At 25 cents a gram to produce, is outdoor-grown cannabis the key to lower legal prices?

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Optimism grows despite gap in legal and illegal pot prices
WATCH: Optimism grows despite gap in legal and illegal pot prices – Jul 17, 2019

Ontario outdoor cannabis grower 48North says it produced flower at this fall’s harvest for 25 cents a gram, far lower than indoor growers’ cost of $2 a gram.

48North’s lowest-priced dried flower will end up selling at retail in Quebec for under $7 a gram in a 3.5-gram container, Canada’s cheapest legal cannabis sold in that size.

Lower-cost outdoor grows, the company’s CEO argues, are key to competing with the illegal market on price.

“When you factor in the government’s mandate, which is to eradicate the black market, then of course cost plays a huge role in that,” Alison Gordon says. “When we have such a robust black market that people have been using forever, what is the motivation to go to the legal market if the prices are significantly more?

“You pay a dollar in excise tax, then there are taxes on top of that, there is bagging or pre-roll, logistics, distribution — there are a lot of costs. It’s very difficult to compete at $2 a gram.”

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Click to play video: 'Cannabis sales: closing the price gap between the legal and illegal markets.'
Cannabis sales: closing the price gap between the legal and illegal markets.

Most Canadian cannabis is grown in purpose-built, energy-hungry indoor facilities.

But given how much much cheaper it is to grow it in a field like more or less any other crop, should it be?

The illicit market competes on price. Are cheaper outdoor grows the answer?

More than a year after legalization, it’s become obvious the illicit market isn’t going away any time soon. In mid-2019, 42 per cent of Canadian cannabis users said they bought from the illegal market, while only 28 per cent said they bought only from legal sources.

A shortage of retail stores in Ontario and Quebec, and to a lesser degree in B.C., are also factors, but price is a major one.

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For a number of reasons, illicit cannabis mostly costs less than its legal equivalent. Excise taxes of a dollar a gram and the costs of operating in a highly regulated industry are big reasons why.

It might seem obvious to level the playing field a bit by cutting out construction and energy costs that legal growers have to pay for.

But, B.C.-based cannabis breeder Ryan Lee explains, it’s not that simple.

“There are huge problems with that,” he says.

Click to play video: 'Recreational cannabis prices should be consistent with black market: Petitpas Taylor'
Recreational cannabis prices should be consistent with black market: Petitpas Taylor

Some buyers dislike outdoor-grown flower

Fairly or unfairly, many cannabis consumers see outdoor-grown weed as lower-quality, he argues. So in the illicit market, indoor-grown cannabis commands much higher prices than outdoor-grown.

“The legacy market, illicit market, whatever you want to call it, has already done this experiment,” he says.

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“The market has decided that it prefers indoor-grown cannabis to outdoor-grown cannabis.”

Part of the issue, he says, is the way outdoor-grown flower looks. With more contrast between day and night temperatures, outdoor plants stretch and create sparser-looking flowers.

“The buds appear a little airier and fluffier,” says eastern Ontario outdoor grower Mark Spear.

Click to play video: 'North Okanagan residents don’t want industrial cannabis production on agricultural land'
North Okanagan residents don’t want industrial cannabis production on agricultural land

This is why a large amount of outdoor cannabis has been sold for processing into products like oils and edibles instead of being sold as dry flower, Gordon explains.

“For outdoor, in the U.S. a lot tends to be used for extraction, if for no other reason than that it looks different than what people like to get for baggable flower,” she says.

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Spear argues that the bias against outdoor cannabis is a holdover from prohibition, when it was often grown under sketchy conditions.

“A lot of the outdoor-grown cannabis that people would be familiar with, and had a bad experience with, was guerilla-grown cannabis,” he says.

“Going on Crown land, planting a few hundred clones, maybe showing up three or four times throughout the season and coming back at the end and taking whatever is left. That typically isn’t great quality.”

But the legal product, he argues, can be much better than that.

“There are a number of people in California who are producing cannabis outdoors that’s indistinguishable from anything grown indoors.”

Click to play video: 'Saskatoon hydroponic farm switching from vegetables to cannabis'
Saskatoon hydroponic farm switching from vegetables to cannabis

All the old problems of farming — and a new one

Outdoor growing has all the same problems as traditional agriculture: too much rain, not enough rain, rain at the wrong time, unluckily timed hailstorms.

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“You’re outdoors, so whatever happens in the weather and all that can have an impact,” Gordon says. “It’s no different from any other form of agriculture: corn farmers or soybean farmers or alfalfa.”

However, indoor growing has its own problems, Spear says.

“That’s not to say that you don’t get crop losses on indoor crops as well, but that’s not discussed nearly as much. Pathogens like powdery mildew and pests like spider mites can really get out of hand indoors more so than they would outside.”

One problem that’s unique to cannabis agriculture is that a crop can be wrecked by pollen from a field of industrial hemp, even if it’s not that close. (Once a female plant is pollinated, it starts producing seeds instead of flowers and becomes far less valuable.)

“Cannabis pollen travels really far,” Lee says. “They estimate the size of the hashish crop in Morocco by capturing pollen samples in southern France. That’s the way cannabis breeds.”

(Until recently, Washington state required a 6.4-kilometre buffer between hemp and cannabis farms.)

Click to play video: 'Statistics Canada survey finds legal cannabis more expensive than illegal cannabis'
Statistics Canada survey finds legal cannabis more expensive than illegal cannabis

In a northern climate, only varieties that can complete a flowering cycle before frost can be grown outdoors, Spear says.

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“It’s the 10- or 11-week longer-flowering sativas you can’t do up here,” he says. “The majority of commercial production is seven- or even eight-week strains.”

‘People love buying purple cannabis’

Spear argues that the cannabis sold now has been bred for decades for indoor conditions. With legalization, breeders can branch out and start developing plants for cold-climate outdoor grows.

“It’s easier to grow a very purple strain here, especially in the Ottawa Valley, where we do get those cooler nights toward the end of the growing season. That’s what really brings out those colours.”

Terpenes, the flavour compounds that give cannabis its taste and smell, are stronger in outdoor cannabis, he says.

“You can actually get higher terpene content outdoors, and that’s what the market is headed toward. There is an argument to be made for growing outdoors just for taste, flavour, aroma and environmental impact.”

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