CannaBiz 2017

2017 | EMERGING BUSINESS

INDUSTRY READIES FOR CANADIAN CANNABIS LEGALIZATION MARKETING RULES CAUSE CONTROVERSY PROVINCIAL FRAMEWORK STILL HAZY SCIENTIFIC TESTING SECTOR SET FOR SALES SPIKE

BUDDING BUSINESS OPPORTUNITIES LEGAL

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RETAIL

MARKETING

TAXATION

SAFETY

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CANADIAN CANNABIS

Lead. Don’t Follow.

We’ll Show You How.

Growing a successful business in an emerging market can be filled with risks and rewards. At MNP, we have the experience and insights to help you navigate through the complexities so you can capitalize on the growing opportunities and build sustainable rewards for your cannabis business.

For more information contact: Glenn Fraser National Leader Food and Beverage Processing T: 1.877.251.2922 E: glenn.fraser@mnp.ca

Peter Guo Cannabis Leader B.C. Enterprise Risk Services Leader T: 604.637.1513 E: peter.guo@mnp.ca

Andrea Brown Regional Cannabis Leader Regional Assurance Leader T: 604.637.1525 E: andrea.brown@mnp.ca

MNP.ca

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CONTENTS CANADA EVOLVES MARIJUANA LAWS

COLUMN

Emery—11

6

COLUMN

Fraser—15

MARIJUANA MARKETING EMERGES FROM THE WEEDS

FROM THE EDITOR’S DESK

5

COLUMN

FEATURES

16

Canada evolves marijuana laws

6

Illegal dispensaries compete with licensed producers

12

Marijuana marketing emerges from the weeds

16

Provincial framework for marijuana up in the air

22

Marijuana-testing labs brace for sales spike

28

Sutton—20 COLUMN

Wilson—21

22

COLUMN

PROVINCIAL FRAMEWORK FOR MARIJUANA UP IN THE AIR

Mondin—26

ILLEGAL DISPENSARIES COMPETE WITH LICENSED PRODUCERS

12 28 MARIJUANA-TESTING LABS BRACE FOR SALES SPIKE

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From the editor’s desk

CANNABIS BUSINESS OPPORTUNITIES START HERE

W

elcome to Canna Bi z magazine – the inaugu ra l ed ition of a Glacier Media publication that will enlighten readers about business opportunities that will undoubtedly arise as recreational marijuana use becomes legal across Canada.

The significance of this legalization in creating a new and uncharted field of opportunities for entrepreneurs is hard to overstate.

Many will likely be surprised, particularly those who turn a cold shoulder to the drug, do not smoke marijuana and have no intention of doing so once the drug is legal.

Indeed, there remains a stigma against the drug in some quarters, with various politicians and activists loudly opposing opening the door to easier access.

But the federal government has been clear that legalization will be upon us, and that move will undoubtedly open new legal niches as well as work for accountants, marketers, business advisers and more.

W hen Busi ness i n Va ncouver Media Group hosted a panel discussion on cannabis legalization on October 19, the room at the Shangri-La Vancouver was packed w ith entrepreneu rs and others eager to get on the bandwagon and

learn what opportunities could be in store.

Some were looking to perform electrical work for legal grow-ops.

Others wanted work developing brands or mused about the impact on labour law.

Still more operated head shops that sell marijuana accessories or were consultants with expertise helping aspiring licensed producers to get approved by Health Canada.

It may not be too much of an overstatement to equate the emerging business opportunities in the legal marijuana space with those that arose along with the internet in the 1990s.

Many people then had no desire to buy shoes or conduct banking online much less to immediately share photos of their dinner with thousands of friends via the new technology.

Few now can imagine living without using the internet, and, with each mouse click, they are providing opportunities for entrepreneurs.

Various gold rushes and pivotal inventions have happened through time with each providing new business opportunities – often for the proverbial picks and shovels that service the newfound sector.

