Toronto councillor wants city staff to study office conversions

Daniel Johnson , BNN Bloomberg Oct 19, 2023

A Toronto city councillor has put forward a motion asking city staff to explore possible ways to convert office space into residential housing. 

Brad Bradford introduced the motion at the city’s Planning and Housing Committee on Thursday. It asked staff to look at office conversion possibilities and consider what regulatory changes might be needed to make them happen.

Bradford’s motion highlighted that the city needs to remove barriers that impede the creation of new housing “at every opportunity.”

“I don't think, given the housing challenges that are in front of us today, we as a council or local government should be writing off any opportunities to deliver more housing supply in a market that desperately needs it,” Bradford told BNNBloomberg.ca in a Thursday interview.

Office conversions could be “one of many tools we need to put in our housing tool kit,” Bradford said, though they would not be an all-encompassing solution.

He noted that not all office floorplates can be easily converted into residential space, but argued that there is a need to remove barriers where possible.

In his motion, Bradford said the process of converting of older office buildings into housing units where possible should be simplified.

“This will require that we ensure relief from guidelines and other rules that make it difficult to convert office floor plates into housing,” his motion read. “This will also mean modernizing office replacement policies to unlock new housing supply and identify opportunities to secure affordable housing.”

Specifically, the study would look at potential zoning, regulatory or policy relief that might be needed to allow for economically viable office conversions.

The motion said it would also evaluate the possibility of “requiring the provision of affordable housing” instead of replacing office space, as is currently required when office space is removed in downtown Toronto neighbourhoods.

The motion asked that city staff report back to the committee with recommendations in the third quarter of 2024 “as part of the ongoing Office Space Needs Study.”

Bradford’s motion also highlighted that as of September 2023, downtown core occupancy rates were just 50 per cent of pre-pandemic levels. While some workplaces mandate a return to office others are continuing hybrid work policies, the motion notice. 

“Given the changing nature of work and the ongoing housing crisis, it is time to revaluate the need for office space,” Bradford’s motion read. 

City council has not yet voted on the motion.

Thursday’s motion stems from a letter to the council from Bradford earlier this month. The item will be considered by the Planning and Housing Committee later this month and will be subsequently considered by the City Council in November.

Veronica Green, vice president of Slate Asset Management, said in a statement to BNNBloomberg.ca that the city should consider the current and future supply and demand dynamics of office market conditions. 

“Softening or dismantling” the language in Toronto’s official plans as it rates to office or non-residential space would be a step forward, she said.

“This will let the market react to current conditions to make effective decisions about where and how much office space Toronto needs,” Green said Thursday.

“Allowing office to residential conversions is one small step to support Toronto's housing supply problem; this can also support the city’s path to net zero by encouraging adaptive reuse of existing assets.” 

OFFICE SPACE DEMAND

Bradford told BNNBloomberg.ca that within Toronto’s office market, the market for Class A space remains strong, because companies have been moving into those buildings from Class B and C office spaces after the COVID-19 pandemic.

Class A buildings are often new buildings in locations considered more desirable.

This trend presents a challenge, according to Bradford, who argued that higher vacancies in Class B and C buildings means as those buildings sit vacant, they are “further and further diminished” over time.

“From a policy perspective, we need to ask the question, do our office policies around conversion still make sense in today's context?” he said.

“If we could forecast five or 10 years from now, do we think we are going to have a huge sort of shortage of office space? Or do we think we're going to have a huge shortage of housing?”

Bradford said that the vast majority of the time, the city is not willing to engage in discussions around the conversion of office space, and as a result, the city rarely sees applications of that type come forth.

In June, Bradford ran as a mayoral candidate with the promise of changing zoning rules to simplify the process of converting offices into residential units.

At the time, he said he would eliminate the rule dictating office space be replaced on a foot-for-foot basis, if the development includes 20 per cent affordable housing. 

Bradford ultimately lost the election to current Toronto Mayor Olivia Chow, but he has remained on city council. 

CBRE report says office vacancy rate in Q2 rose to highest level since 1994

The national office vacancy rate in Canada climbed in the second quarter to its highest level since 1994, according to a report by commercial real estate firm CBRE

The firm said Tuesday that the national office vacancy rate rose to 18.1 per cent in the second quarter, up from 17.8 per cent in the first quarter.

It was the highest level since the first quarter of 1994 when it was 18.6 per cent.

"Canadian office markets are grappling with a perfect storm of a recession threat, interest rate hikes, tech sector weakness, tenants rightsizing and new supply of office space," CBRE said in a news release. 

"All of this is compounded by the continued uncertainty around remote work."

The increase in the overall rate came as the downtown office vacancy rate in the second quarter rose to 18.9 per cent compared with 18.5 per cent in the first quarter. The suburban office vacancy rate was 17.1 per cent, up from 16.9 per cent.

CBRE said downtown vacancies in the second quarter inched higher in all major centres across the country except for Calgary and the Waterloo region in Ontario.

The downtown vacancy rate in Vancouver was 11.5 per cent in the second quarter, up from 10.4 per cent, while the rate in Toronto was 15.8 per cent, up from 15.3 per cent in the first quarter. Montreal saw its downtown rate rise to 17.0 per cent from 16.5 per cent.

Meanwhile, the downtown vacancy rate in Calgary was 31.5 per cent, down from 32.0 per cent in the first quarter. Waterloo Region's downtown rate was 21.5 per cent compared with 22.0 per cent in the first three months of the year.

CBRE said Calgary has benefited from the expansion of the engineering, construction and education sectors. 

"Calgary is also working its way through several office building conversion projects, which will reduce inventory," the firm said.

CBRE said that before the pandemic, Canada claimed the two lowest-vacancy office markets in North America in Toronto and Vancouver, where downtown vacancy hovered around two per cent for several years.

The company said there is 11.5 million square feet of office space under construction including 6.2 million in Toronto, 2.7 million in Vancouver and 1.9 million in Montreal.

This report by The Canadian Press was first published July 4, 2023.

