Last week Canada voted back in the Liberal Party with a sweeping majority government. Justin Trudeau is the new prime minister elect, and his platform included legalizing marijuana. For the marijuana industry, all eyes are now on Canada as the new frontier for marijuana reform. Let me take a few moments away from the phone that doesn’t stop ringing, to give my insight on what is likely to happen in the next few years.
First off, no one know for sure how this will unravel. Hindsight is perfect vision, and which was true for the federal election as well – the polls didn’t predict such a sweeping win for the Liberals even a few days before the votes were cast. My insights here are offered, based on simple reasoning and precedent.
Right now, the Marihuana for Medical Purposes Regulations (MMPR) enacted a regulatory system allowing for commercial cultivators of medical marijuana, taking the cultivation away from the thousands of home grow-ops. Former PM Stephen Harper wanted marijuana cultivation in more secure locations, away from neighbourhoods and adolescents. Harper’s view was that increasing the availability and access to medical marijuana to Canadians who needed it, would in turn promote recreational use among adolescents.
But Trudeau criticized Harper for not having evidence supporting this statement, and insisted that Harper’s drug reform simply wasn’t working. (I think it’s too early to know, but there it is.)
Trudeau has said openly that if elected he will legalize marijuana, and that he will get to work on that right away. We all have to ask, what does he mean by “legalize” marijuana? Many countries and communities have regulated marijuana and in different ways, but what does Trudeau really want to do here?
The simple answer is we don’t know. Truth be told, I’m not sure Trudeau knows either. His campaign was brim with promising ideas, but working these out through legislation and levels of government may shape his original notion over time. Perhaps not, but seeing as the only other country in the world to legalize marijuana recreationally on a national level is Uguguay, his campaign promise might be harder to achieve than originally thought.
I want to underline Trudeau’s reasons for legalizing marijuana, which will help us predict what the new system will look like.
Trudeau believes that the current system of criminalizing marijuana possession and selling isn’t working – that it isn’t keeping the product off the streets. Higher penalties haven’t deterred the black market from cultivating and selling it. The real danger of marijuana, of course, isn’t really the plant itself – it’s the organized and malevolent criminals that are benefiting from it. So Trudeau’s idea is to basically take marijuana out of the hands of drug dealers.
The only way he can do that is to make it unprofitable for drug dealers, and/or compete with drug dealers on access. I feel Trudeau’s system will need to address both. Otherwise, if for example cannabis cigarettes are easily purchased at certain retail stores but they cost twice what they cost on the street (drug dealers), it wouldn’t work. Another example is that if cannabis cigarettes were cheaper or the same price as the street price, but it was only sold at a few locations and they were very spread out, then access to street product would win. And if the product was decriminalized for possession, buying on the street wouldn’t be as risky.
So, if Trudeau wants to take product away from drug dealers, he will have to promote ready access and keep the prices comparable to street prices (at least for now). This means two things – modest taxes (not high taxes), and licensed/regulated retail stores for selling recreational marijuana.
(I want to talk about the medical marijuana side as well, but for now there’s still lots to cover on the recreational side.)
Storefront recreational marijuana – cannabis cigarettes, buds, hashish maybe – every few blocks in urbanized areas. The country could easily support 5,000 such retail stores – and the stores could sell paraphernalia like bongs. All those low-profile bong stores are up for some fierce competition, to say the least. If we follow Vancouver as an example of how many dispensaries can be supported by population (1 dispensary per 6,000 people roughly), nationwide this would make room for 6,500 small retail locations.
Keep in mind that I’m not talking about dispensaries. I foresee dispensaries still being permitted to sell medical marijuana, but not recreational marijuana. The 120+ medical marijuana dispensaries in Vancouver would continue to operate, assuming they make peace with the city’s bylaws on zoning (very few are eligible for licensing given their current locations). But the medical sales would most likely be clearly separated from the recreational sales. Let’s keep focused on the recreational sales for this discussion though.