Legalizing marijuana is often

PUBLISHER: Sue Belisle EDITOR-IN-CHIEF, BUSINESS IN VANCOUVER; VICE-PRESIDENT, GLACIER MEDIA: Kirk LaPointe EDITOR: Glen Korstrom INTEGRATED SALES MANAGERS: Pia Huynh, Laura Torrance,

Chris Wilson DESIGN: Randy Pearsall PRODUCTION: Rob Benac CONTRIBUTORS: Patrick Blennerhassett, Jodie Emery, Glenn Fraser, Darryl Greer, Rosy Mondin, Tyler Nyquvest, Dan Sutton, Albert Van Santvoort, Tony Wilson, Sean Yoon PROOFREADER: Meg Yamamoto ADVERTISING SALES: Dean Hargrave, Blair Johnston, Joan McGrogan, Corinne Tkachuk SALES OPERATIONS MANAGER: Michelle Myers ADMINISTRATORS: Katherine Butler, Marie Pearsall RESEARCH: Anna Liczmanska, Carrie Schmidt

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equated with the end of Prohibition although the only national prohibition against alcohol in Canada was for a mere two years between 1918 and 1920 – hardly long enough for black-market players to entrench themselves yet short enough for past systems to be reinstated without much apprehension.

The legalization of marijuana is different because it has been outlawed for 94 years and has likely had a vibrant underground economy for about as long.

Stories i n th is magazi ne w i l l trace how legalization efforts have evolved through time and explain how various levels of government plan to deal with fresh responsibilit ies. T here i s i n sig ht on how various U.S. states approached legalizing marijuana. One story explores the scientific-testing niche and opportunities that arise with all legal marijuana having to be tested in a lab. Another story explains the likelihood for the courts to determine what marketing will be allowed, assuming that Ottawa’s Bill C-45 becomes law.

Sprinkled through this magazine will also be columns from insiders in various subsets of the cannabis business.

Happy reading.

Glen Korstrom is editor of CannaBiz. He is an awardwinning business reporter who has more than 20 years’ experience in journalism.

CannaBiz 2017 is published by BIV Magazines, a division of BIV Media Group, 303 Fifth Avenue West, Vancouver, B.C. V5Y 1J6, 604-688-2398, fax 604-688-1963, www.biv.com.

Copyright 2017 Business in Vancouver Magazines. All rights reserved.

No part of this book may be reproduced in any form or incorporated into any information retrieval system without permission of BIV Magazines. The publishers are not responsible in whole or in part for any errors or omissions in this publication.

ISSN 1205-5662 Publications Mail Agreement No.: 40069240. Registration No.: 8876.

Return undeliverable Canadian addresses to Circulation Department: 303 Fifth Avenue West, Vancouver, B.C. V5Y 1J6 Email: subscribe@biv.com

2017 | EMERGING BUSINESS

INDUSTRY READIES FOR CANADIAN CANNABIS LEGALIZATION MARKETING RULES CAUSE CONTROVERSY PROVINCIAL FRAMEWORK STILL HAZY SCIENTIFIC TESTING SECTOR SET FOR SALES SPIKE

BUDDING BUSINESS OPPORTUNITIES LEGAL

RETAIL

MARKETING

TAXATION

SAFETY

Cover: Kelly/Getty Images

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

CANADA

EVOLVES MARIJUANA LAWS Small-business owners jockey for survival amid new regulations

DARRYL GREER

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hen lawyer and self-proclaimed “huge cannabis enthusiast” Robert Laurie describes the future of Canada’s cannabis industry as the end of prohibition nears, he doesn’t mince words. It is going to be a “corporate mess,” says the Oxford-educated barrister and solicitor with Vancouver’s Ad Lucem Law Corp. “That’s definitely what’s coming.”

His dire prediction, though, may or may not come to pass as municipal and provincial governments wait and look to Ottawa as Justin Trudeau’s Liberal government rolls out its legalization for the country’s recreational cannabis market for the July 1, 2018, deadline.

Laurie has represented several medical cannabis dispensaries in court, fighting against municipalities’ attempts to shut them down. He has little faith in governments’ ability to effectively and fairly regulate the multi billion-dollar industry as it transitions from black and grey markets to a legitimate and legal space.

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“If you didn’t know what you were doing the last 94 years with prohibition, how the hell are you now in any position to be dictating best policy?” he says, referring to Canada criminalizing marijuana use in 1923.

Indeed, as Laurie points out, the road to cannabis legalization has been long and arduous, with policy being shaped not by legislators but by patients, activists and lawyers dragging governments kicking and screaming through the courts, where judges have whittled away at regulations and rules with the Charter of Rights and Freedoms as their guide.

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COURTS LEAD THE WAY Q “Legal access to cannabis

for medical purposes in Canada has been a court-driven process,” Laurie says. “Really, the only reason that we have a program in Canada for reasonable access to cannabis has been through the courts.”

Even with legalization inching ever closer, the fights are far from over.