This is a corrected story. An earlier version incorrectly stated the national overall, downtown and suburban office vacancy figures for the first quarter.

Toronto developers keen to convert offices to

 housing say city rules are a barrier

Holly McKenzie-Sutter, BNN Bloomberg

Real estate developers say regulations are holding back efforts to convert empty Toronto office buildings into much-needed housing – but some candidates in the ongoing mayoral election, as well as the city itself, appear open to discussing policy changes. 

The idea of converting office spaces into residential units picked up steam since the pandemic-induced shift to hybrid work. Recent reports suggest office occupancy rates in Canada may not bounce back to pre-2020 levels given the rise of hybrid work, and RE/MAX Canada has suggested cities take a hard look at converting offices into housing.

Some cities like Calgary are moving ahead with turning empty offices into apartments. But as it stands, office space in downtown Toronto neighbourhoods must be replaced if it is removed, creating a major barrier for such projects to move ahead in Canada’s largest city.

Jeff Hull, president of Hullmark, a real estate and development company, said his firm is keen to move into office-to-residential conversions. He considers it a way to boost affordable housing supply in a city that desperately needs it, and sees the appeal of sustainability arguments for the practice – that it’s more climate-friendly from an emissions point of view to reuse a building, rather than tear it down and construct a new one.

“We're very much interested in seeing how we can play a part in creating more housing supply through the conversion of office,” Hull told BNNBloomberg.ca in a telephone interview. “The main challenge is changing the regulatory framework.”

Hullmark already has several office properties, themselves conversions from old industrial buildings, which Hull said might work as residential buildings. The company has also looked at buying some other office properties to convert, Hull said, but regulations such as the office replacement rule have stopped them from taking the plunge.

CONVERSION CHALLENGES

Architect Duanne Render, whose firm Gensler has worked extensively on office conversions, said mainstream discussion of the office-to-residential idea has been a noteworthy change from three years ago, when he and colleagues would have been “laughed out of people’s offices bringing it up.”

Despite growing interest in making it work, the process is not without challenges, he said, and not all office buildings are good candidates.

Purpose-built offices have different floorplan and layout needs than apartment buildings, making some conversions less feasible. The projects are also costly, and generally need some kind of financial assistance to incentivize developers, like in Calgary where the city offered subsidies to support conversions in its waning downtown core.

Market dynamics can also help make the economic case for conversions, Render noted. In Toronto, where rents are particularly high, he said the math might work out for more developers to jump in to the space.

“Toronto is quite ripe to be able to support quite a few candidates,” he said.

Still, rules barring the removal of commercial office space are a major barrier, Render noted. But with housing a major mayoral election issue and growing developer interest, he predicts conversions will eventually take off in the city.

CITY CONSULTATIONS AND ONGOING PROJECTS

Gregg Lintern, chief planner at the City of Toronto, told BNNBloomberg.ca in an email that “increasing office vacancies resulting from the adoption of hybrid work models is an issue impacting cities across North America, including Toronto.”

The city is running a study on office market conditions that will look at the “benefits and risks” of converting office space for other purposes, and look at policy options “that balance office needs in the short and long term and ensure the City’s economic role remains competitive and resilient,” Lintern said.

In the meantime, there is an application before the city that would convert and build onto an exiting 15-storey heritage office building, turning it into a mixed-use retail and residential tower with more than 100 apartment units.

Matthew Kingston, executive vice-president of development and construction at H&R REIT, the company behind the proposed project, said talks are ongoing with the city to “find common ground” when it comes to the office retention policy.

“The challenge for us, is that the heritage retention and enhancement are so costly, that we are unable to make financial sense of our project if we replace the office fully,” Kingston said in an email to BNNBloomberg.ca

“That being said, city staff have been very open in dialogue with us and have proposed numerous options for us to consider.  We are hopeful that we can work with them to find a mutually acceptable resolution.”

WHAT DO THE MAYORAL CANDIDATES SAY?

Some frontrunners in the upcoming mayoral vote set for June 26 have also weighed in on the issue, and promised to loosen regulations if elected.

Candidate Brad Bradford has promised to change zoning rules to make it easier to convert offices into homes. If elected, Bradford said he would eliminate the rule requiring office spaces be replaced foot-for-foot if the proposed development includes 20 per cent affordable housing.

He also promised to “ensure relief from guidelines and other rules that make it difficult to convert office floor plates into housing,” and as-of-right approvals for conversions that wouldn’t add on to a building, in a bid to speed up the zoning process.

Ana Bailão’s campaign said in an email that if elected, she would “reduce office replacement requirements when buildings are demolished or converted in exchange for affordable housing” as part of her plan to build 285,000 new homes.

Olivia Chow’s campaign said she is “open to exploring how we can animate unused office buildings, including converting some to housing and other uses, but it should be part of the broader conversation on how best the city can support recovery in Toronto’s downtown core,” among other models.

Anthony Furey said he would “100 per cent support” making it easier to flip offices to residential units with zoning rule changes, though he doesn’t consider it a primary solution for the city’s housing shortage.

Hullmark developer Hull said he’d like to see flexibility and a “really permissive policy environment” when it comes to office conversions, “acknowledging the fact that these are going to be hard and cost a lot of money” – but he’s not deterred by the roadblocks currently in his way.

“I like solving complex problems that end up being, I think, potentially really positive things for the future of the city,” he said.

Vacant offices can help fix the housing crisis, former deputy PM argues

BNN Bloomberg

Former deputy prime minister Sheila Copps says Canada needs to convert empty offices into housing units if it plans to fix the ongoing affordability and supply crisis.

Copps, who served as Liberal deputy prime minister under Jean Chrétien between 1993 and 1997, said Prime Minister Justin Trudeau’s Thursday announcement concerning removing GST from rental builds is a good step – but she thinks the measure should be extended to cover other kinds of housing developments. 

“I think it needs to go further, and not just no GST for new builds – for rentals – but also for conversions and including conversion renovations,” she told BNN Bloomberg in a television interview on Friday.

