As Canada becomes set to be the first G-7 country to legalize recreational cannabis when the Cannabis Act (Bill C-45) comes into force on October 17, 2018, attention is now turning to the business of cannabis. In its 2018 Cannabis Report, Deloitte anticipates that the total cannabis market in Canada (including medical, legal and illegal recreational products) will generate up to $7.17 billion in total sales in 2019. The legalization of cannabis brings with it not only significant policy impacts (an overview of the regulatory framework is set out in our blog, Spotlight on Cannabis – Part 1: Legislative Framework for the Regulation of Cannabis in Canada), but it also introduces a dynamic new market for a broad range of cannabis-inspired products for consumers. Until now, much of the discussion around cannabis legalization has been on public health and safety, however there are increasing calls for policy makers to consider the environmental impacts of cannabis cultivation on a commercial scale.
A Closer Look at the Environmental Impacts of Cannabis Cultivation
On a commercial scale, cannabis is grown in specially designed indoor facilities or in greenhouses. Environment and Climate Change Canada (ECCC) has indicated that they are not contemplating the implementation of cannabis industry-specific environmental regulations, meaning that cannabis facilities will be subject to applicable federal, provincial and municipal laws as they relate to environmental matters. The primary environmental issues arising from the production of cannabis on a commercial scale include contaminated sites management, water use, effluent and waste management, odours and air quality, energy use and greenhouse gas (GHG) emissions. Each of these issues is discussed in further detail below.
- Contaminated Sites Management: In a number of provinces and territories, producers are taking former industrial sites (such as former mill sites) and re-purposing them for cannabis cultivation. Where a producer is looking to acquire a former industrial facility and convert it into a cannabis facility, careful due diligence is required to assess the scope of any remediation requirements to address any historical contaminants on the property. Depending on the nature of historical activities on the property, remediation costs could be potentially significant. During the life of the facility, producers will need to implement robust environmental management systems in order to ensure compliance with regulatory requirements, particularly as they relate to incident response and reporting. At the end of the life of a cannabis facility, remediation of the site may be required, particularly where the operations used or produced hazardous substances. Where a site is being leased to a cannabis producer, the parties will want to carefully consider the scope of environmental monitoring and reporting obligations, as well as environmental indemnity and insurance provisions. In certain circumstances, an environmental baseline report may be advisable in order to manage potential environmental risk and allocate responsibility for remediation activities between the parties, particularly where there is pre-existing contamination on site.
- Water Use: The production of cannabis requires large volumes of water, particularly where cannabis is cultivated outdoors when water use may increase as a result of weather conditions. Industry estimates indicate that a cannabis plant needs approximately 22 litres of water a day; in comparison, a wine-producing grape plant uses approximately 12 litres a day. Water used in cannabis production must meet strict quality standards in order to satisfy the demands of rapid maturation and high yields. As a result, cannabis facilities may be faced with consistency issues as they relate to the quality of irrigation water, which will depend on the nature and location of their water sources. Where an aquifer is depleted, fungus and bacteria can more easily enter a facility through contaminated water. This may be problematic because foliage and root fungal diseases that affect cannabis plants tend to thrive in the warm and humid conditions of grow facilities. There are different ways in which producers can improve the quality of water, including carbon filtering, reverse osmosis and ultraviolet sterilization. Another issue the producers must keep in mind is water conservation. In California, studies have suggested that irrigation for outdoor grow operations are having significant impacts on local watersheds as a result of the diversion of water for cannabis production. Where water permits are required to divert water from either surface or groundwater sources, regulators will be looking closely at impacts to local watersheds (particularly in areas prone to drought) and considering potential environmental flow needs in the region.
- Effluent Management: Depending on production methods, cannabis grow operations may generate effluent containing growth nutrients and pesticides, which could have potentially adverse environmental impacts on local ecosystems. For example, the use of reverse osmosis to purify water can result in a high concentration of brine, which poses difficulties for removal at water treatment plants. Also, the use of cleaning agents can result in high levels of contaminants in wastewater discharges. As a result, producers may need environmental approvals to discharge effluent or to monitor operations to ensure compliance with applicable effluent discharge requirements or restrictions. Producers with facilities near fish bearing habitat will also need to monitor the potential impacts of their operations on fish and fish habitat to ensure compliance with Fisheries Act requirements, in particular sections 35 and 36 of the Fisheries Act, which prohibit activities that result in serious harm to fish and the deposit of deleterious substances into fish bearing waters, respectively.
