June 23, 2022 Pixsoul Developer

Farmgate: Innovation in Canada’s Cannabis Industry

As the cannabis industry continues to evolve, with new product suites, consolidation of companies, and innovation in the production cycle, another innovation in sales is taking the spotlight, dubbed “farmgate.”

Similar to the “farm-to-table” models already proven in other industries – wine is a key example we’ll highlight here – farmgate allows license holders in certain provinces to sell their products on site and directly to customers, as opposed to the standard wholesale-to-retail approach. This approach offers a number of potential benefits to Canadian producers, such as:

  • Standing out from the crowd: The farmgate initiative comes at a time when cannabis companies are forging creative ways to differentiate themselves from competitors, such as craft products. With the restrictive advertising and promotions regulations, farmgate could give companies extra fuel in their efforts to diversify and differentiate their products and brands.
  • Value creation through unique customer experiences: Amid consolidations, mergers, and acquisitions of cannabis brands, farmgate can provide a spark to help smaller producers create unique customer experiences and drive brand loyalty, and thus create value. As within the wine industry, the farm-to-table experience – fresh, direct product coupled with facility or property tours and even educational classes – can drive new opportunity.

As would be expected of any developing program, the farmgate model does come with its own challenges, some of which include:

  • Regulatory complexity, and variation across provinces: Licensed producers must seek permits at a provincial level before they can proceed with farmgate cannabis retail. There is variation in the regulatory framework for each province – not to mention zoning requirements and bylaws – which is creating challenges in the rollout of farmgate retail programs and expansion into new markets. To date the rollout has been slow: Some provinces, such as Alberta and Quebec, have yet to establish a farmgate retail program, while others, such as Ontario, have begun the rollout but seen limited uptake to date, with some citing cost barriers for the set-up of retail locations.
  • Standard challenges for agricultural producers: Like in the winery and vineyard model, producers may need to plan to accommodate remote farm locations, accessibility challenges (roads and other infrastructure), and the costs of setting up a retail site.

As the farmgate concept within the industry is considered in its infancy, there are limited best practices and lessons learned to be shared. The best guidance may be found in comparable industries, like the wine industry farm-to-table models, or U.S. non-cannabis farm-to-table/direct-to-consumer retail models.

As provinces continue to launch their farmgate programs, it will be interesting to watch and learn how successful this approach will be: how consumers will interact with the farm-to-table concept, and how it may contribute to the continued growth of the sector, and further changes such as mergers, acquisition, and consolidation in the industry.

For more information please reach out to our Cannabis Team at davidson@davidson-co.com