His latest challenge involves Starbuds Cannabis Inc., currently under threat of closure by the Township of Langley.

“The Starbuds case really is just another notch or peg in the board with respect to inching [forward] and trying to reason and rationalize with the government,” he says.

Reason and rationality have not been operative words when it comes to cannabis policy in Canada.

It was back in 1972 when the Le Dain Commission, convened by Pierre Trudeau in 1969, recommended ending cannabis prohibition and its associated penalties for use and cultivation. Beatles singer and guitarist John Lennon famously remarked that it would signal “the opportunity for Canada to lead the world.”

Decades later, Lennon seems to have been onto

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something, as Canada is poised to be the first G7 country to fully legalize recreational marijuana use.

It has taken a while, however, with the commission’s findings and recommendations not acted upon for decades, unless one counts former prime minister Jean Chrétien’s failed attempt to decriminalize the plant in 2003.

While former prime minister Paul Martin’s government was open to decriminalization, legalization efforts languished when Stephen Harper became prime minister.

In the October 2015 election, Harper called marijuana “infinitely worse” than tobacco.

That election, won by Trudeau, came a little more than two years after Trudeau stood at Vancouver’s English Bay to announce to a media scrum that his views on marijuana had “evolved” and he now favoured legalizing marijuana and not simply decriminalizing it.

His government, in mid-2016, appointed former Liberal justice minister Anne McLellan to head the Task Force on Cannabis Legalization and Regulation, which studied how to move forward with legalizing marijuana.

Eden Medicinals’ West Coast sales manager Bruce Shearer jumped to the marijuana industry after being a DJ, in part because he saw stronger job prospects | ROB KRUYT

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

Canada evolves marijuana laws

“I don’t see any need for why you need to grow an agricultural product inside a bank vault, utilizing casino-style accounting procedures, unless you’re looking essentially to control, monopolize and profit on the back of people in an industry which really I see as everyone’s birthright, which they’ve been denied,” he says.

But rules are not entirely tilted in favour of licensed producers.

Indeed, licensed producers were dealt a blow when the courts struck down rules against personal production, and when municipalities such as Vancouver and Victoria decided to regulate and license marijuana dispensaries.

“In many ways, that’s caused the floor to fall out on some of these licensed producers,” he says. “Why I think dispensaries could be our greatest saviour is that they provide services that the federal and provincial or municipal governments can’t or won’t provide.”

Aura Health Studio and Dispensary CEO and serial entrepreneur Daniel Petrov was previously executive vicepresident at licensed producer Aurora Cannabis | CHUNG CHOW

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Six months later, the task force released A Framework for Legalization and Regulation of Cannabis in Canada – a 112-page document that set out detailed recommendations in areas such as minimizing harm from use, establishing a safe and responsible supply chain, enforcing public safety and implementation.

On April 13 – a week before the pot community’s annual celebratory 4/20 day, the Trudeau government tabled its Bill C-45, also known as the Cannabis Act, to legalize recreational marijuana use by July 1, 2018.

The fast pace of the drive toward legalization has prompted entrepreneurs, including many former politicians, to try to get in on the action as the light of the dawn of legalization brightens formerly black markets estimated for years, in B.C. alone, to be worth billions.

Former B.C. premier Mike Harcourt became chair of Vernon, B.C.’s True Leaf Medicine Inc. in 2014, while former West Vancouver police chief and B.C. solicitor general Kash Heed became a consultant for a few medical marijuana companies the same year. Former B.C. health minister Terry Lake became a vice-president at Ontario’s Hydropothecary Corp. in August.

It is in the jockeying for a piece of the multi billion-dollar industry where Laurie predicts a mess to materialize.

He fears that regulations will crowd out smaller players, or so-called craft growers, as the federal government intends to allow only medical patients to obtain cannabis by mail order from a licensed producer.

The Supreme Court of Canada, however, may be the pivotal arbiter on e-commerce and shipping across interprovincial borders given that it was set to hear a case in December, 2017, that involves New Brunswick resident Gerard Comeau, who was fined for taking 14 cases of beer and three bottles of liquor to New Brunswick from Quebec. Cannabis dispensary chain Cannabis Culture was granted intervener status in the case, and planned to represent dozens of other dispensaries.

The onerous regulations around production also leave Laurie puzzled.

BUSINESS OPPORTUNITIES ABOUND Q While Bay Street and retail investors look on as the cannabis industry grows, business opportunities abound, for both large-scale commercial and industrial operators and so-called “Copperhead Road” style operations – a reference to Steve Earle’s fictional whiskey-runner from the song of the same name.

