Experts: legalization of cannabis a groundswell of opportunity for security providers
"This is a huge business opportunity," says David Hyde, when asked how the upcoming legalization of recreational cannabis under The Cannabis Act will impact the security business.
Hyde, owner and principal consultant at David Hyde and Associates, a risk management and security services consultancy based in Toronto, is not alone in this belief. Even prior to legalization, companies and consultants have seen opportunities to expand their business under the ACMPR, or the Access to Cannabis for Medical Purposes Regulation.
Toronto-based INKAS Security Services, an armoured messenger and courier services company, for example, recently announced a preferred vendor relationship with Canopy Growth Corporation whereby INKAS will provide secure transportation services for medical cannabis across all Canopy Growth locations and subsidiaries. Canopy, based in Smiths Falls, Ont., operates brands including Tweed, Spectrum Cannabis and Bedrocan Canada.
INKAS is also planning to expand its services with the pending legalization of recreational cannabis, says the company’s CEO Victor Goodman.
The Cannabis Act is expected to take effect by mid-summer, and will include new security provisions and regulations for licensed producers (LPs) and retail stores to follow.
So what should security directors, consultants and other security service providers be aware of when trying to enter this new market?
New market, new challenges
Hyde’s advice to those looking to enter the industry is to be well-prepared. Before legalization, he says that security service providers have to understand the federal and provincial laws, and how those laws will change over time.
The industry is a “very, very fast- paced and evolving industry,” Hyde says, “so what makes sense in one month, may change a little the next month or the month after that.”
Jeff Hannah, owner and principal consultant, JH & Associates, agrees, saying that service providers “should be in research mode.”
In fact, Health Canada recently announced two changes to the physical security requirements for cannabis facilities under the ACMPR.
LPs are no longer required to maintain a high-security vault for the storage of cannabis products; instead, they are only required to store cannabis within a secure area of their facility.
Additionally, LPs are no longer required to maintain 24/7 video surveillance inside the rooms where cannabis is being cultivated, propagated or harvested. However, all access points to these rooms must be under 24/7 surveillance and recording.
Since then, “the way in which the cannabis industry is moving forward in terms of security is in continuous flux and development,” says Thomas Gerstenecker, CEO and founder, 3Sixty Secure Corp., based in Ottawa.
As a rather “unconventional” industry, Hyde says, “it doesn’t have business maturity, to a certain extent.”
Consequently, “you’re not going to deal with the kinds of business structures that you’re used to, so you need to learn the idiosyncrasies and … the nature of the industry — how it works, how it functions, what the criticalities are [and] what the industry norms are.”
Currently, says Hannah, the focus is on the licensed producers.
As such, with the Cannabis Act, there will be a need for additional production, distribution, retail and secure transportation.
He suggests that those hoping to capitalize on this new market look at companies who have been awarded request for proposals (RFPs) from provinces regarding retail cannabis security.
Additionally, “you really need to understand where that change [the Cannabis Act] is going and how that’s going to reshape the industry, and how the industry is going to be expanding and evolving under new laws,” Hyde says.
Expanding growth opportunities
Despite the difficulties of entering a new, somewhat “unconventional” industry, there is plenty of evidence to indicate the cannabis market will provide opportunities for growth.
Gerstenecker says 3Sixty Secure’s growth has been “significant, to say the least,” as a result of the legalization of medical cannabis.
“Within a six-month span, we have grown from just under 20 staff to more than 100 Canada-wide, and we project that we will exceed 200 by the fall of this year,” he elaborates.
Gerstenecker’s background includes a senior security position at the United Nations (for which he received Canadian Security magazine’s Security Director of the Year award in 2011) and, more recently, a security consulting role for the Women’s World Cup when it was held in Canada in 2015. Today, he says 80 per cent of his overall business focuses on cannabis, and believes it will be 90 per cent within a few months.
However, this does not mean 3Sixty Secure has stopped providing different aspects of security. Within the cannabis-specific area, he says, there is still a site security assessment component, a security guarding component and secure transport.
Likewise, Hyde has seen massive growth.
“Five years ago, I was operating a three-person security consultancy,” he says. Now he has 13 employees, and 90 per cent of his work focuses on the cannabis industry.
In addition, Goodman says the legalization of recreational cannabis presents another growth opportunity for INKAS — not just for their core services in transportation, but also for their truck manufacturing business and in-house technology development firm. Currently, INKAS provides secure transportation of live and dried cannabis between grower facilities and processing centres in B.C., P.E.I., Ontario and Quebec.
Once the Cannabis Act is in effect, the company “will see secure transportation of live and packaged medical and recreational marijuana between processing facilities and growers, but also required between legal producers to government controlled distribution centres right across Canada — so all provinces,” says Goodman.
Technology-wise, there will be a “need for enhanced traceability, track and traceability measures put in place to ensure that there is transparent shipping and distribution as volumes increase and increase further over time,” he explains.
Finally, their truck manufacturing business is expanding because of the requirements specific to transporting cannabis, particularly the ambient temperatures that keep the cannabis in good shape for long transportation runs.
“This has opened up a real niche opportunity for INKAS to manufacture these customized vehicles and build them from the ground up, and make sure they’re compliant with the law and the legal producers themselves,” Goodman explains.
Retail = revenue
For security service providers looking to enter the market, Hyde says he believes there are plenty of new opportunities.
