As Canadian cannabis companies struggle to deal with the expected demand for marijuana across the country, expanding their internal cultivation operations is the next move for these companies to take. However, the rush to expand and build cannabis production facilities means that companies are having to struggle with increased, and at times volatile, costs of aluminum and steel due to American tariffs.
Ongoing trade tensions between the United States and Canada, along with the mere threat of tariffs, have seen increase prices of aluminum and steel in Canada for many months already. With steel being a significant component in most custom-constructed marijuana facilities, it’s left some cannabis-growers having to absorb these additional costs with little recourse due to the huge expected demand in the coming months.
The U.S. ended up imposing 25 percent tariffs on specific Canadian steel products, along with 10 percent on aluminum back in May. In response, the Canadian government added its own set of tariffs on comparable products, and just recently in October, they announced a new surtax on steel products that will come into effect on October 25th.
Vasil Staykov, who serves as general manager for Richmond Cannabis Co., went on to say that the company has been a 10 percent rise in construction costs for their new 10,000-square-foot crowing facility in Ontario according to The Globe and Mail. “Everybody’s markups vary,” he said. “It’s the cost of doing business. There’s so much demand for [steel building products] and everyone’s on tight timelines. You don’t have the option to shop around.”
It’s really difficult avoiding these tariffs when you are dealing with long lead-time contracts of high dollar value in a hyper-competitive and fast-moving industry,” he added.
These unstable prices due to tariffs have also caused problems for builders as well as cannabis-companies. Haid Feltham, consultant and agent for Modus Structures, says that steel prices have gone up between 40 to 60 percent over the past 11 months. In the past, his firm could put a deposit down that guaranteed the price of steel, but today, its very hard to budget ahead with these uncertain costs.
“For a greenhouse to operate [in a northern climate such as Canada,] they have to augment their lighting and change their environment to meet the climate needs.” Feltham added that “With our facilities, you don’t have to worry about what’s happening outside,” but the increased cost of steel is making these options for expensive for buyers.
Cannabis-companies and their management teams have been warning of the coming shortage of recreational cannabis. With demand largely outstripping supply, cannabis-companies are struggling to expand their existing facilities to meet up with retail interest as every province across the country struggles with meeting demand. However, the massive shortage has caused growing pains in the industry even asides from the increased steel prices. Companies are also struggling to find skilled labor for their facilities, with many crops giving sub-optimum yields due to a lack of staffing.
As cannabis companies struggle to expand their ability to satiate the Canadian cannabis demand, they are going to be forced to absorb a slew of increased costs as the industry deals with the pains that come from such rapid expansion.