With just one more day left until we can celebrate 4/20, we continue with part 3 of our 4/20 special series. Today, let's go back to the North American market, as we have insights from a Canadian aquaponics grower and a CEA design company.
"Lending is different now"
When it comes to the current market situation, CEAd sees a few things, primarily on the lending side. "Despite the apparent shrink in available capital for cannabis projects, we are aware of some well-capitalized lenders willing to finance cannabis projects," says Joel Fuzat, SVP of Innovation at CEAd. "However, some things are different now than historical cannabis lending. Lenders are primarily looking for 'shovel-ready' projects. Having a license isn't enough. We also see the due diligence period being much more intensive and therefore taking longer. Additionally, lenders want to understand not just the facility and how it can produce profitably over time – they are increasingly asking operators for precise information about operational startup and third-party (or in-house) expertise. This is something we anticipated when we created our APIS post-construction services," Joel says."
Joel Fuzat and Thomas Larssen at GreenTech Amsterdam 2022. ALPS has recently changed its name to CEAd.
"While not necessarily a challenge, an observation we have made is that it is somewhat more challenging to find potential cannabis clients able to demonstrate a level of sophistication that some lenders are seeking," Joel says. "Once we begin down a path, some potential producers realize growing cannabis, especially in no-sun facilities – and in advance of impending U.S. federal regulation, is more challenging than they anticipated. Again, this is why we developed APIS to help with both operational support and also regulatory guidance and support."
Increasingly, CEAd meets producers who are interested in cultivating craft cannabis under very precise conditions. "This excites us as designing a facility that can meet the challenges of proper climate which permits maximum photosynthesis is our specialty. We believe more and more craft producers will seek opportunities both on the production and the branding side. This has been increasingly true in Canada, where craft cannabis prices remain quite high. The biggest opportunity is not only craft producers but the inevitable wave of producers that will require facilities and operational procedures that meet U.S. FDA regulations that are also inclusive of EU GMP and other international cannabis production standards. We are prepared to meet those challenges."
International opportunities
In Canada, Aqualitas is growing cannabis using aquaponics. The company is Canada's first Clean Green Certified producer of cannabis, with a cultivation process that combines organic living soil and nutrient-rich water provided by over 800 koi fish. What are they noticing of the Canadian cannabis market?
Myrna Gillis on the left
"The legal cannabis market continues to demonstrate modest growth and has been largely successful in meeting the public health mandate, but the illicit market has not been displaced to the extent desired," says Myrna Gillis, CEO of Aqualitas. "It remains strong primarily due to a lack of enforcement and its unfettered ability to work without any regulatory oversight, taxes, or fees. Regulations are an important part of a safe supply chain, but relief from the excessive federal tax burden and provincial market ups will be needed to ensure the long-term viability of the domestic cannabis market."
Myrna adds that for Aqualitas, accessing capital to accelerate their growth is currently their biggest challenge. "Our demand is outstripping our supply."
When it comes to the coming months, Myrna expects consolidation and attrition to continue throughout the rest of 2023 as excess supply adjusts to actual market demand and companies exit the industry. "While this is anticipated, the human cost to families and communities is very real and hard to watch. There are still big opportunities in the international market, as the preference for quality-controlled Canadian flower remains strong." According to Myrna, these markets will eventually experience similar pricing compression, barriers to entry, and increased competition from domestic suppliers. "But for now, it is a good opportunity to execute on. Consumers can access some great products and brands, and the industry will grow with continued innovation and research. Cannabis as the safest alternative to alcohol and many addictive pharmaceuticals will become more accepted as the stigma is eliminated."
See you tomorrow for part 4!
4/20 stories, pt. 3