“If you’re looking at high-density opportunities in downtown cores, it can’t just be new builds on new lots, it should also be for restorations and renovations, and that piece was missing from yesterday’s announcement.”

EMPTY OFFICES

The commercial real estate firm CBRE recently reported an 18.1 national office vacancy rate, the highest level since 1994. When it comes to downtown offices, the vacancy rate climbed to 18.9 per cent.

“All of the office space that is sitting vacant in malls and downtown cores across the country, why not have an office conversion attached to that, so you’re actually thinking outside the box (and) you’re fixing two problems for the price of one,” Copps said.

Office-to-housing conversions are not a new concept, but the idea has picked up steam in the pandemic as housing prices skyrocketed and more occupations embraced work from home.

In June, RE/MAX Canada suggested cities are taking a look at conversions though zoning rules and red tape make these projects difficult to get off the ground.

Meanwhile, the City of Calgary began subsidizing these conversions in 2021, with at least 10 such projects in the works. Calgary is one of two cities – along with Waterloo – without a declining office vacancy rate, according to the CBRE.

In Toronto, developers are keen to begin these conversions, but the city requires all removed office space to be replaced. The city is currently studying the market conditions to allow more office conversions. 

With files from BNN Bloomberg’s Holly McKenzie-Sutter and The Canadian Press      

What is it like to live in a converted office

building?

Daniel Johnson , BNN Bloomberg

As Canada grapples with a housing shortage, there has been growing interest in the idea of converting underused offices into apartment units. 

While there are challenges to such conversion projects, some developers have pulled it off, with projects underway or completed in major Canadian cities.

Here is a look at one building in Winnipeg that was successfully converted from an office into a residential space, with perspective from tenants on what it is like to live there, and from the developer on how they made it work. 

Hallways in the Medical Arts Building in Winnipeg before it was converted into apartments. (HAZELVIEW INVESTMENTS)

HOW DID IT HAPPEN?

Development company Hazelview Investments has converted two office buildings into residential apartments.

One of them, the Medical Arts Building in Winnipeg, added about 104 new rental units to the city’s downtown real estate market, opening its doors to residents in 2021.

Mike Williams, a managing partner and head of real estate development at Hazelview Investments, said the project was the result of office market conditions that had “deteriorated,” with high vacancy levels in Winnipeg.

Former office tenants in the building were able to sublease elsewhere, he explained, allowing the project to go ahead.

“We were left with a vacant office building that worked in our eyes for conversion to residential,” Williams told BNNBloomberg.ca in a telephone interview last month. 

It took a few years for the conversion to begin because of the duration of some office lease contracts, Williams said. But after that, the project proceeded quickly and was completed in under two years – quicker than building a new residential tower from scratch, Williams added.

“We're able to move a little bit faster than probably traditional build,” he said. 

A room in the Medical Arts Building in Winnipeg before it was converted into apartments. (HAZELVIEW INVESTMENTS)

CONVERSION INCENTIVES 

Labour shortages, construction delays and can present roadblocks for conversions in Canada, Williams said. These challenges have arisen amid growing interest in the idea with office vacancies on the rise after the COVID-19 pandemic prompted more hybrid and remote working arrangements.  

Regulatory hurdles can also pose challenges. For example, city rules in Toronto dictate that office space removed from the city’s downtown must be replaced, creating barriers for office-to-residential conversions. 

Williams said there are generally more opportunities for these types of projects in western Canada, specifically in Calgary, where the city has offered incentives to developers for office conversion projects in response to high office vacancy rates.

Calgary was the location for Hazelview’s other office conversion project.

“They’re trying to find ways to continue to activate their downtown core and make it vibrant with more people living there if they're not going to be working there,” Williams said of Calgary’s initiative.

CONVERSION CHALLENGES 

Developers have to consider many factors before converting an office building to residential use, Williams said, and not all offices are the right fit.

“Office buildings are meant to be used differently than residential buildings,” he said. In a residential building, “you're going have significantly more toilets and sinks and dishwashers and washing machines,” he explained.

“A traditional office building wasn't designed to have that same sort of building systems operational throughout the day,” he said.

A room in the Medical Arts Building in Winnipeg after it was converted into apartments. (HAZELVIEW INVESTMENTS)

Other changes need to be made during the conversion process, Williams said, including things like changing stair locations and upgrading HVAC systems that are not suitable for residential use. 

Williams said many office buildings are not suitable to be converted because of these differences.

TENANTS’ PERSPECTIVE

Shey Rizi, a tenant of the Medical Arts Building, told BNNBloomberg.ca she was not initially aware of the building's previous use. When she went to see the place, she was “pleasantly surprised.”

“The space was bigger, the ceilings were higher,” she recalled in a telephone interview. “It was interesting. I liked it.”

A room in the Medical Arts Building in Winnipeg after it was converted into apartments. (HAZELVIEW INVESTMENTS)

On the inside of her rental unit, Rizi said there are high, industrial-style ceilings that are “quite spacious” and that the unit is a “bigger space with more flow to it.”

She said there are “pros and cons” to living in the space. 

“I really like that they're using previously commercial buildings as residential buildings, in terms of using the space for making more homes. I thought that was a great idea," she said, adding that she appreciates how converting underutilized office space is environmentally conscious. 

As for the downsides, Rizi has noticed “some minor details” missing because the building’s previous use, such as a lack of cupboards and spaces for appliances.

Hannah Gibbens, another rental tenant in the building, had been looking for a place to live in mid-March before moving in on July 1. 

She told BNNBloomberg.ca she could “hardly tell” the building was formerly an office building, but there are some noticeable features, like concrete walls and ceilings.

Overall, Gibbens said she supports the conversion of underutilized office space to residential purposes, referencing an “incredible amount” of empty buildings or underutilized buildings in Winnipeg. 

“We're also really, really hurting for affordable housing,” she said. “We have the space. Why are we not just converting it into housing for people?”