Recreational sales is a heavy component of medical marijuana dispensary sales. Some dispensaries are more cautious, but most sell product with a moderate amount of proof that it’s for medical reasons. This means a lot of the medical dispensary sales will shift to the new retail stores. I can’t see the levels of government allowing something like a liquor store (but for marijuana) selling pot cigarettes as well as medical cannabis oil. It doesn’t make sense to me. One is for medical reasons, the other is for plain and simple getting high. The government does not endorse popping pills to get high – Bill C-51 was legislated to help reduce prescription drug abuse among teens lately.
So these recreational retail stores will of course need to have a solid inventory management system, as well as security procedures and preventative measures. The goal is to still keep product off the illegal market, so theft has to be prevented. I’m also thinking good retail practices and safe handling procedures for product, as well as a training program for staff. Regular product testing, shelf life identification and storage conditions carefully monitored. Like a fine cigar shop, but with beefier security.
Absolutely these retail locations will be regulated and licensed. Not only by local governments (who will be permitted to allow or modify their hours of business and locations), but the federal government will likely have conditional licensing based on proper inventory management and theft prevention measures in place. Likely they will be renewed annually, and inventory audits will be conducted ensuring compliance. I also imagine that should inventory be short as discovered in an audit, that the licence would be pulled or suspended. This means product behind the counter, so more sales staff than a traditional 7-Eleven.
I don’t believe they will license existing retail stores to sell recreational marijuana, with the exception perhaps of specialized cigar stores. These stores would have to have a unique training program and security / inventory measures in place, and which would be too cumbersome for say a convenience store to deploy.
Big Tobacco is already engaging Health Canada on cultivating product. So, large tobacco companies will most certainly be branding their own types of cannabis cigarettes and they will supply the retail outlets with these.
Let’s talk about recreational cultivation (i.e., growing recreational marijuana). First, let’s dispel what it’s not going to be. It isn’t going to be like what we saw in the MMAR, the previous regulations where people could designate someone else to grow their plants for them. There were a lot of MMAR growers, many of them growing quite a few plants. Harper’s government (as well as law enforcement agencies) felt these were difficult to keep an eye on, given how many there were, and they were often near / in residential communities which put local residents at risk. Organized crime certainly had its reach within the MMAR system (and they still do until the Allard injunction verdict is in).
This means that not just anyone will be allowed to cultivate. I would imagine that they will license such “recreational cultivators” federally, and they will have to satisfy security background checks and have a decent amount of preventative measures in place. I don’t believe they will ask for cameras in every room like they do now for MMPR licensed producers, but I do believe they will have a moderate amount of security required. And the owners or senior people in the cultivator company will have to pass security background checks (i.e., no organized crime or drug convictions).
I actually believe outdoor cultivation may be allowed. At minimum, I imagine the more simple woodframed plastic-wrapped greenhouses I see on Vancouver Island for growing tomatoes, as a viable option for cannabis cultivation (for recreational purposes). Possibly even direct sowing outdoors, similar to tobacco cultivation. This may, in turn, make indoor cultivation not cost-effective by comparison. Outdoor cultivation was previously not allowed under the MMPR for licensed producers of medical product, but that was based on a black market in existence. If the new system actually eliminates the black market for marijuana, there may not be any threat to product being stolen for resale. Nothing some barbed-wire and live guards couldn’t handle.
I imagine a cultivator could also own retail stores, and could sell their own brands of products in their own specialty store. Think Roger’s Chocolate. But I don’t imagine they will allow cultivation sites in residential or foot-traffic areas; they will want those in agricultural areas.
What would it take to open a recreational marijuana store? I imagine the same costs for opening up a jewellery store – with some additional costs for storage and inventory management. At this point, it’s too early to predict costs, but it isn’t going to be out of reach for the more sophisticated small business owner.
Now let’s speculate about medical marijuana.
