Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 62 - Evidence - Meeting of February 28, 2019
OTTAWA, Thursday, February 28, 2019
The Standing Senate Committee on Agriculture and Forestry met this day at 8:04 a.m. to study how the value-added food sector can be more competitive in global markets; and, in camera, to examine and report on issues relating to agriculture and forestry generally (consideration of a draft report).
Senator Diane F. Griffin (Chair) in the chair.
[English]
The Chair: I am chair of the committee, Senator Diane Griffin from Prince Edward Island.
I ask the other senators to introduce themselves.
[Translation]
Senator Maltais: Senator Maltais from Quebec.
[English]
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Oh: Victor Oh, Ontario.
Senator C. Deacon: Colin Deacon, Nova Scotia.
Senator Kutcher: Dan Kutcher, Nova Scotia.
[Translation]
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
[English]
Senator R. Black: Robert Black, Ontario.
The Chair: Today, the committee is continuing its study on how the value-added food sector can be more competitive in global markets.
For our first panel, we have Myrna Gillis, Chief Executive Officer, from Aqualitas. Thank you very much for accepting our invitation to appear here today. We would like to have you make your presentation, and then the senators will have some questions for you.
The floor is yours.
Myrna Gillis, Chief Executive Officer, Aqualitas: Madam Chair and distinguished committee members, thank you for the invitation to speak to you today and to have this opportunity to provide some perspective on how the value-added food sector can be more competitive in global markets.
As well as being Chief Executive Officer, I am the founder of Aqualitas, a licensed cannabis producer on the South Shore of Nova Scotia. After spending more than 25 years as a lawyer, much of it spent in the disabilities sector, I shifted my career and entrepreneurial focus to the medical cannabis sector.
With a mission of supporting people’s wellness with research, innovation, care and passion, our vision is to be the leading producer of organically grown, all-natural, high-margin, value-added cannabis products throughout Canada and the world. We have demonstrated environmental stewardship and innovation with our aquaponic growing technology that combines aquaculture and horticulture and uses up to 90 per cent less water and 50 per cent less energy than traditional indoor growing methods.
We are the first Canadian licensed producer to receive Clean Green certification, a program modelled on existing national and international agriculture standards, ensuring environmentally clean and sustainable methods. Certification is based on a thorough examination of legal compliance and a review of cultivation methods and agricultural crop inspection.
We are also in the process of finalizing our ICH European GMP certification, which is required for international export to the EU and will support our work with an FDA pharmaceutical clinical trial in the United States.
Aqualitas is firmly committed to research and development. We have ongoing partnerships with a number of Atlantic Canadian universities, with funding from research partners such as the National Research Council of Canada. We are currently developing value-added cannabis products and intellectual property at Acadia University in the agri-food and beverage lab.
Seeing the opportunity for product research, development and innovation, Aqualitas has established Sindica, the Global Institute for Cannabis Research and Innovation. Sindica has a vision of becoming an incubator for ancillary services working in the cannabis industry. We employ a number of scientists, both full time and as advisers, in the areas of quality control, extraction, food science, aquaculture, agriculture and animal sciences.
Aqualitas is proud to call Liverpool, Nova Scotia, our home. Like many towns throughout Canada, Liverpool experienced a devastating economic event with the departure of its core industry, its pulp and paper mill. When Bowater Mersey closed its operations in 2012, more than 300 employees lost their jobs, which resulted in unprecedented out-migration.
Since obtaining our licence in January 2018, we have hired more than 50 full-time employees and have contracted more than 120 construction workers and trades. We are proud to contribute to the rural economic development of this community.
At its inception, Aqualitas was formed to produce medical cannabis and to promote research and disabilities advocacy. Shortly after launching Aqualitas it became clear that cannabis was to be expanding far beyond the medical sector, which had developed under the MMPR and the ACMPR, and that there were to be significant opportunities for growth in domestic and international markets.
In 2015, following the Smith decision, oil extracted from the cannabis plant became the industry’s first value-added product. With the implementation of the Cannabis Act, there will soon be legal, regulated, value-added products in edibles, extracts and topicals for medical and adult use.
On January 31, 2019, the World Health Organization tabled a report by the United Nations Commission on Narcotic Drugs. After two years of study it was recommended, among other things, the rescheduling of THC to a lower category of restrictions which would permit more research and enhanced research and descheduling CBD entirely based on the overwhelming support for its benefits and non-addictive properties.
It is anticipated this recommendation will pass in the next 12 months. If this occurs, it will unlock an unprecedented opportunity to ignite an international cannabis industry with value-added products in pharmaceuticals, nutraceuticals, food and beverage, human and animal wellness.
We currently have the ability to export cannabis and cannabis oils to reciprocating medical jurisdictions across the world. The industry has an immediate opportunity to create global brands and products. We have a small window of opportunity to ensure that Canada retains its place as the global leader in cannabis export.
While the opportunities are vast, there are challenges and barriers that cannabis industry players face when developing value-added products domestically and when preparing to send these products to global marketplaces.
One of the greatest challenges is overcoming the hurdles that exist within the licensing process itself. The sheer volume of applicants in the queue and the complexities of the licensing procedures has resulted in backlogs that are not allowing businesses to move at the pace they need to remain competitive and responsive to the global marketplace. Additionally, there are licensing costs which may be prohibitive to many of the smaller industry players.