              

 

Contaminants in cannabis and hemp flowers create potential for health risks

Team of researchers urges further study and evaluation of standards for medical use

Peer-Reviewed Publication

UNIVERSITY OF TENNESSEE INSTITUTE OF AGRICULTURE

 

IMAGE: 

MATURE CANNABIS INFLORESCENCES EXHIBIT A LARGE FLORAL STRUCTURE THAT IS COMPOSED OF FEMALE REPRODUCTIVE ORGANS (PISTILS), INFLORESCENCE LEAVES, AND THE BRACTS SURROUNDING THEM. PHOTO FROM FRONTIERS IN MICROBIOLOGY, COURTESY OF Z. PUNJA.

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CREDIT: PHOTO FROM FRONTIERS IN MICROBIOLOGY, COURTESY OF Z. PUNJA

Cannabis use, even for medical purposes, could make some people sick due to harmful fungi that contaminate the plants.

That is the finding of a recently published peer-reviewed journal article, whose authors recommend further study and consideration of changes to regulations to protect consumers, especially those who are immunocompromised. They examined data, previous studies, and U.S. and international regulations related to the cannabis and hemp industry.

The article was published in Frontiers in Microbiology. It was researched and written by Kimberly Gwinn, professor of entomology and plant pathology at the University of Tennessee Institute of Agriculture: Maxwell Leung, assistant professor, and Ariell Stephens, graduate student, both from the School of Mathematical and Natural Sciences at Arizona State University; and Zamir Punja, professor of plant pathology/biotechnology at Simon Fraser University, Burnaby, British Columbia, Canada.

“Hemp and cannabis are new crops, and we are in the early stages of understanding relationships with their pathogens. Several pathogens produce mycotoxins, compounds that negatively impact human health and are regulated in other crops. In this review, we summarize the current literature on mycotoxins in hemp and cannabis products, identify research gaps in potential mycotoxin contamination in hemp and cannabis, and identify potential developments based on research in other crop systems,” Gwinn said.

Cannabis research has mostly focused on the substance and medical uses of the plant, but with the increased legalization of cannabis for various uses, this article addresses the need for more study of potential health risks.

“Although fungi and mycotoxins are common and well-studied contaminants in many agricultural crop species, they have been generally under-studied in cannabis and hemp. This is partly because human health risk assessment methodologies used to regulate food and pharmaceuticals have yet to become standard for the emerging cannabis and hemp industries. Additionally, the wide range of consumer uses of cannabis and hemp flowers, including for medical use by patients with susceptible conditions, makes it uniquely challenging to assess and manage human health risk of these contaminants,” according to the article.

The authors discuss Aspergillus, Penicillium, Fusarium, Mucor, and other fungi that can infect the plants and can produce mycotoxins; review the regulations and assessment methods of the contaminants; and offer recommendations to produce safer products for all consumers. Environmental factors such as where the plants are grown, whether indoors or outdoors, and in soil or soilless media, may impact the kinds of contaminants and ensuing health risks.

Studies reviewed by the authors show some fungi may cause infection on lung and skin tissues, and these infections were most common when smoked and less common in edibles. They also found cancer patients using cannabis to help with nausea and appetite as well as transplant patients and consumers with HIV and type 1 diabetes may be particularly susceptible to infection. Studies also show workers harvesting cannabis could also be at risk. The authors encouraged consumers who are immunocompromised to use products that have been sterilized until better data are obtained.

The authors studied international and U.S. standards for these contaminants, but there is a lack of data on the prevalence of the contaminants and their health impacts. Another issue for consumers is the varying levels of legalization of cannabis products from state to state, which has resulted in each state creating its own regulations. Fusarium mycotoxins, a prevalent class of fungal contaminants in agricultural commodities that can result in vomiting, are not currently regulated.

Assessing and testing for pathogens can be problematic, as the authors found when they studied various methods including culture-based assays, immuno-based technologies, and emerging technologies. The article also examines management of the possible toxins before harvest and after harvest. “A major hurdle faced by cannabis and hemp industries is addressing the disconnect between production-related issues and human safety issues,” the article states. Recreational use of hemp and cannabis is common in many areas and all case studies linking cannabis use and fungal infections, except one, involved patients who were immunocompromised. The authors suggest a potential solution is “to reduce potential harm to medical users of cannabis from toxigenic fungi is to develop a two-tier system that distinguishes products intended for medical and recreational use.”

“We wrote this article to bring these issues to the attention of the scientific, medical, and regulatory communities. We hope to encourage further research in this area, particularly in the areas of mycotoxins in product. Better data and public access to data will allow us to fully evaluate these risks and subsequently ensure safe products for consumers,” Gwinn said.

The University of Tennessee Institute of Agriculture is composed of UT AgResearch, UT College of Veterinary Medicine, UT Extension, and the Herbert College of Agriculture. Through its land-grant mission of research, teaching and extension, the Institute touches lives and provides Real. Life. Solutions. utia.tennessee.edu.

mycelium (IMAGE)

UNIVERSITY OF TENNESSEE INSTITUTE OF AGRICULTURE

Proliferation of mycelium of a Fusarium species within cannabis inflorescence tissues under conditions of high humidity.

CREDIT

Photo from Frontiers in Microbiology, courtesy of Z. Punja.

JOURNAL

Frontiers in Microbiology

ARTICLE TITLE

Fungal and mycotoxin contaminants in cannabis and hemp flowers: implications for consumer health and directions for further research

ARTICLE PUBLICATION DATE

19-Oct-2023

CANADA

Cannabis industry calls for regulatory changes five years after legislation

Daniel Johnson , BNN Bloomberg

Oct 17, 2023

Five years after cannabis was legalized in Canada, experts and industry players say regulatory issues have weighed on the success of the industry. 

Nawan Butt, a portfolio manager who oversees a cannabis ETF, told BNNBloomberg.ca that regulation is the biggest challenge to Canada’s cannabis industry, and a main reason why things have been slow ever since legalization in October 2018.

