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How much does it cost to start a micro cannabis business?

Let’s put the answer at the top: it will cost you anywhere between $250,000 to $2 million, including about $60,000 to get your application process rolling. Although the financial barriers to entry are significant, starting a craft cannabis business (whether micro-cultivation or micro-processing) is more affordable than you think.

“It’s a faster, easier, less expensive, a better way to get into the industry; from there you can scale up and become a standard license and do more,” said David Selema, CEO and co-founder of Consult & Grow.

Selema has seen the industry from farm to end products. Because of the lower capital and operating costs, and better opportunities to grow high-quality strains than if you were a larger producer, he sees starting a micro cannabis operation today is a “perfect way to get into the industry.”

What is a micro cannabis business?

The term “micro” means different things to a cultivator compared to a processor. To a micro-cultivator, micro means being able to grow up to 200 square-meters (2,152 square-feet) of plant canopy. In May 2019, Health Canada changed the rules and now requires a ready-built facility before granting approval.

For a micro-processor, micro means being able to process up to 600-kg of dried cannabis per year. The exception to this rule is if a micro-processor has a micro-cultivation licence, which means the micro-cultivator can grow an unlimited supply without the 200-sq.-ft. restriction.

“Micro operations produce small batches, high-quality, that allows you to do some high-end cannabis for connoisseurs,” said Selema. He sees tremendous opportunities for breeding new strains and for exporting of medical cannabis.

Those who have a micro-cultivation or micro-processing operation can also apply for other licences such as a nursery or a research licence. Starting with a micro licence first also means that you can later decide to expand to a standard licence.

Start Up Costs

The best advice is to start slow, build a quality product, and then later decide whether to expand. Your startup costs will include building a facility, finding starter materials (e.g. clones, nutrients), and managing operating costs (e.g. salaries, insurance).

Many of your initial costs will depend on the type of operation you choose. Depending on your choice of cultivation (outdoor, greenhouse, or indoor) or processing operation, expect to pay between $250,000 and $2 million for construction and equipment purchases.

The initial application fee for a micro-cultivation or a micro-processing licence is $1,638. After paying this initial fee, each micro-cannabis business will need to pay an additional $1,654 per person in security fees. This security fee covers directors, shareholders (above a certain percentage) and those holding a meaningful position (master growers, for example). There’s also an annual regulatory fees once sales begin, which is one-percent for cannabis revenue up to $1 million and 2.3 percent for more than $1 million in sales.

Saving on Costs

Startup operating costs don’t need to be expensive. When it comes to farming, reused equipment works just fine. Not every equipment you buy needs to be hyper-efficient to work well. Initially, the equipment has to work well enough to meet reasonable standards for quality, while also offering high yields and taste good.

“We have worked on over 50 projects which allows us to have a lot business solutions we can provide to our clients; which will allow them to always find the best quality, most inexpensive solutions for each aspect of the business.” said Selema.

Selema advises clients not to compromise on quality and worker’s safety. Saving money (and time) comes down to getting the right advice, at the right time. This is where the help of reliable consultants come in. Consultant costs will usually cost between $50,000 to $100,000. The application for Health Canada is often more than 100 pages and usually takes eight weeks to complete.

The decision to save money by delaying the purchase of some of best-in-class systems could affect your operation in one way or another. Consult & Grow provides its clients with an extensive list of equipment choices and construction design options, which offers a choice of affordable options.

Raising Capital

Banks are often reluctant to offer financing for startup businesses, especially those without the approved licenses to begin. Selema said, “I like the analogy of opening a bar or a restaurant. Banks are more willing to offer a loan after Health Canada has approved a license than before. This is a new industry, where the banks have seen the valuations of big cannabis companies go down.”

Selema knows that raising financing at the start can be difficult. His solution is to help Consult & Grow’s clients to find that financing through his extensive network of contacts and cannabis service providers. Selema always tell his clients that it’s a good idea to have a team working behind you to get things done.

Health Canada’s Cannabis License Requirements

Micro-cultivators and micro-processers must go through the same rigorous process as those applying for a standard licence. This includes the same requirements for background checks, quality control, and record-keeping. The only real difference between a micro and standard licence is in the size and scale of security measures – a micro license needs fewer security requirements than with standard licenses (e.g. no need to keep video records up to a year).

Most of Health Canada’s regulations focus on safety and security to make sure that legally grown cannabis is not diverted to the illegal markets. Health Canada will also require you follow Good Production Practices (GPP) and to establish quality standards.

“The importance of GPP compliance and getting GMP-certified is not only good for compliance reasons but also to help you with exporting where the demand is higher,” said Selema. All cannabis facilities will need to show efficient workflows, standard operating procedures (SOPs), record keeping, and a cannabis tracking system to gain Health Canada’s approval.

Selema understands the necessity of these regulations. He knows in reality that this also presents as a barrier to entry for craft cannabis businesses. Although $250,000 to $2 million is no small investment, you can start a micro-cannabis business application with $60,000 before having to raise financing. You will still need to have a fully-built facility before Health Canada approves your license, but this entire project is affordable to small investors and entrepreneurs.

Why us?

Looking to make sense of the legal and business needs to start a micro cannabis business?

To reach success, you’ll need the guidance of a qualified and professional consultant. Our professionals know where the delays happen, the common missed information in licenses. Like the legal cannabis industry everywhere, Canada’s industry still has many years to grow.

“We have worked on over 50 projects which allows us to have a lot business solutions we can provide to our clients; which will allow them to always find the best quality, most inexpensive solutions for each aspect of the business.” said Selema.

Consult & Grow understands the regulatory compliance needs to get you started. Unlike most cannabis consulting firms, Consult & Grow’s president is a master grower and is involved in every client application.

Francis Hebert co-founded Consult & Grow in 2017 and is a master grower with a deep appreciation of what it takes to grow cannabis in compliance with Canadian Regulations. He holds strong technical skills in GPP and GMP-compliant cannabis building designs.

As you have seen, all styles of farming offer positives and negatives. And each with their own implementation needs. If you have questions, Consult & Grow’s Francis Hebert can be contacted at info@consultandgrow.ca.

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