed legally? The industry is aware that there is a lot of product out there that is made by the old MMAR growers, the home growers, or illegally sourced material. The concern is that we don’t want to have too much of a price difference between what’s out there right now and what we are supplying to the market.
So you’re ready to start production or are you already producing?
We still have a couple of things that we have to finish up during the final parts of the application process that we had to tweak, but we’re hoping to have cannabis on site by the end of December and then start our cultivation cycle. It’s clonal propagation, like orchids, we’ll get mother plants and then generate clones from the mothers.
This has been a four-year process so far for GrenEx. What did you spend the majority of that time doing?
Waiting. Waiting for this license, waiting for that call from Health Canada that says we’ve reviewed your application, and now we are ready to go.
Then the actual setting up of the production facility, was that difficult?
Again, we thought that the license was coming, so a lot of it was slow work to get to this point. That’s why there’s still some scrambling to get stuff done now because you have this idea that you are going to be in production but until you get the license you can’t do everything. So this is the trigger now that says yeah you’ve got the secret handshake, you’ve got the contact you can talk to, you’re now part of the team.
Now just to clarify again, this is a phased license. Do you have the license in place right now to go ahead and start the production?
Yes. Our license allows us to have cannabis on site and to start cultivation. The next phase will be the license to distribute (sell).
UPDATE: On February 2, 2018, GreenTec Holdings Ltd. announced that it had acquired 100% of the issued and outstanding shares of GrenEx Pharms Inc. for a value of $16,000,000.