“They came up with a set of rules and directives, which then moved very slowly and evolved very slowly to keep up with what were the actual demands of the consumer,” Butt, also head of capital markets at Purpose Investments, said in an interview. “We've seen Canada just under-serve its consumers, to some extent.” 

According to Butt, the industry’s underperformance is due largely to the limitations of regulators.  Slow progress in that area has led to the cannabis sector having the “highest proportion of all bankruptcies in Canada” in 2022, he argued.

“Regulators have done a disservice of sorts to the investors and operators in the space that really were sitting on an industry that was net new, could generate a lot of taxes (and) could generate a lot of jobs,” Butt said.

LEGALIZATION ANNIVERSARY

On Oct. 17, 2018, the federal Liberal government changed prohibition laws on the recreational use and sale of cannabis that had been in place for about a century.

Since then, it’s been a rocky path for operators in the industry navigating the legal market in Canada.

A review of the Cannabis Act published last week found that retailers in the industry were struggling with financial viability, due in part to the costs associated with regulatory compliance like taxes and fees. The review was launched last year by the federal government.

Omar Khan, public affairs officer at cannabis business High Tide, called for attention to regulatory issues within the cannabis industry, warning these could have political consequences for the federal government if left unaddressed.

“What started off as a political and economic boom for the federal Liberals risks becoming an albatross come the next election, because for whatever reason the current federal government just doesn't seem to be taking this sector as seriously as it's taking other comparable sectors,” Khan said in an interview with BNNBloomberg.ca.

EXCISE TAXES 

Khan said the excise tax is causing problems for retailers. The tax in its current form was based on assumptions made in 2015 that the average price per gram of cannabis would be $10, Khan explained, and that price point is “much lower” today.  

“Currently, cannabis producers have to affix a unique excise stamp for each province or territory. That creates a bit of a mess for companies and it adds a certain level of cost onto consumers,” he said. 

According to Khan, the regulatory framework for the excise tax should be updated, but industry players have had difficulty engaging with federal officials on the issue – a theme that applies to engagement on other priorities for the industry, he added.

INDUSTRY PERFORMANCE: "EBBS AND FLOWS"

As the industry faces frustrations at the five-year mark, Khan noted that the first three years of legalization were “quite successful” from an economic perspective.

A joint report by the Ontario Cannabis Store and Deloitte released in February 2022 found that the cannabis industry contributed $43.5 billion to Canada’s gross domestic product between 2018 and 2021. During that same time, Khan said, the industry sustained about 151,000 jobs across the country.

Butt said the development of cannabis capital markets in Canada was “the first of its kind in the world,” and a “new playbook” was needed to determine the best way to invest in the industry.

Since then, he said, the industry has gone through “ebbs and flows.”

“What the industry did was make very, very large promises that were very difficult to keep. And therefore valuations have been very volatile over time,” Butt said.

Butt manages the Purpose Marijuana Opportunities Fund, the nation's first actively managed cannabis fund which was launched in February 2018.

At one point, Butt said his fund hit $50 million in assets. It now has about $7 million in assets under management.

“Part of those assets have dwindled because the market capitalization in the space has come down significantly,” Butt said.

“The other part is the challenges of the space have made themselves very clear to investors and investors are now more careful of the space overall, rather than being very embracive of it.”  

LOOKING AHEAD 

Emily Riehl, a regional sales director for Western Canada at Greentone, told BNNBloomberg.ca that while the industry has experienced volatility, some firms have been able to improve fiscal performance and could continue to do so.

Despite improvements, some companies “continue to make big mistakes,” she said. Instances like that have given the industry a bad reputation and have “scared” people away from participating or investing in the legal cannabis market, she said.

Five years is not enough time to judge the performance of a new industry, Riehl argued, but to date, “there’s been more failures than there have been successes.”

“Obviously many (cannabis firms) have made billion-dollar mistakes, it feels like at this point. But I do think that there's hope and we're seeing companies that are turning around their balance sheets,” she said in an interview.

Riehl said producers are now “starting to get their feet under themselves” and make better choices, which in some cases unfortunately involves reducing employee headcounts. 

Over the next six to eight months, she said people could be “pleasantly surprised with how much better everybody’s doing” in Canada’s cannabis industry.

“We're finally at a point now where we're, I hate to say it so bluntly, moving away from hiring the cool stoner next door and moving towards more professional people coming in to teach the rest of the industry how to operate and work more professionally and efficiently,” she said. 

Cannabis Act review finds companies struggling to profit, health experts supportive

A review of the federal legislation that paved the way for the legal recreational use and sale of cannabis says companies in the legal market report struggling to realize profits and maintain financial viability.

Retailers cite the burden of taxes, markups, fees, and regulatory compliance costs as barriers to the industry's viability, which they say is a necessary precondition to maintaining a safe and legal source of supply and to combat the illicit market.

The statutory review was launched by the federal government last year to analyze the Cannabis Act, which in 2018 set purchase and possession limits at 30 grams of dried pot or the equivalent, restricted youth access to marijuana and established safety requirements for growing, selling and transporting the substance.

The report says public health experts remain supportive of the legislation's precautionary approach, including THC limits for edible cannabis products and restrictions on promotion, while some suggest considering stricter age limits on who can possess, distribute and buy cannabis.

While the panel that conducted the review says it heard progress has been made on deterring criminal activity and displacing the illicit market, many public safety stakeholders remain concerned about unauthorized retail stores and illegal online channels.

Panellists heard varying viewpoints on whether consumer demand was being met, with consumers still seeking products unavailable in the legal market such as higher-potency edibles, along with limited access in some rural and remote regions

From high flying to burnout, pot industry faces

downturn five years post-legalization

Tara Deschamps,

When Abi Roach thinks about the 20 years she spent fighting for Canada to legalize cannabis, she says pot legislation is like a clenched fist.

The analogy, which Roach first heard from a former Toronto councillor, represents the tight grip on the cannabis market that legislators held for centuries. It meant Roach had to exploit a grey area of the law to run her popular cannabis consumption space HotBox, which opened in 2000, and its customers were accustomed to looking over their shoulders for cops before walking through the door.

