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Cannabis Legalization in Canada: What it Means for the Industry

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During the California gold rush, those who sold picks and shovels often did better than the gold seekers themselves. Now, during Canada’s green rush—with the legalization of cannabis growth, sales, and consumption—is it possible those who provide the infrastructure for marijuana cultivation and sales will do better than the growers and retailers?

There’s definitely a frenzy, with newly minted companies dealing in cannabis having posted unrealistic market capitalizations. In October, for example, Ontario medical marijuana company Canopy Growth briefly had a value of US$20 billion before settling down to merely silly values.

The size of the entire Canadian marijuana market—legal and illegal—is estimated at CAN$7.17 billion (more than $5.3 billion) in 2019, according to a report from consultants Deloitte. Legal sales are expected to make up more than half of that total, with the biggest market expected in Ontario (36 percent), followed by West (28 percent). For those keeping score, that total value is just tad less than what cannabis investment adviser Arcview Group estimates for the currently fragmented U.S. market for legal marijuana products.

In October, Ontario medical marijuana company Canopy Growth briefly had a value of US$20 billion before settling down to merely silly values.

Intriguingly for contractors, Canada’s new law mandates that grows occur indoors. However, ‘indoors’ encompasses everything from fully powered hangars to DIY-esque ‘hoop houses.’ The New York Times opened one of its stories about legalization discussing cannabis neophyte Hamed Asi’s “vertical farm” in a former Nestlé factory southeast of Ottawa. It described “garage-sized containers at one end of a cavernous warehouse” housing “rows of marijuana plants stacked atop each other, basking in the unearthly glow of grow lights.”

A little over two-fifths of “investment” spending on cannabis pre-legalization, according to StatsCanada, went to construction (about CAN$55 million). Another third went to machinery and equipment. 

Yet that’s not where most construction observers have focused. According to Deloitte, “One of the biggest concerns about cannabis legalization isn’t in the opportunities it creates, but in the effect, a THC-infused workforce will have on the industry.”

“We’ve been paying attention to this for a couple of years,” Chris Atchison, president of the British Columbia Construction Association, told ConstructConnect. “We take the approach that every employer and employee have the right to a safe workplace and many big companies have a drug policy in place already.”

Such proactivity is smart. “Many employers,” wrote the Human Resources Professionals Association in its own report, “are expecting the occurrence of workplace accidents to increase, especially in safety-sensitive industries. Indeed, over half of HRPA member respondents indicated that they were concerned with employees operating motorized vehicles.”

For its part, the government’s Task Force on Cannabis Legalization and Regulation, which issued its final report in 2016, looked deeply into how cannabis use might affect employees. The task force itself included longtime Vancouver engineer George Chow and saw consultation with Alberta Construction Association, Construction Labour Relations and its related affiliates in Alberta and Saskatchewan, and the Construction Owners Association of Alberta.

The report particularly concentrated on “people working in safety-sensitive positions, such as health-care workers, law enforcement personnel and employees in transportation, construction or resource extraction industries.” The task force noted that while Canada does not permit mandatory drug testing, “bona fide occupational requirements” might create a space for such testing to occur, such as seen now by a handful of few private-sector companies and the Canadian military.

Some elements of construction might eventually land in these special categories. “For example,” reads the final report, “a zero-tolerance policy could be applied for those who operate heavy machinery or conveyances.” 

The Canadian Centre for Occupational Health and Safety, in its September report, notes that tests showing the presence of cannabis in the body aren’t the same as tests showing impairment—a fact that unions, occupational safety agencies, and human rights groups will certainly remember. In lieu of an impairment test, the center suggests a sort of ‘eyeball exam’: “Employers should consider if there is a risk to the individual’s safety or the safety of others. For example, while impaired, Does the person have the ability to perform the job or task safely (e.g., driving, operating machinery or equipment, use of sharp objects)?”

And bosses can’t just ignore the problem. Canadian law mandates that employers have the “duty to inquire.” This mean, in short, if the employee’s performance suggests they might be high on the job, employers must “initiate a discussion with the employee about a need for accommodation of a disability.”

Employers might take solace in the opportunities that cannabis creates for new construction or conversion of existing facilities. Legalization creates the possibility of scale and financing in cannabis construction as well as market advantage over growers operating in the United States. Even in U.S. states with legalization on the books, the federal prohibition keeps commerce tamped down. “The American marijuana farming scene,” notes Ryan Stoa, a law professor at Concordia University, “has been dominated by small outdoor farmers and modest indoor warehouse growers. The alternative—large, market-share-dominating companies—would attract the attention of federal authorities.” Canada’s national law eliminates such impediments while adding some of its own.

As long as Canadian cannabis needs to be kept inside—at least when grown by commercial interests—there will be opportunities to build, or possibly retrofit, existing cavernous spaces.

As long as Canadian cannabis needs to be kept inside—at least when grown by commercial interests—there will be opportunities to build, or possibly retrofit, existing cavernous spaces. The obvious and usually cheaper space is the greenhouse. It partially reduces the need for lighting (but generally not all, especially in higher latitudes).

Greenhouse design, alongside the lighting, HVAC and irrigation needs, are obvious areas calling for expertise, Security is also a concern though. While farmers can raise corn, barley, and hops for making alcohol, tobacco for smoking, and even hemp for rope, recreational marijuana produces a readily consumable and highly valuable product ready to be ripped off. Even in rural outposts like Tiverton, along Lake Huron, “forbidding” security surrounds Supreme Pharmaceutical’s medicinal pot greenhouse complex.

Indoor commercial production may not be mandated forever. The government’s task force argues that outdoor grows are environmentally smarter. “In order to limit the environmental impact of the cannabis industry, outdoor production should be permitted with adequate security requirements. Encouraging responsible environmental practices through less reliance on indoor lighting, irrigation networks and environmental controls (i.e., heating and cooling, humidity controls) can contribute to substantially reducing the environmental footprint of cannabis production facilities.”

Home growers—pioneered of indoor growing—also have infrastructure needs. The task force recommends home “safeguards” to prevent children—or thieves—from accessing home grows. “Measures that have been adopted in other jurisdictions,” it reports, “include lockable spaces for indoor production, securely fenced areas for outdoor production and ensuring plants are not visible from the street or from adjacent dwellings.”

Selling marijuana also creates potential opportunities: “Current and likely cannabis consumers expect to purchase the majority of their products at physical retail locations,” says Deloitte. The cannabis shopping experience will likely develop its own style and security needs, although a walk through Vancouver’s downtown shows that cannabis stores—granted, unpermitted ones—often just pile into empty storefronts without much purpose-built effort apart from signage. Of course, not all provinces will allow privately run stores. Much like Canada’s famously variable alcohol laws, cannabis sales will vary from private outlets to government stores to online depending on the province.

As with most rushes, bust may follow the boom.

One government rule, though, might offer the biggest windfall for construction: tax money. Ottawa taxes marijuana at $1 per gram (or 10 percent of the final retail price, if that’s higher), keeping a quarter of that and giving the rest to the provinces. Infrastructure could be a net beneficiary. In the States, for example, New York City officials are looking at cannabis taxes to repair the subway system. “To be able to tie these things together is something that could be highly impactful and potentially transformative,” the city’s council speaker Corey Johnson told The New York Times.

As with most rushes, bust may follow the boom. Sean Williams at the Motley Fool financial website estimates Canada may produce up to 3 million kilograms of pot by 2020. Since most estimates put annual demand at a fifth of that, it’s a good thing those picks and shovels can be used for other projects.

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