Cannabis companies may be restricted from accessing provincial and federal incentives for manufacturing due to policy decisions that continue to stigmatize cannabis.
The cannabis sector, like many industries, also deals with a lack of skilled labour in a number of key areas. We must develop programs at the vocational level that prepare workers for the requirements of this new and growing industry.
To sell products in most global jurisdictions, companies are required to hold certification in EU good manufacturing practices. The path to European Union GMP status is long, costly and requires specialized training to ensure adherence to these exacting standards.
While these barriers may seem arduous, the cannabis sector is vibrant and full of companies and individuals who are hungry to see the industry expand to both its potential domestically and globally. With the right supports from the government and other key stakeholders, we are confident that Canada will be a world leader in export, value-added cannabis product categories, technology, intellectual property and research expertise.
The economic impact of Canada’s cannabis industry is huge. Government and industry projections have domestic and recreational marketplace revenues projected to be $22 billion by 2024. Some $14 billion of that will come from value-added products. Internationally, based on BMO’s industry report, by 2024 it is expected that cannabis revenues will be approximately $200 billion.
There are ways the Government of Canada can help our industry maintain our place in the lead in this global competition. These include increasing the efficiency of the regulatory bodies that we depend upon for licensing and permits we require from seed to international export.
There is also a need to address labour shortages, particularly our needs for trained workforces. According to a study by Canadian manufacturers and exporters, it showed that while Canadian women make up 40 per cent of our workforce, only 28 per cent hold jobs in the manufacturing sector.
We need support for research and development. We also need as a country to support the descheduling of CBD and a reduction of restrictions on THC to ensure proper research and product development and access. We also need to ensure that cannabis companies are permitted all the same programs and all the same incentives available to other value-added manufacturers.
I am heartened to see this committee focusing on the time-sensitive opportunities for Canadian companies to become more competitive in the global market. Speaking for Aqualitas, I am excited about our international opportunities and our company’s readiness to participate in this market. I am proud to say today that we anticipate our first export in approximately three weeks.
I wish you the best as you complete your study and look forward to your committee report.
The Chair: Thank you for your presentation.
[Translation]
Senator Maltais: Ms. Gillis, thank you for coming all this way to testify before us. Does all of your company’s funding come from Nova Scotia?
[English]
Ms. Gillis: No, we are a privately funded company. All of our capital raises were in the private sector across Canada and the United States as non-brokered placements. All of the money we have raised to date, approximately $25 million and a further $15 million that is coming, has been from the private industry and investors.
[Translation]
Senator Maltais: Thank you. Right now, are you selling your products exclusively in Nova Scotia or Canada? I know you’re getting ready to sell in the European Union, but are your products currently being sold just in Canada? Do you have any buyers in the United States?
[English]
Ms. Gillis: We currently have a restricted sales licence, so we can only sell to other medical producers in Canada and only for the purpose of research and testing. The anticipated export to the EU is for medical research. It’s with a partner that we hope to collaborate with on medical research.
As far as the United States goes, there is no export to the United States because it is not a uniform, federally regulated jurisdiction when it comes to cannabis. In my speech I said that we could export to companies that are reciprocating. The United States would not be one of those countries.
As far as opportunities in the United States, Canada’s producers have taken opportunities either to collaborate or partner with companies in the United States to participate in that market, but that does not mean the manufacturing is occurring here. It is occurring there.
Another issue is that because of interstate restrictions in the United States, companies will often use intellectual property and licensing agreements for products because they cannot trade interstate. Those are some of the workarounds that companies have been doing to have at least their technology in those markets.
[Translation]
Senator Maltais: Regarding your value-added products and derivatives, is there a limit to the amount of THC that can be added to them?
[English]
Ms. Gillis: Under the proposed regulations in the Cannabis Act, which have not yet been finalized, the single serve for packaging is 10 milligrams of THC per packaged item.
Currently, there are no limits on CBD, which is the non-euphoric or non-psychoactive component of cannabis. We are learning more and more every day about the other cannabinoids in the cannabis plant. The industry standard, taken from the legal markets in the United States, seems to be 10 milligrams of THC per package serving.
Senator Oh: You mentioned that in three weeks you are to export your first products overseas to an international market. What kinds of products are you actually exporting?
Ms. Gillis: At this time it is a very small amount of dry cannabis for testing. When we receive our unrestricted sales licence, we anticipate that we will also be exporting oil extracts for the purpose of research.
Senator Oh: These are only from companies that do some manufacturing of drugs overseas
Ms. Gillis: It is a pharmaceutical manufacturing company that has distribution in 20 countries in the EU.
Senator Oh: When do you expect you are to export consumer-use products that I can buy off the shelf or whatever?
Ms. Gillis: You can’t buy anything off the shelf in reciprocating medical countries, which is where the export is right now. The most common countries that you would probably be familiar with would be Germany, Poland and Australia.
Senator Oh: Denmark?
Ms. Gillis: Yes. There are more coming on each day. How that process works is that you would normally export to a distributor if you’re going to consumers. That would then go to pharmacies in Germany, for example. They are all single-licence individualized pharmacies. There are literally thousands of pharmacies where it would go from the distributor to them to the end user, which is the consumer.