Roach has been a stalwart in Canada’s cannabis industry as a longtime advocate for legalization and queen of an empire that eventually spanned 15 different businesses, including a magazine, a tour company and lines of pot accessories and apparel. 

While regulations and attitudes have loosened since Canada legalized recreational cannabis five years ago, Roach said policy constraints and industry response mean there is still "a ton of room to go” before the industry reaches general acceptance.

"It's the closed fist that slowly opens as we prove ourselves to society as being just a normal part of everyday life," she said, as the fifth anniversary of cannabis legalization approaches on Oct. 17. "The world isn't exploding, the chickens aren't going to fall from the sky, if people are consuming cannabis.

“Five years into it, you're really seeing that cannabis is an industry that is viable."

The signs of that viability are everywhere. Cannabis shops dot some of the most coveted strips in Canadian real estate. Alberta- and Ontario-based giants have expanded their medical pot businesses into Europe. The domestic recreational market is valued in the billions.

Cannabis legalization has had wide-reaching effects and made its use more accessible and acceptable.

Yet the razzle-dazzle days where money was no object and sky-high demand was expected are gone, replaced by a sobering reality: legalization has fallen well short of expectations.

The biggest companies – Canopy Growth Corp., Aurora Cannabis Inc. and Tilray Brands Inc. – have shrunk their footprints, laid off thousands and grappled with balance sheets that reflect a turbulent market and a longer march to profitability than many once imagined. 

Others weren’t so lucky. They sold their business at bargain prices to a bigger rival, folded or declared bankruptcy.

And Roach worries the carnage isn’t over.

"Until there's a real regulatory reform in all of the main pain points of the industry, we're going to continue to see companies go bankrupt ... and a lot of consolidation in the market," Roach predicted.

"It's becoming much harder and harder, not only to raise capital to get out of trouble, but also to sell your company. I know people that were trying to sell their cannabis stores. Nobody wanted it."

Many cannabis businesses were doomed from the start. They spent fast and furiously in anticipation of legalization, scrambled to produce the right amount of pot — first there was not enough, then too much — and discovered catering to consumers wasn’t easy.

Canadians wanted more potent products in packaging that wasn’t dull. Others couldn't shake relationships with longtime dispensaries and dealers who could supply pot at a fraction of the price of the legal market.

Cannabis companies wanted governments and police to go after illicit sellers more aggressively, but felt authorities never put their full might behind the cause, so pot producers took an “If you can't beat them, join them” approach.

"The only way to convince an illicit market consumer to migrate into the regulated market is to have a comparably priced product," said Vivien Azer, a managing director and senior research analyst at TD Cowen who specializes in the cannabis sector.

Hexo Corp. paved the way, she said, when it launched 28-gram packages of Original Stash dried cannabis flower in 2019 (Hexo was acquired by Tilray in April). It sold for $140, or roughly $5 per gram in Ontario, and slightly less in Quebec. Then-chief executive Sebastien St-Louis marketed it as disrupting the black market.

"Everyone else followed, and so you saw this massive price deflation in the legal cannabis market," Azer said.

In November 2021, a report from Deloitte Canada and cannabis research firms Hifyre and BDSA said the average price for dried cannabis was $7.50, down from $11.78 per gram at the start of 2019.

By last month, most of the dried flower products selling in the Ontario Cannabis Store were priced around $3.50 per gram, with a few more selling for around $5 or $6 per gram.

"With that price deflation, you could kiss profit aspirations goodbye," Azer said.

The excise taxes the federal government and provinces charge to licensed producers only made matters worse.

For dried and fresh cannabis, plants and seeds, the taxes amount to the higher of $1 per gram or a 10-per-cent per gram fee.

For edibles, extracts and topicals, the duty is set at one cent per milligram of tetrahydrocannabinol, cannabis' active ingredient, in the product. 

While these rates were palatable at the time of legalization, when people predicted cannabis would sell for $10 per gram and taxes would thus be low, pot companies are now almost universally railing against the rates.  

A May 2022 analysis from the Cannabis Council of Canada found a package with 28 grams of flower selling with HST for $124.78 would carry excise duties of $29.13, or 23 per cent of the purchase price.

Roach realized the tax “is absolutely unrealistic,” after she sold her beloved HotBox to the Friendly Stranger pot firm in 2020. It later turned the business over to Fire & Flower Holdings Corp., which has since filed for creditor protection.

Following a stint at the Ontario Cannabis Store, Roach became a head of product marketing at St. Thomas, Ont., business Mera Cannabis Corp., where staff recently calculated manufacturing costs for a 14-gram flower product were $15, but taxes amounted to $16.50. 

And many of those are going unpaid. Roughly $200 million in excise taxes are outstanding from the cannabis sector, Canada Revenue Agency spokesperson Nina Ioussoupova said in an email. 

Until the regulations are reformed, Roach maintains there’s going to be a “continued mess” in the industry while the illicit market maintains its strength. 

“We’ve been through a lot and I did 20 years fighting for legalization, but I always say I didn't fight for legalization to purchase cannabis in the unregulated market,” Roach said.

“My dream ... maybe not in the next five years, but in the next decade, is that we can continue to move people from the unregulated market into the legal market to a point where the legal market is the only market.”

Cannabis producers want the same thing.

The morning of legalization five years ago, a share in Canopy traded for about $68 and Aurora opened at $195. Their average stock prices over the past three months have been below $1.

As they watched valuations dwindle, companies argued that the widespread presence of unlicensed dispensaries and other underground sellers was still a problem. To this day, Health Canada estimates they have a hold over 40 per cent of the market.

"The illicit market is why the legal industry isn't as healthy as everybody would like to see it," said David Klein, Canopy’s chief executive.

"It probably is the single biggest challenge because if the illicit market would have gone away, as people predicted, you wouldn't have seen the dramatic shutdown of facilities and layoff of employees,” he said.

“Those sales would have been available for the legal players."

