Pubdate: Sat, 07 Nov 2015
Source: Ottawa Citizen (CN ON)
Copyright: 2015 Postmedia Network Inc.
Author: Peter Koven
Page: B6


With legalization of recreational marijuana seemingly in the cards 
following Justin Trudeau's election, focus has shifted to how 
production for the nation's already-established medicinal industry takes place,

Aphria Inc.'s marijuana greenhouse is probably a space as different 
as it could possibly be from a drug dealer's dingy basement. But it 
is home to some of the lowest-priced commercial pot in the country.

Nothing here screams "cheap," however. The spotless 
22,000-square-foot facility is lined with more than 20,000 cannabis 
plants at various stages of development. Automated lighting and 
roofing systems ensure that plants receive exactly the right amount 
of light. A water system provides flood irrigation for stock plants, 
and drip water for the plants nearing harvesting. Scientists and 
other workers mill about inspecting plants, rooting and cataloguing 
specimens and collecting clippings.

Once the buds are harvested, they are sent through a sealed door into 
the "vault" next door, where computers control airflow and humidity 
to allow the product to dry by just the right amount. A machine tests 
moisture levels, and the dried plant is moved to another room with 
controlled temperature and humidity, where it is stored and ready to ship.

Aphria was founded by two agribusiness experts, and they have come up 
with many creative ways to improve efficiency and keep operating 
costs down. Instead of buying fertilizer, they purchase the root 
chemicals (such as ammonium nitrate and potassium sulphate) and make 
their own. That means their fertilizer costs just half-a-cent per 
litre, or one per cent of their growing costs. Since pesticides are 
verboten, to get rid of pests, they fight fire with fire by releasing 
predator bugs into the greenhouse to kill the pot-eating insects.

"Nobody believed us when we said what we could do," co-founder Cole 
Cacciavillani said.

People are paying attention now. Aphria was the first of Canada's 
major marijuana companies to try producing pot in a greenhouse. But 
rivals have started to follow suit, including industry leader Canopy 
Growth Corp., formerly known as Tweed Marijuana.

More greenhouse production seems certain in the future, thanks in 
part to the new prime minister, Justin Trudeau. If he keeps his 
pledge to legalize recreational marijuana, he's likely to turn a tiny 
commercial pot market into a much larger one. And once that happens, 
success in this business will be all about expanding scale and lowering costs.

The easiest way to achieve both is by using greenhouses, rather than 
grow-op warehouses strung end to end with energy-sucking electric 
lamps. Leamington enjoys bright, sunny weather - it's known not just 
as the Tomato Capital of Canada, but because it's in the southernmost 
part of the country's mainland, also as the Sun Parlour of Canada. 
And it has more acres of greenhouse space than anywhere else in 
Canada or the United States. That puts the town of 28,000 in the 
sweet spot to become a key North American weed hub.

"Over the long term, the greenhouse is the way to go," said Aaron 
Salz, an analyst at Dundee Capital Markets. "It's so much easier to 
scale a greenhouse than an indoor (facility)."

Leamington is still reeling from the partial closure of a 
105-year-old Heinz tomato-processing plant last year. But the booming 
agri-business and greenhouse industry is a major bright spot.

Aphria set up shop within the facilities of CF Greenhouses, a private 
company owned by Cacciavillani that produces poinsettia plants. He 
spotted a new business opportunity in marijuana and started to study 
the sector a few years ago. The federal government finally brought 
the industry to life in April 2014, when it introduced rules 
requiring patients to buy their product from licensed producers. 
Aphria got its licence last November.

Unlike some rivals who came to the business with, to put it politely, 
a lifetime of personal experience with marijuana, the Aphria team had 
no background in cultivating pot, and no pre-conceived notions held 
over from college-dorm days about the right way to do it. They 
decided to study the plant with an open mind, refusing to believe 
there were certain rules they had to abide by.

"We said, 'It's just a plant. There's nothing special about it,'" 
said John Cervini, Aphria's other co-founder.

One long-held bias in some traditional pot circles is that marijuana 
doesn't grow well under natural light. They decided that was 
nonsense. By using natural light, Aphria's power costs are minuscule 
compared with competitors growing indoors. The company said its total 
lighting cost was $95,000 last year. By comparison, the company 
estimates that indoor producers are spending about $190,000 per month.

The company maintains that its production cost is $2.20 a gram, or 
$2.40 after bottling and labelling, which compares to a market price 
of about seven dollars. That has Aphria feeling fairly certain that 
it's become the lowest-cost producer in the industry - it even sells 
pot wholesale to other producers struggling with higher costs and 
crop failures.

Right now, all of Aphria's output is coming from the one greenhouse. 
But the company already has a nearly identical facility built and 
ready to go, just steps from the current one. Once Health Canada 
approves the site, Aphria will be able to double production in a heartbeat.

Despite all the publicity it gets, Canada's medical marijuana market 
remains microscopic - for now. There are only about 45,000 patients 
who get prescriptions, making the entire market worth perhaps $80 
million to $100 million. That means it's still impossible for any of 
the licensed producers to make serious money. But if and when 
legalization becomes reality, analysts think that could become a 
$5-billion market in a relatively short period of time.

The future depends in part on how the new Liberal government decides 
to expand access to marijuana. Trudeau is expected to form a task 
force to study the issue, making it unlikely that anything will 
happen for at least two or three years.

Experts pointed to a few possible options for the government. One 
would be to follow Colorado's lead and make pot products available 
for sale at hundreds (or even thousands) of dispensaries across the country.

Another option would be for the provinces to control distribution, as 
they do with liquor, with strict control over taxes, possession and 
consumption. The federal and provincial governments could also just 
pass the buck down to municipalities and let them pick their own 
course of action, subject to federal regulations. That way, Vancouver 
could continue with its freewheeling storefront pot market, while 
other cities could take a pass entirely on allowing pot retailers, if 
they choose.

Neufeld predicts the market will retain a "medical" element. The most 
logical course of action, he said, is to expand prescriptions beyond 
just medical doctors - say, allowing chiropractors, dentists and 
naturopaths to prescribe - and make pot available in pharmacies 
(currently, patients can only get it through mail delivery.)

"That way it's disciplined, it's regulated and it's got checks and 
balances," he said. To the disappointment of potheads, he can't 
fathom Canada adopting Colorado's corner-store model. "It's not what 
Canada is. It's not what we would support," he predicted.

In an industry as novel and heavily regulated as marijuana, it is 
impossible to predict how things will shake out. But if the market 
expands in a sensible way, experts agree that low-cost greenhouses 
should become a bigger and bigger part of the business. Canada's pot 
sector has gone through tremendous change in the last two years, but 
the biggest transition may just be underway.

"When the (other producers) in the respective ivory towers wake up, 
they'll be here in Leamington buying greenhouse operations," Neufeld 
said. "Absolutely they will."
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