New law in Canada: Legalisation or prohibition 2.0?

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The world is watching with anticipation as Canada prepares to become the first G20 nation to “legalise” cannabis at the federal level. The current liberal government used the legalisation of cannabis as a key part of their election platform in 2015.

However, since their rise to power, little has been done to fulfil said promise or properly deal with the existing problems within Canada’s medical cannabis trade.

How can you expect to get a second program correct when you can’t even get the first one right? Will the people who have pioneered this movement over several decades via civil disobedience be bullied out of the trade by large venture capital corporations? Will an operational “recreational” market ever be something that sees the light of day?

Let’s find out.

HOW DID THIS ALL START?

In July of 1996, a 42-year old epileptic man named Terry Parker was charged with cultivation and possession of cannabis in Toronto. Mr Parker was found not guilty on both counts in July of 1997 because of his validated medical need to use cannabis as a form of seizure control.

The case was further challenged by the government, but the decision was later upheld by the Ontario Court of Appeal in December of 2000.

As opposed to attempting a final appeal to the supreme court of Canada, the government conceded to their defeats in court and enacted legislation that would make medical cannabis accessible to all Canadians. This was done via the introduction of the Medical Marijuana Access Regulations (MMAR) in July of 2001. These regulations allowed:

  • An authorised person to produce their own cannabis
  • An authorised person to designate someone to produce cannabis for them
  • An authorised person to purchase cannabis from a single government contracted commercial producer for $5 per gram or 30 seeds for $20

The MMAR was brought back to court under various constitutional challenges that either alleged the program was overly complicated for patients to register under or that the legal access channels available did not meet the needs of patients.

Regardless, registrations increased from fewer than 500 patients in 2002 to over 26,000 in 2012. Eventually, the government claimed that the rising cost of providing cannabis for patients, and criminal diversion from abuse of licenses, required them to make significant changes to the program.

THE GREEN RUSH STARTS

In December of 2012, the government sought to begin the process of removing the rights of patients to produce their own cannabis or designate someone to produce cannabis for them by announcing the introduction of the Marihuana for Medical Purposes Regulations (MMPR).

On April 1st, 2014 the MMPR came into full effect and left the needs of patients to private venture capital entities. As a result, the price of cannabis rose an average of 71% and widespread shortages occurred due to the legal market’s failure to meet the supply needs of patients.

This decision faced an immense amount of backlash from those who relied on personal or designated production; eventually sparking yet another constitutional challenge (R v Allard). In February of 2016, it was ruled that the MMPR did infringe on the right of patient access.

The government conceded and was given six months to re-introduce the ability for patients to produce their own cannabis or designate someone to produce cannabis for them. This was done via the introduction of the Access to Cannabis for Medical Purposes Regulations (ACMPR) in August of 2016.

THE WILD WEST OF CANNABIS

Throughout the summer of 2016, there was a significant increase in the number of illegal storefronts selling illicit cannabis products in numerous Canadian cities (Vancouver, Toronto and Ottawa). The tolerance of illegal storefronts has varied from municipality to municipality. However, despite regular raids led by varying police forces, Canada’s “grey market” has continued to expand alongside more than 26 legally licensed producers.

Licensed producers have invested millions of dollars into their operations, but have been restricted in their ability to only sell cannabis via the mail to registered patients. Whereas the grey market has an immense competitive advantage because of not being required to have their products lab tested, remit taxes, maintain proper patient records or adhere to any regulatory standards whatsoever. Illegal storefronts receive their supply from growers that sell “overstock” from a location in possession of a personal or designated production license under the ACMPR.

Despite court victories, the abuse of production licenses to supply illegal storefronts has brought conflict with the majority of prescribing doctors. Some clinics have completely shied away from discussing personal or designated production licenses whatsoever.

Other clinics have opted to charge yearly fees that have averaged around $400 for production licenses. A growing concern amongst patients who have been denied their right to their production license is that if clinics are accepting kickbacks from a portion of the sales they direct to licensed producers; it would be a conflict of interest with not authorising production licenses. Yet another federal court challenge is currently in the works to investigate just that.

NOW THE GOVERNMENT ARE ON IT

Prime Minister Justin Trudeau’s liberal government announced the formation of a “federal cannabis task force” in June of 2016. This task force was comprised of scientific and public policy experts assigned with investigating the issues relating to legalising recreational cannabis. While the task force conducted their research, the cat and mouse game between illegal storefronts setting up and police forces shutting them down continued.