Thousands of cannabis workers have received pink slips over the last five years and many of the greenhouses and offices where they worked are in the hands of new owners.

Canopy has sold seven properties, including the iconic Smiths Falls, Ont., factory it bought from chocolate giant Hershey's, since April alone.

"It's been a volatile five years for sure," Klein acknowledged, saying up until nine months ago Canopy was still hoping to get more overall market growth out of the industry. 

Since then, Canopy realized "the concept that you needed to be everywhere and you needed to be everything for everyone was flawed," he said.

It sold its Tokyo Smoke retail business to the owners of the Edmonton Oilers hockey team, rethought how many facilities it needed and took a more realistic approach to the possibility of the U.S. legalizing cannabis on a national level — a development pot executives have long sold to investors as their ticket to profitability but has yet to happen.

"We decided the right size is the size we are today, so we don't have to rely on incremental growth" Klein said.

"Let's make sure that business can be profitable, and then once we build that really solid foundation, which we now have, then we can look at opportunities to grow."

This report by The Canadian Press was first published Oct. 13, 2023.

PAKISTAN
Reach the masses

Zubeida Mustafa

Published October 

RECENTLY, I attended the Urban Resource Centre’s Forum on the urban poor and land use management in Karachi. NED University’s Prof Noman Ahmed spoke on the subject. This was followed by observations from the audience comprising mainly young and intelligent university and college students fully engaged with public issues. The URC was set up in 1989 and is the brainchild of architect and town planner Arif Hasan.

The URC is not the only institution educating the people on issues that have a bearing on their lives. The Irtiqa Institute of Social Sciences, a think tank founded in 1993 by progressive academics, is doing the same. Of late, social activist Kaleem Durrani has revived it, attracting young and old alike to its fold.

Yet another group is the newly founded Concerned Citizens Alliance, which was set up in response to the economic and political crisis that has gripped the country since 2021. Its objective is to mobilise experts from various walks of life to discuss the country’s multifarious problems and suggest solutions they hope the rulers will adopt. Azhar Jameel, a co-founder, was a political activist but the Alliance has no political agenda.

There are a number of other similar groups working to educate people and create public awareness. Such bodies are rendering a useful service in a society where the free dissemination of information on sensitive and controversial issues is not encouraged. The establishment is on the defensive if it is criticised and its knee-jerk reaction is to clamp down on the free expression of opinion. The media has always been in chains in Pakistan even in the days when the country supposedly was democratic. As for the academia and the publishing industry, who hasn’t heard of teachers and writers meeting a sorry end because of their liberal views? The banning of books is still a phenomenon not unheard of in Pakistan.

Think tanks can only have a limited audience.

Political parties whose job it is to educate the people politically and tell them about their problems and how they can be resolved do not take this function seriously. They are devoid of statesmanship and lack an intelligent understanding of national issues. It is beyond them to study these issues and look for solutions. Being power-hungry, they seek to get into office by hook or by crook.

Hence issues such as the history of the Freedom Movement, the emergence of Bangladesh, the role of the army in Pakistan’s politics, the use of religion to promote political interests and our ties with India are hardly open to an objective and non-partisan discussion in academia. This gives an open field to the pulpit that has made matters worse by spreading obscurantist views in the garb of faith. Any criticism of the founder of the nation, the defence forces and faith-related matters makes one liable to punishment. In such an environment, the organisations mentioned enable a sane and sensible debate on otherwise ‘taboo’ subjects.

The problem is that these institutions can reach only a limited audience. Given Pakistan’s low rate of education and high level of poverty, such think tanks will have to reach out to the masses to make knowledge and information widely accessible. Hence events such as the URC Forum will have to become a regular exercise that go beyond converting the already converted. The need is to be inclusive and widen the reach of their activities by going to the masses who are handicapped by illiteracy and poverty. People may be open to intelligent discourse but lack the resources to come to their hosts. Their interest in such matters is evident from their participation in Facebook, TikTok, Instagram, etc.

Is it not possible to mobilise the youth who attend the URC Forum and organise and train them to form study circles in low-income localities? By holding interactive meetings with their counterparts in various areas, privileged youth will also gain knowledge of the other half. They would be paying back to society what they have gained over the years. In the process, many of the uneducated will be learning something.

The URC can go further, Following the dictum of Paulo Freire, the author of Pedagogy of the Oppressed, these study circles can provide the youth an opportunity to acquire literacy skills as well. Freire used such occasions to impart literacy to adults with whom he interacted. He observed that they were so keen to learn while discussing their problems that their progress was phenomenal. He described his pedagogical method as “dialogical”.

Such an exercise would benefit the youth from the URC too. Learning is a two-way process and both sides would benefit. While the underprivileged youth would gain access to information, URC educators would win the goodwill of the huge majority we call the masses.

www.zubeida-mustafa.com

Published in Dawn, October 20th, 2023

PAKISTAN

Waste not the crises

Zafar Mirza

Published October 20, 2023

LAST month, the World Bank and the Pakistan Institute of Development Economics convened a two-day national dialogue titled ‘Reforms for a Brighter Future: Time to Decide — A Conversation on Pakistan’s Development Priorities’.

It can be deciphered as: things are not right and reforms are badly needed; if appropriate reforms are undertaken now, they can lead to a better future, but if they are not implemented then the future is bleak; this should be decided now, before it is too late.

The World Bank’s Matthew Verghis made a simple, though not simplistic, keynote address. The message in a nutshell is threefold: Pakistan’s economic model is no more sustainable; still, economic and development progress is possible — provided we make fundamental shifts in our economic and development policies.

Why is our economic model no more sustainable? Because it has resulted in a huge, ever-growing macroeconomic imbalance. Simply put, our income is far less than our spending. To plug the deficit, we must regularly borrow loans. We are in a vicious cycle, where we borrow more to return earlier loans and their interest. Covid-19, the global slump, floods, political instability and rupee depreciation have also caused a deep dent in recent years, although our economic mismanagement goes far beyond these catastrophes.

