Legal Weed Part II: The End of Prohibition
The cannabis industry in Canada is on the grow. If you’re in the cannabis business and are looking for advisory, you’re in the right place.
Tell us your story. We’d love to help.
As of today, recreational cannabis is legal in Canada. This marks the end of 95 years of federal cannabis prohibition. In our Part I of this series, we chronicled the history of prohibition from its arbitrary beginnings all the way to the advent of medical marijuana.
Here, we’ll explore the medical cannabis regulations and how they shaped the ‘grey-market’ dispensary space and the Licensed Producer (LP) framework. Check out our infographic for a visual journey through this story.
The emergence of the “grey space”
To understand where cannabis regulation is going now, it is important to look back to the past to provide much needed context to how the cannabis industry in Canada was shaped. It has been the efforts of the medical cannabis community that fought to destigmatize and decriminalize cannabis; so, it is their story that is important when understanding legalization of cannabis in Canada.
What follows doesn’t tell that whole story. Every medical cannabis patient has a different and nuanced story. Instead, this is a culmination of big shifts in regulatory and legal frameworks around medical cannabis leading to legalization.
The oft dubbed ‘grey area’ of dispensaries is not a legal grey area (they were undoubtedly illegal), but a cultural, social, and political grey area where opinion sways geographically. In Toronto and Ottawa, dispensaries have been raided far more frequently than those here in BC. Vancouver and Victoria have even granted cannabis business licenses under their municipal governments to regulate dispensaries. It is not often that breaking federal laws in plain sight is tolerated. Not everyone has played nice, and as with any opportunity to make money, there have been opportunistic bad actors.
However, the big story here isn’t a few shady dispensaries; it is the story of the pioneers of a new industry. Through the self-described act of civil disobedience, dispensaries have operated openly, albeit illegally, while fighting for access to cannabis.
Medical Marijuana
Under the Marihuana Medical Access Regulations (MMAR), Canada’s first iteration of medical cannabis legislation, patients could either grow at home, designate someone to grow for them, or purchase their weed from a Health Canada producer.
For the latter, there was only one choice: Prairie Plant Systems, now an LP (CanniMed Ltd.) under the current system Access to Cannabis for Medical Purposes Regulations (ACMPR) framework.
The MMAR led to three licenses issued by the government: Authorization to Possess (ATP), Designated-person Production Licence (DPPL), and the Personal-use Production Licence (PUPL).
The ATP gave authorization to possess dried buds for treatment of a strict set of medical conditions. DPPL and PUPL license holders could grow and store an amount of cannabis based on daily limits originally set in the application process, with DPPLs being able to do so for a maximum of two patients.
It was a fairly convoluted system. Proposed daily amounts were based on a practitioner having a conversation about existing cannabis use, with no real limit that is found in the legislation. It followed that ATP holders could be in possession of no more than a 30-day supply, which meant upwards of 300 grams, as daily amounts of ten grams were not uncommon.
This also meant that a DPPL holder growing for two patients authorized for 10 gram daily amounts, would be authorized to grow upwards of 100 plants (if grown indoors) based on online calculators.
One hundred licence holders in 2001 swelled to 37,000 by 2014. Much of the media reports cited hazards ranging from mould, fire, toxic chemicals, and risks of home invasions that forced the hand of the Government to revamp the MMAR.
Realistically, Health Canada had a more prescient point: the number of users was projected to increase to 400,000, and there was no way to execute the intended oversight of tens of thousands of cannabis growing sites. They weren’t far off: Health Canada’s most recent figures show just shy of 300,000 registered clients under the latest regulations.
An interesting piece of the data: while BC has a marginally higher population, Alberta accounts for almost ten times the amount of medical cannabis clients with over 100,000 to BC’s nearly 11,000 clients.
Revamping the regulations
In 2014, the MMAR was replaced with the Marihuana for Medical Purposes Regulations (MMPR), which didn’t go very smoothly.
The most controversial change was the discontinuation of personal and designated grower’s licenses, replaced by Licenced Producers (LPs) introduced to grow and supply all cannabis to patients through a mail-order system.
Also, the role of health practitioners changed. Instead of confirming a patient suffered from an approved medical condition to access cannabis, the new framework had no criteria for approved medical conditions. Doctors were to decide whether cannabis would be an appropriate treatment.
Health Canada v the medical cannabis community
To facilitate the switch, a Health Canada memo was issued for all DDPL and PUPL holders to dismantle their home gardens and destroy all cannabis plants and harvested bud. But fear not! Rather than destroy their medicinal crops, they were given a time period in which they could sell them to the newly designated Licensed Producers for processing.
Of course, growers under the MMAR framework were less than stoked about all of this, and two court cases resulted that put cannabis patients and the government at odds.
First, a class-action lawsuit was filed against Health Canada for breach of the Privacy Act in late 2013 regarding the letters sent to patients announcing the changes to the regulation. Over 40,000 letters were mailed to patients with windowed envelopes where the phrase “Marihuana Medical Access Program” was clearly visible, blurting out medical information for anyone to see.