It is also interesting to note in that market is that all of the medical cannabis has insurance coverage associated with it. You still need to have authorization from a physician to consume in those jurisdictions.
Senator Oh: How many people do you employ in your corporation?
Ms. Gillis: We have 50 full-time employees now. We are on-boarding literally every day.
Senator Oh: How many are in research?
Ms. Gillis: We have nine PhDs on our team and three masters of food sciences. We have two engineers with their P.Engs. I am proud to say the majority of our leadership positions in science are occupied by women.
Senator Oh: Do you consider cannabis to be an agriculture crop?
Ms. Gillis: I do not consider it an agriculture crop. What we grow is the feedstock for the value-added proposition that is our company’s main focus. We are working with multiple labs and projects in Nova Scotia. We’re working with Springboard Atlantic, which is unique to Atlantic Canadian universities. There is collaboration among 19 universities in Atlantic Canada, with a very significant view on the value-added proposition of cannabis and cannabis research.
Senator Oh: When do you expect you will put your products on the shelf as value-added products?
Ms. Gillis: Some of that will depend on the regulator. When it comes to the first value-added product being oil, I would certainly expect that we would have the product on the shelves available to Canadian consumers in the next three to six months.
When it comes to the value-added products in the categories of extracts, edibles and topicals, that is still in process. We would expect that to be at the end of 2019 or early 2020.
Senator Doyle: Commercial, recreational and medical cannabis is obviously in their infancy. One would think there would be limited potential for export, given the fact that cannabis is still illegal in many countries. However, you seem to give the opposite impression that there is a lot of potential for export in that area.
Are there any government programs that are assisting in that regard, or are you able to manage it on your own?
Ms. Gillis: There are a couple of things to unpack. You need to conceptualize cannabis in two different categories: CBD products and products that have THC, or what people may consider to be psychoactive compounds of the cannabis plant.
This is not my view but it is the view of the World Health Organization Commission for Narcotic Drugs that if CBD products are descheduled CBD would have the same commerce and trade as virtually any other compound, vitamin or fortified. Internationally everyone sees the limits with respect to that internationally as the precipice of probably the earliest and most significant change.
When it comes to THC and value-added products that may be created from other cannabinoids in the cannabis plant, you will see a slower stage that will start initially in the medical market so that there would be export and trade opportunities in reciprocating medical states, which is happening right now. As far as available programs or incentives, we in the cannabis industry would have the same opportunities for certain manufacturing credits and around some export.
There are also restrictions for cannabis companies. In my own province of Nova Scotia, ACOA takes a different position on cannabis manufacturing than it does on other types of manufacturing. There are some barriers. Then there are some areas in which we are on the exact same footing as any other value-added manufacturing company in Canada.
Senator Doyle: We have signed a number of new trade agreements, as you know. Where does Canada sit in terms of our new trading partners vis-à-vis the cannabis industry? Are we exporting expertise and technology, or are we net importers?
Ms. Gillis: Canada is absolutely a global leader when it comes to cannabis, cannabis research, cannabis value-added products and the capacity to develop products.
I would say the only other jurisdictions in the world that probably was earlier than us in the opportunities for research and development would have been Israel. If you look at what would historically be seen as one of the areas you would look to for research and opportunities of that nature, it would be the United States, but there has been a virtual moratorium on research there.
A few products have been brought to market over the years by pharmaceutical companies such as Sativex and Marinol. Now GW Pharmaceuticals has brought an epilepsy drug through the traditional drug identification number and product development system. Those products have no restrictions.
Senator R. Black: Are research and development funds easy to access, or are they all coming out of your pocket?
Ms. Gillis: They are very difficult to access but not impossible. We are most proud as a company that even prior to our being licensed, or in the early stages of our development, we were initially doing agricultural research and development for an aquaponic system. We worked with Acadia University. We received IRAP funding.
We also won research and innovation awards through incubator programs in Nova Scotia through Innovacorp. We won CleanTech energy and SPARK innovation awards for that technology. Winning those awards greatly assisted us in having the credibility to introduce ourselves into the more conventional and mainstream opportunities to access research dollars.
Initially it was difficult, but we were very fortunate. A few years back there was an article on the cannabis industry and who was doing research. As an unlicensed and small company from Nova Scotia, we were in the company of only four other Canadian cannabis companies from across Canada that were the biggest in the industry.
We were proud of that distinction. We credit that to a couple of things. We have always approached this from R and D, wellness and medical research perspectives. We are one of only four companies in the 150-plus companies in Canada that had a patient medical advisory board. We used that board to inform our decisions on value-added products and on what patients, patient advocates and patient caregivers were identifying as important products for people. That related to dosing, delivery, efficacy and different conditions that might benefit from it more than others.
Yes, there have been challenges but we have been very successful, compared to our peers, in getting that. We also have leading scientists in the universities in Nova Scotia who have helped us make our way through that process and access those funds.
We are proud of the money we have raised as a company and that we have privately committed over $2 million toward research ourselves.
Senator R. Black: You talked about the pulp and paper industry going and the out-migration of people. Then you talked about having 50 employees.