The chronicity of this phenomenon has landed us in a situation where our debt and debt servicing have risen to 82.3 per cent of GDP in 2023. All this hits people very hard. High inflation and, once again, growing poverty are taking their toll.

Human development is sliding further. Our abysmal health and education indices are a stark testimony to an economic model which isn’t working. Our infant mortality rate (over 60 per 1,000 live births) and stunting (40pc of children under five years) are the highest in South Asia and our literacy rate among adults (above 15 years) is the lowest in South Asia, even lower than that of sub-Saharan Africa.

So why is economic and development progress still possible? There are examples of countries that have managed such crises and bounced back. They fastened their belts, put their house in order and turned around their economies.

Indonesia, India and Vietnam emerged from their respective crises, introduced and sustained deep economic reforms and followed positive trajectories. Incremental economic growth rates have resulted in improvements in living standards, and human development indicators have improved.

In 1965, China, Indonesia, Malaysia, South Korea and Pakistan were very close to each other in terms of GDP per capita. Today, South Korea’s per capita income is close to $35,000, Indonesia’s is more than $14,000, Malaysia’s is close to $14,000, China’s is over $11,000 while Pakistan’s is only $1,568.

Fundamental shifts are needed in our economic and development policies.

Sri Lanka was also marred by misgovernance, economic mismanagement and political instability. Ultimately, it defaulted by announcing a debt repayment moratorium in April 2022, amidst unsustainable debt and critically low reserves. The images of people rioting inside the presidential residence are still fresh.

Sri Lanka had no option but to initiate wholesale economic and governance reforms. Early indications are promising. Inflation peaked to an unprecedented 69.8pc during the crisis last year, more than double that of Pakistan, but, today, it has come down to single digits. Indeed, it’s too early to form an opinion about what trajectory Sri Lanka will take, but there is a great opportunity in the crisis if Sri Lanka does not waste it.

Every country has its own context and problems, but the fact remains that there are countries that have experienced economic crises but have successfully emerged from them by reshaping their economic and development policies. Our situation is dire but not an exception. We must develop the resolve to proactively address it rather than shutting our eyes and waiting for Allah before the worst hits us.

What fundamental shifts are required in our economic and development policies? While there is no single cookie-cutter solution, lessons from other countries are useful. The principles of good economic policies are well laid out. We need to, first and foremost, set our priorities right. Investing in people should be our first economic priority as this brings the highest rate of return.

Apart from being a moral argument, it is also good economics. Our youth bulge can be our greatest resource. Exploiting the globalised world and the huge elastic global demand for ideas, knowledge, technology, commodities, and human resource, we should reorganise internally to enhance our abysmally low exports. We need to address the structural drivers of fiscal deficits and must expand our revenue base and improve our expenditure quality.

We need to enhance our savings and stop channelling private savings into financing unproductive government consumption. We need to improve our business environment to encourage investments and increase public capital investments rather than providing huge, poorly targeted subsidies. This is a broad but by no means exhaustive list.

Last but not least, economic and political crises are two sides of the same coin. Nothing is possible without democratic political stability and a credible government. We have been at a loss on all these counts — for too long. We need broad-based national consensus among all stakeholders to effectively address our existential challenges.

Former PM Shahid Khaqan Abbasi has been calling for reimagining Pakistan through a grand national consensus as our problems have become so deep and complicated that no one political party or section of the establishment can resolve them. In the last three years, almost all important political parties have been in power but our downward spiral has continued.

Can our powerful stakeholders transcend their know-it-all approach and self-interest and reach out to each other to develop a national consensus on Pakistan’s future?

Economic experts say that if Pakistan leverages its young population, natural resources, and location within a vibrant region, it can achieve growth rates of 7-8pc per annum, reaching middle-income status by 2047. “This may be Pakistan’s moment in making policy shifts,” said Najy Benhassine, World Bank head in Pakistan, while making the opening speech at the national dialogue.

The writer is a former SAPM on health, professor of health systems at Shifa Tameer-i-Millat University, and WHO adviser on UHC.

zedefar@gmail.com

Not worth it?

Nazir A. Jogezai

Published October 20, 2023

The writer is an educationist.

THE appointment of caretaker Prime Minister Anwaar-ul-Haq Kakar from Balochistan kindled hope for some measure of equity for the largest, rich-in-natural-resources, but most cash-strapped province. It has also revived the debate around the creation of smaller provinces, a realisation rooted in the Baloch feeling abandoned, helpless and perpetually on the receiving end of injustice.

The stark reality of Balochistan’s marginalisation is visible in its sparse population, dismal literacy rate and an inadequate administrative infrastructure. As a result, this vast land is marginally deve­loped. However, its situation does not make it insignificant; such an interpretation reflects a subjective orientation in denial of established global parameters. In the modern era, the size of a country or its population do not determine its worth. A region’s value is defined by resources, human capital and productivity.

Singapore, a small country with 728 square kilometres of land and a population of 5.6 million, attained the status of a rich nation in 2011 and has since ranked among the world’s high-income economies. In 1957, South Korean income levels were comparable to newly independent Ghana and development economists believed that Ghana had brighter prospects. Today, South Korea is among the top-performing economies in the world. We consider population to be the primary criterion for wealth distribution, which is an impediment in the pursuit of prosperity. We are unable to provide basic amenities, education and skills in a country where a baby is born every seven seconds. There are 17,726 births and 4,351 deaths, along with 454 migrations per day, resulting in a net daily change of 12,920. Pakistan is also expected to surpass Indonesia as the most populated Muslim country in 2048.

Population-based resource distribution has stimulated population growth and raised vested interests in voter pool and new constituencies. Considering this, the voices of most of Balochistan’s political leadership are audible in the recent census. But they were silent on education which, despite the provincial constitutional mandate, is a federal issue. Also, the province possesses mineral reserves estimated to be worth $1 trillion, yet it is unable to contribute to the economic well-being of its populace.

Published in Dawn, October 20th, 2023