Today, there are 90 cultivation sites that are federally regulated, he says, and this will grow to 150 by mid-summer. Each of these sites will need security systems and guards.
Additionally, “once recreational use is legalized, the role of security service providers (i.e., consulting, monitoring, guarding and transporting) will be expanded from within licensed facilities to applying these services to the retail market. This means major security service needs within the country,” says Gerstenecker.
Retail stores will need cameras and intrusion alarms at the very least, Hyde adds.
Gerstenecker says that the stores will “need a level of security, from the design, to monitoring, and in some cases perhaps even a level of static security [guarding].”
With regards to transportation, “the secure transport footprint will see significant growth in this space as it pertains to bulk shipment, and go-to- market shipments, which is in addition to the already high demands within licensed facilities,” he says.
Ultimately, “while there are trusted security providers well entrenched within the cannabis sector…this space has room for more — although newcomers into this space had best do their homework on knowing the market
and associated regulations before entering.”
Part of doing your homework includes being aware of regulatory gaps that impact security, particularly transportation security.
“While we continue to see the evolution of robust and de ned applications of physical security directives and measures for licensed cannabis facilities,” explains Gerstenecker, “the area within the transport/shipment of cannabis, whether it be genetics or dried product, remains less than clear.”
In fact, under the ACMPR, there are no regulations regarding the transportation of medical cannabis.
As a result, the industry, particularly providers of secure transportation services, are setting their own security standards.
“We work closely with the licensed producers and Health Canada to ensure cannabis is secured to the extent possible during transportation,” explains Gerstenecker.
Likewise, INKAS has been “working very closely with legal producers to create standard operating procedures that have never been in place in the market before,” says Goodman.
The company is treating cannabis as “another valuable in transit,” and has “customized built armoured vehicles with temperature-controlled trucks for the transportation of live and dried cannabis.”
However, Goodman points out that it is unclear whether the LPs should be “providing transportation for these products and taking on the risk of the transportation of medical and recreational marijuana.”
He believes if LPs transport cannabis themselves, “this will leave companies taking unnecessary transport risks and risks in general.”
There are also some concerns about the probability of stolen cannabis and proliferation into the black market.
Gerstenecker says one of the most common questions his company is asked by LPs is, “Why do we need to have secure transport given they don’t use it for alcohol?”
“If you transport 1500kgs of dried cannabis or alcohol, the difference is about $12,000,000,” he says in response. The weight to value ratio is drastically different when comparing alcohol to cannabis.
Additionally, Gerstenecker believes market-ready cannabis can easily be proliferated into the black market.
“A vanload of cannabis can easily be moved because it’s not that heavy… and there’s no distinguishable markings on it,” he explains. “So once it’s out of the packaging, it’s like any other dried cannabis product, so it would be untraceable and unrecognizable from any type of branding.”
“The impact of Canada’s first cannabis robbery whilst in transit will have significant consequences both politically, and [in] other areas such as stakeholder consequences,” he says. “It’s not a question of if, but when.”
However, Hannah believes that, once the cannabis industry has matured, armoured cars and guards won’t be required.
“I think people believe that… cannabis is going to be rampant, that it’s going to fuel a black market…and I really don’t think that’s going to be the case,” he says. “I think that when the market for legal recreational cannabis stabilizes, it’s going to end up looking very similar to alcohol.”
Regulations regarding transportation are expected to be included in the Cannabis Act, says Hyde, but the details of those rules are not yet known.
“We are in new territory, and will be over the next couple of years until the ‘green-rush’ settles,” adds Gerstenecker. “Until then, we will continue to push for baseline standards when it comes to the secure transport of cannabis.”
To capitalize on the cannabis market, not only is it important to be aware of regulatory gaps, but also of the strict physical security regulations under the ACMPR.
The ACMPR focuses on barriers, doors, gates, ceilings and other aspects of the physical security of cannabis facilities. It is also focused on technological security and systems, including cameras, access control, intrusion, and more, explains Hyde.
“But it’s not at all focused on procedural security, on security protocols … emergency response protocols, business continuity, IT and cybersecurity,” he says.
Hyde does not believe the regulations should cover every aspect of security or be a “cure all.” However, his concern arises from the fact that there are strict physical security regulations, “but the rest is left at the discretion of the business…. People are so focused on those specialized and fairly intricate, detailed requirements that … they’re not really focused on a much wider range of more traditional risk management and business protocols,” he elaborates.
These traditional risk management protocols are “square pegs to go into round holes right now,” says Hyde, “because companies are so slavishly focused on adhering to these difficult and detailed and challenging regulations.”
Hannah agrees that a more holistic approach is necessary. However, “when you don’t have the evidence…you need to analyze and come up with that more holistic approach, there’s a tendency to need to lean on regulation.”
“We need to be able to pivot and move towards these more traditional business disciplines,” Hyde adds.
This pivot has begun, he says, particularly as more traditional security providers enter the industry.
As such, businesses may have an advantage when entering the new market: their experience with traditional risk management.
“I don’t think a regulation is what we need,” Hannah concludes. “Security has some core methodologies in terms of analyzing risk and coming up with counter-measures that are appropriate, and we’re going to apply those methodologies here, and I think eventually we’re going to end up with a great industry.”
This article originally appeared in the March/April 2018 issue of Canadian Security.