Were any or many of those employees from that area, or are they people coming in from other areas?
Ms. Gillis: It is a combination of everything. We are employing many people from the local community, particularly in trades and construction. They are almost exclusively local.
We also have employees who are returning home to that community because of this opportunity. We have people who have immigrated to Canada that are working in our facility in very skilled and highly technical positions. We have had people travel from other parts of Canada.
We have interns coming from Stirling, Scotland, this summer to work with us. We are very well known for what we are doing in our industry. Academics and others want to work with us because of how we have approached the industry, our commitment and our actual activities around research, development and innovation.
Senator R. Black: You have shared with us a number of barriers and challenges. What is the biggest one? If we were to include it as part of our recommendation, what is the biggest one we should talk about?
Ms. Gillis: The biggest barrier is that we need the ability to get the necessary licences to conduct certain types of research that cannot be caught in delays that may be associated with some of the other elements of licensing.
If we want to do a sensory panel on our products, for example, we have a complete and comprehensive research plan. We are ready to do that. We have our formulations. We’ve done our groundwork, not on cannabis, but we need to have an addition. We can do research under our own licence, but we require a different type of licence when we require a sensory panel.
At some point we will want to do clinical trials in relation to onset time and bioavailability. It is really important from a commercial perspective for us as a company to be able to do this. We also want to give the consumer safe products and products that have been vetted with clinical studies and research. The only way we can do that is with those licences.
I would much rather have my research licence and have some knowledge and confidence I can give the consumer a product that has been vetted. If you look in jurisdictions like California and other places, there are literally home recipes and things out there without a research licence.
You are not restricted from putting products on the market without the licence, but I would suggest it is infinitely better for all of us to be able to say the product has been created in a safe manner and has met what you would expect of a product that you want to purchase off a shelf in a provincial retail environment. That would be the lowest hanging fruit of what would be important.
I want to give a little push, as a secondary, for continuing access to research and development funds. We really have a unique opportunity. In some of the opening documentation around this committee that I reviewed, the end of prohibition was identified as one of the biggest opportunities for value-added products in the Canadian food and beverage industry.
More important, this represents an opportunity in the wellness community for some of the best value-added products that we can get to the world before anyone else. If we can do that, we will not only start in the opening position but we will sustain the opening position.
Senator C. Deacon: Ms. Gillis, it’s great to see you here. You are one of our country’s most inspiring entrepreneurs, without a doubt. I am proud of what you are doing and the effects it’s having in a community that really needs to see that opportunity coming in, in a reliable way.
I am struck by the overlap with food production and agriculture in terms of the high-value-added side. You are clean, sustainable and organic. It’s at a high level of production per square foot in your growing operations. You have put product and process together and integrated them in a way that creates a very high-value end product. There is a nice big gap between your inputs.
Ms. Gillis: The one you are looking for, yes.
Senator C. Deacon: You have also integrated R and D into your operation. You are continuing to find ways to advance that high value-added side. This is important to the study we are doing in terms of a model for what we could be looking at. I am looking for those lessons learned, particularly.
If Canada does not move down the road you are recommending quickly to capture this global opportunity, we risk being one of the most highly regulated jurisdictions and therefore creating one of the highest-cost products in a global commodity business because we will not have the differentiating products.
I think that potentially relates to food production agriculture in some ways. We have some regulated products that are not necessarily competitive in overseas markets. Perhaps, if we took some of the lessons learned, we could help our producers in other industries to become more globally competitive in some areas.
I am looking for your guidance in that light, if that’s clear enough. It is important. It is not just about CBD research and other cannabinoid research. There are lots of lessons for other areas of agriculture.
Ms. Gillis: I would like to deal with those in three different ways. I know this committee probably is not conceptualizing value added other than taking a food stock and turning it into something more valuable or something else. I want you to conceptualize something about agricultural technology as a value added when paired with those components that are actually as important in my view.
We are in a global economy where the third most significant macronutrient, phosphorus, is in a very unstable geopolitical area in Morocco. Some 75 per cent of the world’s phosphorus is there. We know that our water supply is being diminished and our capacity for traditional based agriculture is changing.
One of the value propositions with advancing agricultural technology for feedstock relates to costs because of automation and making yourself more cost effective and more competitive globally.
We are at a crossroads. We’ve done work with companies in Germany and Netherlands, two leaders in relation to agriculture, to address some of the challenges in Europe with respect to water and agriculture. With our aquaponic technology Netherlands, for example, is aiming by 2030 to have only closed loop agricultural systems wherein you recycle and reuse your water.
As we consider the environmental considerations of agriculture, the companies with sustained and sustainable products and products that are ready for the challenges which may come in relation to access to fertilizers or clean water will be the ones generating the feedstock necessary for value-added products. To conceptualize the underlying technology with the value added is a very important exercise.
To your question about costs and whether or not essentially all countries closest to the equator that can grow outside with a natural 12-12 light cycle may become the feedstock of the world, if we don’t have efficiencies for value added that’s a reasonable concern to have.
I am unsure of the timing of it in the sense of how long that catch-up will take. With respect to the CBD, it’s certainly imminent. With respect to THC, it may be different. For years, we looked to hemp that was grown outdoors at a fairly low cost and used it internationally. We know CBD can be extracted from hemp, for example. There are desires for that low cost.
