Health Canada rules for micro-cultivation of recreational cannabis have kept most of the pot sold in B.C. — and the expert growers who made B.C. bud a global brand — locked up in the grey market, industry leaders say.

Licensing just 15 per cent of B.C.’s 6,000 grey market craft cannabis growers and raising production caps could legitimize nearly $3 billion in cannabis sales in two years, according to an analysis by the cannabis business accelerator Grow Tech Labs .

The cost of entering the regulated market, combined with tight limits on capacity, conspire to create a business model that isn’t viable for growers currently working in the unregulated market, said CEO Barinder Rasode, a former Surrey city councillor.

“The process is so challenging that would-be growers are forced to hire consultants to get through the process, plus you can’t apply for a cultivation licence until you have an acceptable facility already fully built,” she said.

Most people aren’t in a position to spend potentially millions of dollars before they know they have a licence, she said.

A micro-cultivation licence limits the size of the production facility to 200 square metres (2,100 square feet) while micro-processors are allowed to handle no more than 600 kilograms of dried cannabis per year, under Health Canada regulations.

At that size, small-scale growers and processors would employ about two full-time equivalent employees and several part-timers, the report says.

Doubling those production caps could help create thousands of jobs and generate about $700 million in direct tax revenue and income taxes from 900 legitimized growers and 450 processors in the Grow Tech scenario, the analysis concludes.

“That’s hundreds of small businesses created practically overnight,”said Rasode.

About 12,000 growers in Western Canada are designated by Health Canada to supply medical cannabis dispensaries along with an unknown number of expert growers supplying the grey market.

Health Canada has received 52 applications for a micro-cultivation licence from B.C. as of May 31, according to Health Canada.

Only one micro-cultivation site has been licensed to date in B.C., said Rasode.

“We could be creating tens of thousands of jobs, many of them in rural B.C., and I think those are numbers the government can’t ignore,” she said. “It makes economic and public health sense to get these people into the regulated market.”

Barriers to entry have left some of the world’s best cannabis growers trapped in the unregulated market, said David Robinson, a director of the Craft Cannabis Association of B.C.

“B.C. played a major role in popularizing high-end cannabis throughout the world,” he said. “Licensed producers grow about 15 per cent of the cannabis consumed in Canada, and that means that grey and black market producers own the actual market.”

“Most of product that (licensed producers) are selling isn’t something an educated consumer would buy,” said Robinson, author of The Grower’s Handbook .

The regulatory regime governing legal recreational cannabis tends to favour large corporations over small-scale growers, he said.

“They created the micro licence we asked for with the intention of letting the little guys in, which is fine if you have $2 million,” he said.

Companies like Pasha Brands have sprung up to help quality prohibition-era brands find a way into the mainstream market with processing, lab services and a pipeline to licensed producers with access to the legal marketplace.

Grow Tech is organizing a co-op so small producers in B.C. can pool their resources and bring more product to market with economies of scale.

“I think the government thought the corporations could walk in and take over this business,” he said. “But (grey market) high-grade craft cannabis is a cornerstone of the economy in B.C., especially where I live in the Kootenays.”

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