Laurie sees things moving far beyond court challenges by storefront dispensaries, which have been a battlefield in the war against the war on pot. Lawyers will not be the only ones benefiting, but accountants, marketers, and other business professionals too.

“We’re moving out of the criminal law and into where there are wonderful opportunities for professionals, beyond lawyers, in the cannabis space,” Laurie says.

“All of these various industries are going to be involved in cannabis one way or another.”

It was at the Union of British Columbia Municipalities (UBCM) conference back in October in Vancouver when bureaucrats, elected officials and industry representatives convened at the Fairmont Pacific Rim to get the low down on legalized cannabis in B.C. Newly minted B.C. Solicitor General and Public Safety Minister Mike Farnworth told a gathered crowd how important it was to keep children safe and money out of the hands of criminals while “recognizing that the legalization provides some unique opportunities to support B.C.’s economy.”

“Cannabis production has been around quite some time and there are a lot of jobs in the existing sector, but there are also a lot of jobs in the sector once it’s legalized, and so we also need to be positioned to take advantage of that,” Farnworth said at the event.

“The federal decision to legalize cannabis and the two accompanying pieces of legislation, bills C-45 and C-46, are going to have a significant impact, not just on the country, but the province and local government as well. It’s important we get it right.”

Calling recreational cannabis legalization “one of the most important changes to public policy in this country and this province in a very, very long time,” Farnworth said that many towns in B.C. and across the country were anxiously waiting for Ottawa to unveil rules for the new recreational cannabis market. The provincial

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government, barely into its first year of governing after the defeat of former premier Christy Clark’s Liberals, has not decided anything, Farnworth said.

“We have not landed on any decision around the distribution model that would be in place; we have not yet landed on any decision around the retail model that will be in place.”

Farnworth’s insistence about doing things “right,” however, may turn out to be a platitude that has little substance and floats in the air like a smoke ring that could dissipate with the slightest breeze.

MUNICIPALITIES WEIGH IN Q Acting Victoria mayor

Marianne Alto told the UBCM crowd in October about the immense amount of staff time her city needed to draft its regulations for dispensaries, where 38 storefronts operate to serve a population of about 90,000 people.

“Do the math, that’s kind of ridiculous,” she said, adding that the city “simply had to bite the bullet and do something” as dispensaries opened up and the public demanded action.

She believes that there is a grudging acceptance that cannabis legalization is inevitable but that it will be a rough road for the next year or so.

“There’s a high level of frustration that we’re acting in a vacuum from both the federal and provincial governments,” Alto said at the event.

“We do realize that it’s quite conceivable that all of the work that’s been put into this in the city of Victoria may in fact be utterly irrelevant by this time next year, and that will be a difficult thing to defend for our taxpayers to have looked at all of this effort and see that it may or may not have been useful.”

At the same time, however, Alto told the crowd about how non-profit compassion clubs have supplied medical cannabis in Victoria for decades.

“We have dispensaries in Victoria that have actually existed for over 25 years as not-for-profit clubs,” she said. “We know that they’ve been working and they’ve worked with the support of the community without any difficulties, without any trouble, without any police attention, nothing.”

With that in mind, Alto also reminded attendees of B.C.’s reputation as a cannabis leader.

“B.C. bud is a brand, and it’s a brand that has a very high-quality association around the world,” she said.

“If we’re going to go down this road, and it seems that we have to because, inevitably, that is what the federal government has said, we need to look at it not just from the perspective of how we manage it, but how we sell it. Whether you approve of this or not, I believe, at this point is kind of irrelevant. The fact is our publics are demanding it, the resource is there, it’s been operated for decades, it’s world-renowned.... We have an obligation to help our residents find a safe product in a regulatory framework that makes sense.”

But what makes sense depends on whom one asks.

Qualicum Beach Coun. Neil Horner, for example, told the room about a “small army” of people armed with scissors who clip marijuana crops in communities provincewide.