When you consider cannabis as a medicine, the standard under which it is grown has to be regulated, to some extent. There would be things for indoor agriculture that would be important. In our facility, literally, you go through an air shower. You are wearing masks, booties and suits. You change every time you go into a different room. We are hyper-vigilant because we want to be pharma grade in what we do. That’s not necessary for all components of how we do this with the plants.
I would suggest that we could have proportional regulation to the degree of risk and the application of the product that would be made. We would benefit from that. Not treating everything exactly the same would be beneficial.
Canada has the greatest opportunity as far as products sold in and of themselves and outside of cost and value. We need to be first past the post on intellectual property, particularly around what I think are the biggest concerns of communities about edibles: the onset time and the impact on different people in their physiological state. We are also not being so quick with technology that we take a plant we know is not toxic currently in the same way that pharmaceuticals or other products are and inadvertently make it toxic because of how we are doing our R and D.
There is a bit of caution but a tremendous amount of optimism in how we will advance the product development in this country. In speaking to different universities, for example, you would be shocked to know that most of the campuses in Canada did not have research licences for cannabis. Unless they were associated or affiliated with a physician or someone in a specific trial, it was not easy to knock on the door of a university and say, “Could we do some cannabis research and collaboration with you?” They would say, “No.”
This was not just for us. For me, it was very much about Atlantic Canada where I am very proud to be from. We were talking to Sindica and Holland College. We were talking to folks in Newfoundland and in New Brunswick. We told them we had a research licence and the extent to which we could participate, if they had projects of merit and of commercial value and if they were waiting for their institutions to have those licences. We can collaborate with them, and we will do that.
By the way, we hosted symposiums with the academic institutions and invited them from all across Atlantic Canada. We held panels with those academics. We invited industry folks and government as well so that they could see what we were doing. Oftentimes we are a hidden secret in many ways. Not everyone knew what we were doing because for us it was more important to execute. We just wanted to make sure we were on the right track.
We are very confident that we are, so we are sharing our story a little more broadly. We certainly appreciate the opportunity to share with the committee the kind of work we are doing and the leadership we are bringing to the industry.
Senator C. Deacon: In food production there are concerns about the amount of land in southwestern Ontario shifting from food production to cannabis production and the number of greenhouses in that regard.
I don’t want you to pit one producer against another, but I want to compare the different methods of growing. In aquaponics you’re using natural fish fertilizer and the whole methodology, intensity and production per square foot, as such, compared to more traditional growing that may be occurring in greenhouses.
Ms. Gillis: I will be first to tell you that we are literally bringing our technology to scale. To give you some perspective of what we know from our prototype and the research we’ve done, there is indoor growing with controlled environmental agriculture. It is the most expensive and most controlled way to grow. You repeat, with a fairly high degree of precision, the environment, humidity, heat, temperatures and the genetics so that your product tends to be more consistent crop after crop.
If you grow outside and not even in a greenhouse, you are obviously restricted by the seasons and you can only have so many crops. Greenhouses are mostly hydroponic and lower cost, but your yields are lower as well. You are also susceptible to your capacity to do international export because you cannot irradiate your product. One of the biggest challenges in greenhouses is microbials. You are more vulnerable to microbials. When that happens, rather than having crop failure some producers irradiate their product. The EU will not accept irradiated products so you may be limited just by virtue of that.
We grow both in living soil for our organic certification, and our system has been certified. As of last Friday, we all did the dance of joy in our building because we had a harvest of our aquaponic crop.
I will put this in perspective for you. In living soil generally your yields per plant can be anywhere from 60 to 120 grams indoors and lower in greenhouses. Off our largest aquaponic plant we got 396 grams of dried flower and 200 grams of trim. The average of that crop was over 200 grams of finished product. If we can scale that consistently, that’s a game changer.
We are not projecting that. When we did our financials and went and raised money, we didn’t even come close to those types of projections although we believed them to be capable.
There is a difference we need to consider. If you can get greater yields, recirculate your water or recapture the water from the transpiration of your plants and put it back into your system, and if you can generate fertilizers from fish food and fish rather than having to extract for use petroleum reliant nitrogen in very environmentally unfriendly ways or rely on potassium, phosphorous and other macronutrients from finite areas that are finite, that could be a very differentiator for how we grow in the industry.
Senator R. Black: Do you see those technologies as being transferable?
Senator C. Deacon: You see that happening.
Ms. Gillis: Absolutely. You can do anything. Quite frankly we were most excited about communities up North having fresh vegetables and a protein source with fish. They could have access in their garages year round. To give you some perspective, a table and a 110-gallon tank can produce 1,100 pounds of produce and 200 pounds of fish a year. The ability to commercialize this for food is tremendous.
People are asking, “If this is so great, why isn’t it everywhere? What is wrong?” Aquaponics have been around for thousands of years. It is not a new concept. If you think about rice paddies, you think about the Chinese, the Aztecs and the Mayans and floating rafts of agriculture. This is not an uncommon concept. Generally the reason it was not so commercialized is that it only worked well with plants that needed a lot of nitrates but didn’t need a lot of potassium and phosphorous, whereas fruiting vegetables need potassium and phosphorous. That’s the research we worked on. We worked on how to get flowering plants to work in an aquaponic system, not just basil and lettuce. How do we get grain to grow?