The current system for cultivating and selling medical marijuana will change under Trudeau, but not greatly. Right now, the licensed producers have set up pharmaceutical-grade cultivation and manufacturing facilities. Under the MMPR, being a licensed producer means a heavy security component, rigorous quality procedures, and demonstrating proficiency with inventory controls. The facilities have to be rigorously cleaned, which means hard plastic walls/floors. A Quality Assurance Person (QAP) has to be present during certain activities such as complaints and packaging. At any given time, an audit has to show inventory within 1 gram of what the system says is logged. It’s a very complex and rigorous approval process, but keep in mind it’s intended to license only companies that are more pharmaceutical in behaviour.
There are 26 licensed producers right now, and around 100 in queue at the final review stage. There have been over 1500 applicants to date, most of which were denied a licence because their application materials were substandard.
If a company wants to make medical marijuana (i.e., not recreational), I believe the MMPR process will still be the path forward. It has been a long and challenging road for licensed producers to date, but I believe much of that has been the result of the point of sale, advertising restrictions, and the Harper government slowing down the process. Lately, however, the Office of Medical Cannabis has shown some fantastic improvements, and quite a few files are advancing through the queue at a faster rate.
I believe that the security requirement for cultivating medical marijuana will soften. Again, if there is no black market to speak of, there is no risk of diversion. (Perhaps a modest risk of diverting product across the Canadian border, but not domestically within Canada.) The quality requirements are likely going to be the same, as will most everything else that is in place right now.
However, the major change coming for licensed producers is the point of sale. I have a strong suspicion (and which is based on a few independent sources) that medical marijuana will be sold at medical dispensaries as well as pharmacies. I do believe dispensaries will be allowed to sell medical cannabis products, but pharmacies may win the business. So, licensed producers will no longer have to sell through the mail – and the retailers can do the selling. This will mean another markup in the price, but the medical cannabis products won’t be taxed, so it will probably be comparable to recreational product for price point.
I also imagine the various derivatives being allowed almost right away – not just oils, so this would include tinctures, creams, etc. Probably not edibles though, it’s too risky for children. Health Canada may even just issue another Class 56 Exemption to allow derivitave manufacturing for LP’s right away.
So the LP’s are going to handle the medical marijuana market, and the recreational cultivators the recreational side. I imagine it’s going to be possible that the cultivators could achieve both LP and recreational growing status (maybe a “cultivation licence” to supply to both LP’s and retail stores / packaging plants). In summary, I don’t see the MMPR system going out of date or being replaced. (The question about what will happen to medical marijuana dispensaries to me is unclear … I believe they have a future, but I don’t know what that future will look like.)
So the big questions we’re being asked right now are “What can I do to cultivate marijuana?” and “How do I open a dispensary?” I would like to write down my thoughts for both questions.
For the first question, there is only one legal route to becoming a marijuana cultivator right now, and that’s through the MMPR application process to become a licensed producer of medical marijuana. There is no process to apply to be a recreational cultivator. Now, what is happening is a lot of people are savvy here, and there is a good belief that anyone in queue to become a licensed producer will probably have an option of transitioning over to the recreational side, when Trudeau’s system is laid out. And, there are going to be so many applicants under the MMPR in the year ahead, that waiting 6 months to apply could be the difference between file#500 versus file# 5,000. Getting to the top of the pile could very well have an advantage in cultivating recreational marijuana in 2016-2017. Applying under the MMPR in order to transition out of it may not make sense to some, but in my opinion it’s the only available route right now.
I believe likely we will have a recreational cultivation licensing scheme in place for late 2016, perhaps early 2017. But not late 2015. So this means that if someone wants to cultivate marijuana, putting in an MMPR application today will likely get them in and out of security by the Summer of 2016, and I am hopeful that the new system will be introduced by that time.
The other question, “How do I open a dispensary?” is hard to answer. I don’t advise it, and I would make plans but don’t put them into action until you know what the government’s scheme entails. Dispensaries are still illegal, regardless if they’re medical or recreational. I imagine late 2016 / early 2017 is when we’ll see a scheme introduced for regulating and licensing recreational and medical dispensaries. But for now, just pay attention to the news.