“There is a long-standing infrastructure, black market

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Timeline 1923 Canada criminalizes cannabis 1969 Prime Minister Pierre Trudeau convenes the Le Dain Commission of inquiry into the non-medical use of drugs 1972 Le Dain Commission report recommends ending cannabis prohibition and associated penalties for use and cultivation 2000 Marijuana Party is founded and runs 73 candidates in federal election 2003 Prime Minister Jean Chrétien tables bill to decriminalize marijuana possession but bill dies when Parliament is prorogued 2013 Liberal party leader Justin Trudeau advocates legalizing recreational marijuana 2015 Prime Minister Stephen Harper says marijuana use is “infinitely worse than tobacco” 2015 Justin Trudeau wins federal election after campaigning to legalize marijuana 2016 Prime Minister Justin Trudeau appoints former justice minister Anne McLellan to head task force to recommend how to legalize marijuana 2017 McLellan task force releases recommendations on how to legalize marijuana 2017 Trudeau government tables Bill C-45 to legalize recreational marijuana use

or grey market, however you want to call it, that exists in this province,” Horner said.

“A lot of communities in this room get a great deal of benefit from [it.] These people are spending money in your towns.”

He said he disagrees with Ontario’s move to centralize production and distribution in the hands of licensed producers and government-operated stores, saying that B.C. would follow suit at its peril.

“Any supply management should involve, in some manner, the infrastructure that’s already there and to use a decentralized model; otherwise you’re going to do a lot of damage, way more than you’re aware,” he warned.

Later, Coun. Mike Gray of the Village of Radium Hot Springs posed a question on tourism opportunities – a subject glossed over until he took to the microphone.

“There is a perception worldwide I think that the cannabis product in B.C. is something worth visiting for,” he said. “Is that something that we’ve considered?”

ROOM FOR ENTREPRENEURS Q Daniel Petrov did

not visit Vancouver with hopes of breaking into B.C.’s weed industry. He came over from Edmonton, reeling from hard times in that city’s real estate market where he had an investment firm.

Described by The Walrus magazine as a “serial entrepreneur,” Petrov is the CEO of Aura Health Studio and Dispensary, one of the first dispensaries to be licensed to operate in Vancouver.

He started in the marijuana sector’s retail side and then had a stint as executive vice-president with marijuana producer Aurora Cannabis – one of what are now many publicly traded cannabis firms operating in Canada.

Aurora went public through a reverse merger with Prescient Mining in 2014, a common avenue for cannabis companies to go public.

Petrov left Aurora once he believed that it was on its feet, and he returned to retail because he saw more potential and higher margins on the retail side.

He entered the game when Vancouver’s dispensary scene began to boom. The number of storefronts ballooned to more than 100 before the City of Vancouver, in 2016, cracked down with a licensing regime that asked dispensary owners to pay $30,000 annually. Petrov’s Aura Health was the third operation granted a licence in the city.

He has seen the industry evolve from several angles, but the public’s understanding and acceptance of it has been the biggest change.

“I got in on the ground floor to a certain extent, but this is still a massive industry that needs to be transitioned, and infrastructure has to be built,” he says.

And what if the provincial government does not allow dispensaries to sell pot when it becomes legal?

“It’s a risk; it’s definitely a risk,” Petrov says. “If the government decides ‘no, we don’t want private retail,’ they’re still going to have to retail products, so the knowledge doesn’t change.”

Petrov might be considered a veteran in the industry by now, but other workers are entering the industry for, believe it or not, job security. Bruce Shearer, the West Coast regional sales manager for Eden Medicinals,

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

Canada evolves marijuana laws

Ad Lucem Law Corp. principal and founder Robert Laurie fears that Bay Street behemoths will attempt to snuff out smaller producers | ROB KRUYT

started with the company in March 2016. Working in event production and DJing, he had always had connections with people in the marijuana industry, and when he saw the chance to make the jump into the marijuana sector, he welcomed the opportunity because he saw it as more stable than what he had been doing.

As the federal government has struggled to come up with regulations, the process hasn’t been without its critics. The NDP’s Don Davies has hammered the government on many fronts, calling proposed personal

possession limits and plant-height limits “completely arbitrary.”

“This legislation would say that someone in public who has 29 grams of cannabis is a law-abiding citizen and someone who has got 31 grams of cannabis is a criminal,” he told the House of Commons’ standing committee on health. “There’s no clear policy goal satisfied by that distinction.”

Law enforcement, meanwhile, wants the federal government to postpone legalization, simply seeking more time to prepare for a change that so far cannot be accurately described or predicted.

For lawyer Robert Laurie, he worries most about Bay Street behemoths stifling Copperhead Road-style craft producers as legalization looms and hopes for the best of both worlds, knowing full well that Canada will have to compete in an evolving global cannabis market.