That was the first plant, by the way. It was a proxy plant. We grew amaranth at Acadia University because it was a good proxy for cannabis. It was a tall plant. It had four-week veg and eight-week flower stages. It had very similar structured nutrient requirements. We were able to make that work, and that’s a grain.
The potential here is enormous.
Senator Kutcher: Many aspects of this are very exciting in many aspects. I encourage all senators on this committee not to run out and buy stock, quite yet.
Ms. Gillis: We are private.
The Chair: So you are good.
Senator Kutcher: Cannabidiols are molecules searching for discovery and THC will not be the driver of the market at any point. Help me understand your thinking. I would love to get your construct here. There is pharmaceutical-grade production. Creating the product and taking it to market are very different proposition chains than products for the wellness markets. Probably the biggest one is products for the cosmetic industry.
Ms. Gillis: Yes.
Senator Kutcher: In the development cycle, vertical integrations are necessary to create pharmaceutical-grade products. This will be a humongous area for various CBDs and basic research with phase 1, phase 2, phase 3 and phase 4 clinical trials.
Canada missed the bandwagon of the late 1980s-early 1990s in pharmaceutical research in that we had minimal capacity to do the phases 1 to 4 clinical trials. The investment in developing that capacity is tiny compared to the investment in developing basic research because you don’t need the infrastructure and its costs are high.
The error that we made or that we did not seize the opportunity twigged me. How does that fit in with your important point about training for the cannabis workforce? Is there something at the federal level that could be done to identify workforce needs?
Clearly you are invested in the basic research components? That’s important and essential, but you can’t get a pharmaceutical product to market without that integrated chain. The costs of investing in creating the molecules or understanding the molecule are way greater than the costs created phase 2 and phase 3 clinical trials.
Ms. Gillis: First, you are referring to fractionating in relation to the complex cannabinoid. You take the cannabis plant and you break it down into its individual components. Then you isolate and fractionate the cannabinoids you think will have beneficial properties for products.
We are working on a pharmaceutical trial. We were approached by a company in the U.S. when they came to Canada looking for licensed producers that had a deep bench with R and D. They came to us, and we were very happy to make their acquaintance.
Our technical team also assisted. We would not have had this opportunity had we not had our technical team. Our technical team assisted in writing the proposal for the program, particularly as related to the oil formulations, how the oils would be fractionated and the level of purity for the product that was to be used in the trial.
Yes, in one sense we missed an opportunity, but at least half that opportunity turned out not to be a successful pharmaceutical product being brought to market, which was a synthetic. We need to focus on the fractionation of the naturally occurring parts of the cannabinoid.
To your question about what can be done to help facilitate research, our chief scientist, extraction, is a master’s student and a PhD in food science that in early days would have been Ocean Nutrition, a very familiar Nova Scotia company.
I want to say that we have the talent. We have great opportunities and programs with food scientists, chemists and individuals who are able to do what we need them to do. The restriction was the lack of the research licence to be able to conduct those activities.
That is one thing that would be helpful, but we absolutely need expert chemists in breaking them down. We need folks who know how to work with oils. There are also alternatives, whether yeast or making cannabinoids in different formats. The whole plant extract is certainly the way to go.
Another thing about clinical trials from the pharmaceutical side of things is the fact that we had a benefit. It was not a direct or intended benefit, but a medical cannabis system where some doctors were reluctant to prescribe. Specialized clinics came across the entire country, and then we had cohorts of patients with specific conditions that were managed under these clinics. That made it much easier to do clinical trials because the audience was more relatively available.
If we look to the communities for research, we have much better controls and access than some other countries for accessing patient groups. I agree that we can definitely use some additional expertise and training in the universities on the science of cannabis.
Senator Kutcher: How would you see the federal government creating an environment that would help build those components of the workforce that you have identified are currently lacking?
Let’s just stay on the pharmaceutical side right now because the others are different. What would you suggest?
Ms. Gillis: It’s critical to have funding available for universities to incubate the research and start with young researchers who work in collaboration with physicians. That’s one thing we could influence in its infancy, along with having additional programs for hiring researchers and students that are new graduates and maybe extending them longer than you would for traditional programs.
You might give two years to this masters or PhD student in this component, but we need more than that because we are not starting with the baseline of knowledge that might otherwise be there. That would be very helpful.
Senator Kutcher: To follow up on that, the traditional funding agencies like CIHR have not stepped up to take on these challenges.
Ms. Gillis: No.
Senator Kutcher: The pharmaceutical R and D component has not stepped up to take on these challenges. What else might be necessary for the tweaking of what’s there or other components?
Ms. Gillis: You will potentially see an offshoot of harm reduction if we also look at the opiate side of things. Some of the opportunity there is to start with oils and simpler types of formulations from a harm reduction point of view. There are programs and funding available for those types of programs, and there should certainly be continued support for them.
