The market for craft cannabis is booming in Canada—especially in British Columbia, home to the eponymous “BC bud” industry. It’s huge.

How huge? It’s likely in the billions of dollars, but no one really knows, because it’s still a mostly gray—or illicit—market.

Before we go any further, let’s acknowledge the debate about what constitutes “craft” cannabis production. The illicit and regulated markets notwithstanding, some say the threshold is 200 square meters (2,153 square feet) or less, while others say it’s in the low tens  

of thousands.

There is no doubt that demand for regulated (read: legal) craft cannabis products in Canada will be significant, but that market is still in an embryonic stage.

The cultivation licenses intended to appeal to the craft segment (micro-cultivation and micro-processing) were introduced Oct. 17, 2018, and so far, only one business has managed to win one. Another 150 applications are in the queue.

That license limits cultivation space to 200 square meters, among other restrictions. And major regulatory challenges remain for those soon-to-be businesses.

Comparing Craft Markets

The most-used analogy for the craft cannabis industry is to compare it to the craft beer industry. However, there are some structural differences in the markets.

Legal and regulatory: Without a doubt, the craft beer industry would be markedly smaller than it is today if it faced the same regulatory burdens placed on craft cannabis production.

Consider that no province in Canada has a functioning (regulated) farm-gate cannabis industry. Some provinces, such as Ontario, have talked about allowing cultivators to sell on-site, but none are yet authorized.

Allowing micro-license holders to sell their products on-site would be a major boon for their businesses—just as it is for craft beer makers.

And the province that needs farm-gate sales the most is British Columbia. BC is home to a massive and booming underground cannabis economy, but the political leaders who make the rules in that province seem to have little interest in taming the market.

Taxation advantages: Craft beer costs more because it is more expensive to produce. To help make microbreweries more competitive, the excise tax slapped on craft beer is much lower compared to the tax added to standard beer. In Ontario, for example, that tax by volume is less than half for microbreweries, and many such producers are eligible for the Small Beer Manufacturers’ Tax Credit.(Some background for our American readers: Beer is expensive in most Canadian provinces  because of heavy excise taxation, at least compared to prices in the United States.)

An Uneven Playing Field

All this means is that the tax breaks that aid the underlying economics of Canada’s craft beer industry aren’t guaranteed nor are they foreseen to be applied to the craft cannabis industry. It could be years if ever before Canadian craft cannabis cultivators could expect any kind of meaningful excise tax benefits to aid their businesses.

At this point, they’d be happy with on-site sales.

And then there’s on-site con-sumption, which would obviously be beneficial for the bottom lines of craft cannabis businesses.

I’m not here to tell you there won’t be a regulated craft cannabis. Enough analysis has been done to demonstrate that the federal government’s micro-cultivation and micro-production licensees will thrive once they’re up and running. Entrepreneurs—both in illicit and regulated markets—always find a way.

But it sure would be nice if they had the same tax breaks offered to craft beer makers, could sell their products on their premises and had consumption spaces—luxuries already underpinning the economics of the country’s microbreweries.