- Solid and Organic Waste Management: From agricultural inputs, equipment and harvesting waste to cannabis product packaging, cannabis production generates a significant waste stream. It has been reported that in Washington state (where the legal marijuana industry has been operating since 2014), the industry had generated 1.7 million pounds of plant waste as of 2017, a significant amount of which is being disposed in landfills rather than being composted. While composting is encouraged for handling plant waste, the composting process can take months and requires a significant amount of space. As a result of these limitations, producers have so far relied on mixing plant waste with other waste in order to dispose of it in landfills.
In order to comply with the applicable waste management scheme in their province or territory, producers will need to ensure that they have appropriate environmental management systems and compliance mechanisms in place. The types of processing waste that must be assessed for proper disposal include:
- waste from solid plant material, such as stalks, roots, or soil;
- solvents that were used in processing (e.g. for the purpose of producing a concentrate);
- any laboratory wastes that were used during processing for quality assurance testing;
- any plant waste or extract that is not being used because it does not meet quality standards or has been contaminated in some way; or
- any hazardous waste.
Health Canada requires that plant waste be rendered inert and unusable, with methods including mixing it with other materials for landfill disposal, incinerating it or mixing it with other organic materials for composting. With industry forecasts suggesting that over 1,200 metric tonnes of cannabis will be produced in Canada by 2020, resulting in more than 6,000 tonnes of waste, producers are being encouraged to seek innovative solutions to reduce their waste streams and divert as much waste from landfills as possible.
- Odour and Air Quality: Cannabis cultivation can impact air quality through plant growth and extraction processes. In particular, the growth of cannabis plants emit terpenes, which are a type of volatile organic compound (VOC) known for their strong odour. In facilities where cannabis-infused products are produced, the evaporation of solvents and other production processes can also result in VOC emissions. The installation of filtering systems and control technologies can reduce the amount of VOC and odorous emissions released from the cultivation process. In Colorado state, the Denver Department of Public Health & Environment has compiled a list of best management practices for reducing odours and VOC emissions. Given that VOCs can potentially impact air quality, producers will need to consider the applicability of local air quality requirements, which may entail registration, permitting or reporting requirements. VOCs can also cause off-site nuisances to neighbouring properties, the effective management of which will require a well thought-out communications and community relations strategy.
- Energy Use and GHG: The cultivation of cannabis is an energy intensive activity, particularly for the indoor production of cannabis which requires high-intensity lighting, air conditioners, and dehumidifiers to regulate humidity and temperature. The Northwest Power and Conservation Council has calculated that it takes approximately 5,000 kWh to produce (indoors) one kilogram of cannabis product – put into context, this is the same amount of energy an average Canadian household would use in 4 months. The greenhouse cultivation of cannabis is much less energy intensive, resulting in a smaller energy footprint. Whether the crop is grown indoors or outdoors, producers may benefit from measuring the carbon footprint of their operations to find opportunities for reducing energy use and associated GHG emissions. System designs that take into account targeted lighting levels for optimal growth and the installation of efficient climate systems (which include heating, ventilation, air conditioning and dehumidification components) will be critical to the development of more sustainable cultivation processes. Another aspect that is worth exploring is whether any government-sponsored energy efficiency programs or incentives have been made available for industrial facilities to encourage the transition to less energy intensive modes of operation.
As ECCC has indicated, cannabis production processes will be subject to existing environmental laws. While some jurisdictions such as California have established a licensing regime specifically for commercial marijuana production and processing facilities, ECCC has said that it is not planning any industry-specific regulations for cannabis facilities. That said, producers should monitor the development of any industry-specific environmental requirements that may be imposed by provincial and municipal governments. As governments grapple with the regulatory implications of growing cannabis on a commercial scale, regulators may look for guidance in environmental regulations that have already been established for greenhouse crops such as green peppers, tomatoes, and forestry seedlings. In addition, the introduction of certification and eco-labeling programs may help not only to create an industry standard that consumers can rely upon, but also to incentivize environmental best practices.