I always like to say that if you are not compelled by the morality of it, which you should be, you should be compelled by the economics of it. The economics of it are that it is a low-risk profile compared to some other pharmaceuticals. It may be that we do very simplistic formulations of substitution as we then dial into products with more efficacy and clinical trials that the community is used to seeing.
Senator Kutcher: That was very helpful and very well focused on the pharmaceutical component of markets.
What about wellness and cosmetic markets?
Ms. Gillis: That’s my favourite part because it is the area where we have the best opportunity to excel in. We are not pharma. I don’t pretend that we will have the resources or the capacity, but to work on a pharmaceutical trial is still a very important part of the work we are doing.
When it comes to the natural health products market, that is where our scientific team can really excel, particularly in Nova Scotia. When you think about all of the health and beauty products and all of the health and wellness, whether from the omega-3 market or beauty, a lot of companies are doing some really amazing work. We have really good opportunities in that. That is the least controversial.
People look at topicals and some of those products as being where you will have very significant margins. I would also point out that the animal wellness market, particularly with CBD, is a huge category yet to be tapped.
Senator Kutcher: Thank you very much.
[Translation]
Senator Dagenais: Thank you, Ms. Gillis. I have two questions for you. First, could you tell us what kinds of barriers you face when you’re trying to certify your products? What criteria do you have to meet for certification, and why were you denied certification in certain cases?
[English]
Ms. Gillis: The biggest barrier to certification is that there are only five Canadian companies out of the 150 with organic or organically grown certification. Part of that is a reluctance or a perception that growing organically will sacrifice yields. You are also restricted in the management of the crop with things like pesticides that may be available to others.
Let me be clear. Health Canada has a very restricted list of 13 pesticides that can be used on cannabis products for consumption. Of the 13, only one is organic. You’re already taking out from the suite of things available to you. We use biologics and different other things. That’s one of the biggest obstacles.
Another obstacle is that the majority of companies in Canada grow hydroponically. I am not sure if you have been following, but there is an ongoing debate in the organic certification or organically grown market about whether or not hydroponics can be certified. You generally need something that is not inert. Most hydroponics are sanitized and inert. There are synthetic chemicals or synthetic fertilizers.
The organic fertilizer approach can be more costly, but our approach is a little different with the lack of capacity for pesticides. I am only aware of one producer in Canada that lost their certification. They lost it because of a prohibited pesticide that was used in their process. They lost that certification and went through the process of recertifying. I am not sure if they have it yet.
There is another distinction in the certification process that is worth noting. Canadian Organic Standards or Ecocert put restrictions on the ability of cannabis companies to use the organic logo on cannabis products because at the time it was not considered to be a con sumable product like a food. That will obviously change, so I expect that restriction may change as well.
Part of the reason we went with Clean Green certification was that it was unique to cannabis. It is a North American and an international standard that incorporates cannabis organic practices. It also has a commitment to fair trade, reducing your carbon footprint by 5 per cent a year and sustainable agricultural practices as relate to water. We thought that was helpful for our mission.
The main obstacles are your management and that people like to grow hydroponically, which is not a universally accepted method for organic growing. I am not saying it’s impossible, but it’s very hard.
[Translation]
Senator Dagenais: This market has a lot of potential. You’re sure to face competition one day. What advantages will you have over the new players, and where do you think the new challengers in your field will come from?
[English]
Ms. Gillis: On the organic side, I would say there is a very good value proposition for that. There is generally a 30 per cent premium on organically grown products. Some 52 per cent of medical and 42 per cent of recreational cannabis consumers prefer organic product.
One way to be competitive is to stay in that category. Even if that category expands, I anticipate that the majority of producers will still be producing in non-organic certified ways.
In the long term that will be a differentiator, but it won’t be the only thing. You need a good quality product people like. You need a good brand to support your product and a team that can convey your message to the consumer.
One of the changes with the Cannabis Act is that there is an expectation or desire for micro growers. Perhaps the potential is that some of those specialized products may be grown in smaller quantities and sold at premiere or premium pricing.
We have seen that already in the market trends. The indoor product is commanding much higher pricing than some of the other types of growing methods because of the density of the bud and things the consumer might be looking for.
That competitive edge is to continue to be recertified. You also need to do other things. That is one of many pieces for you to capture consumer loyalty.
I haven’t mentioned this to the committee, but another part of differentiation is that we’re a women-led company. There are only five or six female CEOs out of the 150-some CEOs in Canada. Only three of us are founders. It is also important from a brand perspective, particularly on the medical side, that close to 90 per cent of household spending decisions in the wellness market are made by women, either women as consumers or as caregivers in their homes. I genuinely believe that having an authentic brand with that type of leadership will resonate with those purchasers.
It’s not to say that women are a demographic. We are 50 per cent of the population. We are not a brand, but I would say that successful brands are authentic. Having that leadership is much more compelling than not having it when you’re looking for that consumer.
Senator Oh: Could you tell us how many square feet is your facility? Do you buy from outside, or do you grow everything yourself?
Ms. Gillis: Again, we do not have our completely unrestricted licence. We are waiting for that, and we are hoping it is very soon.
We’re in an 80,000 square foot building and are in the process of building the final stages of that building so that we have about 80,000 square feet of production and manufacturing space. What is more exciting to us is that we have an option for expansion in that park under a single, consolidated civic address. This will also allow us to expedite licensing because it will be an amendment, not a second site licence. We have 100 megawatts of power on that site. We have industrial water. We have biomass that we can come back to us in the form of steam.