The case has been plagued by appeals, and the most recent update states that the class-action has been ‘certified’ (allowed to proceed), but has been appealed (again) by the Government of Canada.
Second, in response to patients and caretakers losing their licences to grow, John Conroy led the counsel for Neil Allard and other plaintiffs for what is known as the ‘Allard Injunction’. It was argued that the new LP framework blocked ‘reasonable access’ for patients and was a Charter of Rights and Freedoms violation.
The injunction in early 2014 allowed those DDPL and PUPL holders to continue grow under the old MMAR regulations until a decision was made in the courts. The Supreme Court ruled that the new MMPR was a violation of the Charter in March 2016, and Health Canada was given six months to fix the MMPR.
Dispensaries
Court decisions have sided with the medical cannabis community that reasonable access is Charter-protected. It became evident that neither the PUPL and DPPL system, nor the LP framework with a cumbersome mail-order system, were effective at servicing the community.
Thus, began the strange and wonderful world of dispensaries. Storefronts, operating openly against federal law, popped up all over the country.
Source: Globe and Mail, via The City of Vancouver
Some cities enacted municipal by-laws and licensing frameworks in the name of public health and safety, but otherwise it has been a confounding ride for dispensary owners, patients, and law enforcement.
Dispensaries have been raided seemingly at random in Toronto, while in Victoria, law enforcement has tried to focus on businesses that “sell to youth, cases involving violence or the presence of weapons, and those where there is any indication of organized criminal activity,” and have allowed the majority to operate.
Anecdotally, it is a thinly veiled secret that many dispensaries operating in this grey-space have sourced their products from DPPL and PUPL growers under the medical framework. At least one local dispensary has commented on the record that this is the case.
Moving from MMPR to ACMPR
In response to the Allard ruling, medical cannabis regulations had to be revised again. The Access to Cannabis for Medical Purposes Regulations (ACMPR) came into effect in August 2016, and married the MMAR and MMPR so that LPs and home/designated growers would coexist.
Patients were left with three options, two of which were legal. Grow their own (or find a designated grower), order online from LPs, or visit a dispensary.
Licenses to grow at home under the ACMPR have seen frustrating backlogs, resulting in (you guessed it) more court cases, and designated growers, who have the same woes for licensing were hard to come by.
Patients often voice frustration about ordering from LPs: prices are too high, wait times too long, and the offerings are limited.
Suffice to say, dispensaries have been the easier option, and flourished in many communities.
Licensed Producers
At June 2014, there were 13 licensed producers operating under the MMAR. As of writing there are 129 LPs operating under the ACMPR according to Health Canada, and the number keeps growing (we would know, we’ve updated it four times now.)
The mad dash to get an ACMPR license has been underway since legalization talks began. Seventy percent of the licenses were granted after 2017, adding 83 LPs to the list.
Getting an ACMPR license is a daunting task. As of April 2017, less than 3% of the nearly 1700 applications were successful. Those companies lucky enough to wear the LP badge are poised to be the only suppliers of cannabis to the recreational market.
Over the last two years, mergers and acquisitions abound as the big players made their move on the green rush.
The news started hitting in late 2017. Constellation Brands (of Corona fame) buys a 10 percent stake in Canopy for $191 million. In January of this year, Aurora bought CanniMed for a whopping $852 million dollars, and BC-based Broken Coast Cannabis was picked up by Aphria for $185 million. In May 2018, Aurora swooped up MedReleaf for about $ 3.2 billion, in what’s been dubbed ‘the biggest drug deal in history.’
It’s been impossible to keep track of all the moves happening. Big money is consolidating on the cannabis space. Even Coca-Cola turned heads after it was reported they were in talks with Aurora to make CBD infused soft-drinks (giving Aurora’s share price a 23% bump on the news), but were later played off as exploratory talks.
Edibles won’t be legal for the time being, so don’t expect to find cannabis infused IPAs on the shelf anytime soon. But, beverage producers and food companies are salivating at the chance to jump in the market when the time comes.
Lofty stock valuations for cannabis companies has many wondering if the boom could bust. The market is pricing in a massive boom of recreational sales to come, leaving some wondering how these publicly traded LPs are posting wonky earnings without actual sales. It all comes down to how agricultural, or biological assets, are accounted for with public companies. Read our post Accounting for Cannabis for more info.
Final Thoughts
Many are left wondering: who will get to play in this new legal space?
Those who have pioneered the movement of access to cannabis are scrambling to go from ‘grey’ to ‘white’, and hopefully enjoy the fruits of their labour.
In our next piece, we’ll leave the past behind, and talk about what’s happening now.
What is happening to dispensaries who have been operating in the grey space? With only one legal weed shop open in BC, will the grey-market press on, or fear a crack-down? How will craft-growers carve their place in the market? How are governments performing as new weed dealers? A lot of details are evolving, hazy, or unanswered when it comes to regulation.
Keep an eye out for the next part of this series. Prohibition is over, and we’re watching to see how it all unfolds.