Even though the government has given the appearance of making good on their promise; they have stood by refusing to decriminalise cannabis in the interim. This decision has resulted in more than 56,000 new cannabis-related arrests occurring since the liberal government took power and many liberal supporters defecting.

The federal cannabis task force’s report was released in December of 2016 much to the disappointment of those who were awaiting its announcement. The suggestions included:

  • Set the national minimum age of consuming cannabis to 18 years old
  • Limiting the maximum personal possession of recreational cannabis to 30 grams
  • Determining equivalent possession and sales limits for non-dried forms of cannabis
  • Designing a tax scheme based on THC potency to discourage the purchase of high-potency cannabis concentrates
  • Limiting the scale of personal cultivation to a maximum of four plants per residence with a maximum height of 100cm per plant
  • Requiring plain packages that would only allow for the company name, strain name, price, potency and any other applicable warnings

SO WHAT’S NEXT?

Four months later, just prior to the unofficial 4/20 holiday of 2017, the federal government tabled Bill C-45 (The Cannabis Act). Recreational sales are not expected to begin until the summer of 2018. It was also declared that the ACMPR should remain as is and only be further assessed in five years time.

Much to the chagrin of onlookers, the new “recreational” bill did follow the recommendations of the federal cannabis task force. While no one has been advocating for a lower age of consumption; consumers are frustrated by the proposal of arbitrary production and possession limits.

Canadians are quickly finding out that their vote for legalisation has gone to create a restrictive new regime where the interests of large corporations are favoured above consumers.

Some flexibility has been given to Canadian Provinces in determining their own regulations for retail outlets. However, the majority of control stands to remain with the federal government in overseeing who is awarded commercial production licenses.

More than 1200 commercial production applications have been submitted and to date, only 43 have been approved. Sadly, the restrictions surrounding legal production not being efficient or straightforward are further empowering Canada’s illicit cannabis market.

ROUGH TIME AHEAD

Grey market producers continue to feel that the challenge of regulation still outweighs the risk of getting caught; even though Bill C-45 seeks to increase the punishment for illegal cannabis production with up to 14 years imprisonment. Regardless, the in-fighting between legal and illicit cannabis companies has become too common. The situation stands to only get worse, for everyone, if there is not a significant change in the way all members of the trade work together to challenge onerous government controls.

The university of Ottawa has estimated that 2.3 million Canadians use cannabis on a regular basis. Health Canada federal reporting data shows that, at the end of 2016, there was a combined total of 18 million grams of cannabis stored in the vaults of legally licensed producers.

Assuming that even half of the estimated regular cannabis consumers were to purchase half of their maximum possession limit when recreational cannabis becomes legal – the legal supply would not meet market demands for more than a month.

The risks associated with not having a stocked legal supply chain are just as much of a problem as possession limits that create purchase barriers for consumers. For this reason, the success of the trade will be determined by the reconciliation of differences between the legal and illicit cannabis markets. Competition is good for everyone and it should be embraced.

AN EXAMPLE OF THE REGULAR JOE

Joe consumes approximately 90 grams of cannabis per month recreationally. Joe grows 4 cannabis plants under 100cm to offset his expense. He harvests around 20 grams of cannabis per month, but still spends an additional $700 each month on the cannabis he consumes. This results in an annual cost of $8400 for the cannabis he purchases and another $1600 for the expenses he incurs producing his own cannabis.

Next year, Joe decides to pay a clinic $400 to authorise his medical need for cannabis by claiming to have persistent “back pain”. He receives a license for 5 grams per day which authorises him to grow between 6 and 25 plants – with no height restriction.

Medical cannabis is tax deductible, therefore, if Joe only purchases his cannabis from a licensed producer he still stands to save $3100 as compared to his previous year’s purchases.

If Joe decides to only consume the cannabis he produces, he stands to save more than $28,000 over a 5 year period.

THE FUTURE

As consumers discover how restrictive the proposed recreational cannabis regulations are, it is expected that the number of medical patients will rise significantly. Not because of an increase in the amount of valid medical users, but because of the lessened restrictions and financial burden placed on medical users of cannabis. This likelihood can be witnessed in the nearly doubled amount of patient registrations that occurred throughout Canada in 2016.

If the status quo continues, large corporate entities will still make modest profits from new Canadian consumers and the soon to be expected waves of “cannabis tourists”. However, if the current proposed regulations are not loosened; the majority of the Canadian cannabis market will continue to be driven underground. Somehow, we all have to figure out a way to get along.

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