Articles

Entrepreneurs face steep hurdles in the legal cannabis industry

For years, you’ve dreamed of having a marijuana-related business. And now that recreational cannabis is legalized, you’ll finally be able to realize your goal of selling THC-infused macarons, or starting your artisanal, small-batch hash oil business.

Or maybe not.

Wannabe pot entrepreneurs may be surprised by how tough, and expensive, it is to operate with the government’s blessing. Starting a pot-related businesses is less like running a food truck and more like running a small pharmaceutical company.

“I think the public will be surprised to find that the product access they [had before October 17] will be much more restricted under legalization,” says Karina Lahnakoski, vice president of Pharmaceutical Cannabis Services at Cannabis Compliance, an industry consulting firm. “When you look at the GPP (Good Production Practice) requirements, as well as some of the guidance documents for recall, they mirror what you see in pharma production.”

Meeting the Health Canada requirements for growing, processing, packaging, distributing and selling pot is expensive. You have to account for everything from legal fees and regulatory compliance to real estate — and that’s before you even plant your first seed.

The retail side is equally complicated, and will vary by province. As with liquor, licences are tied to addresses. Some landlords won’t take cannabis businesses as tenants, others may see them as an opportunity to spike the rent.

“Unless you own the building, it could be a bit of a risky venture,” says Edward Collins, Cannabis Compliance’s vice president of Global Sales and Marketing. “There can be what we call a cannabis tax, where certain companies have been jacking up lease spaces for dispensary use, and raising the rent by 20 per cent.”

Legal weed creates opportunity in other sectors. Suppliers of everything from HR to soil nutrients, lighting to accounting services may find a new client base in an industry already estimated to be worth billions domestically.

• Must watch: Dragons’ Den ‘Up In Smoke’ special»

“We liken this to the tech boom of the early 2000s. There’s a lot of investment into the industry and there are a lot of subsidiary services that are taking advantage,” says Collins.

Is there any room for small players? Collins says existing black- and grey-market producers may get licences for “micro cultivation,” becoming what craft beer producers are to the beverage alcohol industry. Existing dispensaries may be eligible for retail licences, depending on their province’s regulations.

Struggle for solutions to labour shortages

With the Canadian population getting older, and the Baby Boom generation retiring, labour shortages are expected to be the norm in many parts of the country for at least the next decade.

According to a study by the Business Development Bank of Canada, about 40 per cent of small- and-medium-sized businesses are already having difficulty hiring new employees. Businesses in Atlantic Canada, British Columbia and Ontario are having the most difficult time finding qualified workers, which could result in a drop in the quality of goods and services, and declining competitiveness.

“Another 43 per cent said a shortage of workers limits growth. Many entrepreneurs also said their companies have been unable to fill or have delayed orders,” states the report.

The most common remedy among SMEs involve using less-qualified and younger workers.

“This comes at a cost,” states the report, “the additional time and effort required to train junior employees keep senior staff away from higher value tasks, such as developing client relationships or new projects.”

Surprisingly, only 18 per cent said they were hiring immigrants, compared to 43 per cent who reported hiring less-qualified workers, and 40 per cent who reported hiring younger workers.

“This result holds true regardless of sector (with the exception of healthcare), for small and large firms, and for urban and rural businesses. This is a significant missed opportunity to help solve labour shortages.”

Entrepreneurs also reported changing their compensation practices to attract new employees and retain existing ones.

Women-owned businesses slowly catching up

The number of enterprises owned by women has traditionally been only a fraction of the number owned by men. But a new Statistics Canada report suggests that the growth of women-owned enterprises has become stronger.

Looking at the years 2005 to 2013, researchers found there were 275,300 women-owned enterprises on average each year, accounting for 18 per cent of all private businesses where the owner’s gender was known. Meanwhile, more than one million enterprises were owned by men, accounting for about 67 per cent of all the private enterprises. And about 15 per cent of private enterprises were co-owned by men and women with equal stakes.

Women-owned and equally-owned enterprises were more prevalent in Western Canada and lowest in Quebec. Female ownership was more common in service industries like educational services, healthcare, arts and entertainment, social assistance and recreation. It was much rarer in goods-producing sectors. In construction, these businesses represented just seven per cent of the sector.

But women-owned enterprises experienced the fastest growth over the study period. In 2005, there were 232,800. That number went up to 300,000 in 2013, an increase of about 33 per cent. Employment in women-owned enterprises increased by 20 per cent over that time. By contrast, men-owned enterprises grew by 22 per cent over that period, with an eight per cent increase in employment.

Paul Gallant is a Toronto-based journalist and editor who writes about Canadian small- and medium-sized enterprises, international business, urban development, travel, technology and social change. His work has appeared in The Globe and Mail, the Toronto Star, Canadian Business, The Walrus and many other publications. He is executive editor at BOLD, an international travel magazine for Canadians.

---