There are many things about that facility. It was a MARSEC secure site with pre-existing fencing and security. We looked very hard to find a place where we had the capacity to expand and grow what we were doing with resonate. We didn’t take off more than we could do initially. We were thoughtful about how we would do what we were doing first and how we would scale up and hopefully expand.
Senator C. Deacon: There are not many big success stories of late in rural Nova Scotia. There is a lot of sadness in a lot of communities, and they are declining.
You employ 50 people directly and another 150 indirectly through contractors that are building out. Where do you see your employment going in the next period of time? Then I want to get into my question.
Ms. Gillis: We certainly see our numbers by the end of 2019 to be probably another 35. Obviously that can expand dramatically as we get into other types of manufacturing. It also depends on a sales force that we have not factored in. Some additional position may be added there.
I want to make another point about rural economic development that is a very important consideration. I can’t speak for all other provinces because I am not sure how their demographic work, but I can tell you that all current producers, with the exception of one, and every producer in the queue pending are in rural Nova Scotia. This opportunity to bring industry back to rural communities is a huge one.
We always like to say about aquaponics that in Nova Scotia some of our greatest prosperity was in agriculture and fishing. We have modernized that in a new form of combined horticulture and aquaculture. Some of the best aquaculture expertise in the world is in Nova Scotia. We were able to build on that and modernize our industry. That is something we’re really proud of.
Senator C. Deacon: I keep getting struck with how this technology potentially overlaps with other growing products and food products. I am struck that from products that we grow we have the potential for food, wellness, pharmaceuticals and cosmetics. The value add accelerates as we move up that chain.
Based on how you see yourself and on any research you have done in this regard, what other opportunities do you see for Canada as it relates to traditional agricultural products that could also be moving up that value chain?
Ms. Gillis: One of the areas would be terpenes. We have all kinds of other agricultural products in which you may be able to find the terpene profiles in the cannabis plant. We are finding that there might be something beneficial in limonene, myrcene, or in plants like mango. It is not that mango is a Nova Scotia crop, but we may be finding beneficial things in other plants not yet even tapped and the opportunity to use those plants in some of the value-added products that will be going into nutraceuticals and others.
Senator Kutcher: Your answers have been enlightening. We didn’t even have to have THC with them, so it was even better.
Recent Canadian data shows that Prince Edward Island and Nova Scotia are the highest consumers of cannabinoid products, probably as a result of more mature distribution. What are the interprovincial trade barriers and facilitators for cannabis products in Canada?
Ms. Gillis: The biggest question mark is that we have had a very unequal roll out of the provincial retail models. The ones that seem to have the fewest hiccups were the ones that were purely public distribution. The private retail has had slower progress or the hybrid retail has had slower progress.
You will also find some pockets of regional players as opposed to national players participating in markets, not necessarily because of direct barriers of interprovincial trade but more psychological barriers to going outside your comfort zone or your footprint.
Companies that don’t have brands will be feedstock for all of the other producers. There will be a huge amount of consolidation and amalgamation in the industry. From an interprovincial influence, though, you will still have regional leaders in the industry from coast to coast.
For example, Atlantic Canada will still be the highest per capita region in the country. According to a survey that came out last week based out of P.E.I., 75 per cent prefer local products. Even if there isn’t a barrier, the consumer will be creating some influence on what will be happening interprovincially to get it on the shelves.
It is a very complex process in Quebec to register with that distribution. It has been a challenge to get product into the province because that was one of the more challenging places to register. Some of the provinces don’t have the same provincial infrastructure, which makes the rollout a little more cumbersome.
Senator C. Deacon: I just want to add one tiny, tiny thing, Madam Chair. What you’re saying is that without branding you would turn into a commodity.
Ms. Gillis: Yes.
Senator C. Deacon: The amount of money or the value add you get from your product is dramatically reduced without branding.
Ms. Gillis: Without branding, without differentiation and without some value add to it, it will be much more difficult for you to differentiate.
Senator C. Deacon: That’s an important point for our committee to understand as it relates to food products.
Ms. Gillis: Absolutely, yes.
The Chair: Thank you, Senator Colin Deacon, I agree that was a very important tiny, tiny point you just brought up. Actually, it was more than a tiny point; it is an excellent point.
On Prince Edward Island there is now a cannabis retail outlet where my high school used to be.
Senator Doyle: It’s gone full circle.
The Chair: I remember when they built the liquor store next door to it. Anyway, that is a while ago.
It has been a very interesting morning. I know we could go on longer, but we have some business we need to do in camera. I thank our panellist for a very interesting morning and for being here today.
Before we go in camera and take a brief pause to do so, we need to have agreement. Is it agreed that we permit recording to allow the analysts to review what was said here today and a copy of the transcript being provided to them that will be subsequently destroyed at the end of the parliamentary session?
The reason for that is we’re going to give instructions related to our supply management study and we have to be sure that the analysts have the information readily at hand. Are you okay with that?
Hon. Senators: Yes.
The Chair: Perfect. It is agreed.
(The committee continued in camera.)