“If you can combine Copperhead Road with Bay Street, you’re going to have some pretty interesting innovations, but at the moment, Bay Street’s trying to eliminate Copperhead Road and replace all the expertise and knowledge and know-how,” he says.

“Canada has to be competing with the international market, and the international market includes Morocco, Pakistan, India, Mexico, Honduras, the Caribbean and so on, and the cost of labour in those jurisdiction is a fraction of what they are here.” É

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BUDS AND BOOZE IN THE SUPREME COURT OF CANADA JODIE EMERY |

C

We hope that a victory for Comeau will not only dismantle the unconstitutional prohibitions on interprovincial trade of beer and liquor, but also prevent provincial governments from attempting to deny Canadians the freedom to engage in the retail sale of legal cannabis

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annabis and alcohol usually don’t mix well, but the Supreme Court of Canada is bringing the two substances together in a way that could positively change the very foundations of this country.

When it comes to cannabis, law reform has come from courts ordering governments to provide more access to – and fewer restrictions on the liberties of – Canadian medical cannabis consumers. Prohibition victims including patients, growers and dispensaries have successfully won legal arguments based on the Charter of Rights and Freedoms, our bill of rights in the Constitution of Canada.

Court cases are one of the very few tools citizens can use to truly change the law. In December of this year, the highest court in our nation will hear the case of retiree Gerard Comeau, who was ticketed by police after transporting 14 cases of beer and three bottles of liquor from Quebec into New Brunswick in 2016.

Provincial judge Ronald LeBlanc determined that provincial prohibitions on transporting liquor between provinces are unconstitutional, as they violate Section 121 of the Constitution Act, which reads: “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces.”

New Brunswick’s appeals court didn’t elect to review the case, so it is now before the Supreme Court of Canada as R. v. Comeau. Numerous provincial attorneys general are interveners, representing provincial trade prohibitions and supply

Cannabis Culture intervenes in Comeau case

management structures, and other interveners were invited to apply.

Cannabis Culture is an organization known for many different things: activism, print magazines, head shops, vapour lounges and, more recently, adult-use cannabis dispensaries. Marc Emery, my husband and founder of Cannabis Culture, has always used his businesses to fund and fight for activism causes.

The Canadian Constitution Foundation reached out to Marc for support on the little-known Comeau case. Marc suggested Cannabis Culture could intervene to argue in favour of interprovincial cannabis trade and against provincial monopolies on goods.

When the Ontario Liberal government announced its intention to create a marijuana monopoly on retail sales of recreational cannabis, our lawyers were fully on board with intervening. Comeau’s case was clearly not just about beer and liquor; it was about the rights of Canadians to trade products with our fellow citizens in other provinces, and to engage in peaceful business transactions without government interference.

Cannabis Culture applied to intervene on behalf of more than 100 cannabis dispensaries operated by numerous individuals. It also includes all cannabis industry participants, such as mail-order marijuana services and licensed producers of medical marijuana who seek to sell legal recreational cannabis.

My affidavit argues that “Ont a r io’s prop o s e d gover n m ent monopoly retail system creates significant barriers to the free

movement of cannabis among the provinces” and “other provinces may enact similar, restrictive and discriminatory legislation that will have a chilling effect on interprovincial trade and the development of the lawful cannabis industry.”

The Supreme Court agreed that the emerging legal cannabis industry may be impacted by R. v.

Comeau, and accepted our application to intervene. Kirk Tousaw and Jack Lloyd of Tousaw Law will represent Cannabis Culture – and the entire Canadian cannabis industry and community of consumers.

We hope that a victory for Comeau will not only dismantle the unconstitutional prohibitions on interprovincial trade of beer and liquor, but also prevent provincial governments from attempting to deny Canadians the freedom to engage in the retail sale of legal cannabis.

This Supreme Court of Canada case could significantly impact our country in a very positive way: combining cannabis with alcohol to protect individual and economic rights and freedoms. É Jodie Emery is a cannabis activist, civil liberties advocate, public speaker, political candidate and business owner. She operates Cannabis Culture magazine, Pot TV, and Cannabis Culture head shops, lounges and retail stores.

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

ILLEGAL DISPENSARIES COMPETE WITH LICENSED PRODUCERS

Few illegal retailers pay City of Vancouver fines

MMJ Canada government

SEAN YOON

relations director Jamie Shaw believes that even if B.C. tries to establish governmentrun marijuana stores, dispensaries will continue to flourish | RICHARD LAM

D

emand for medical marijuana is high enough that both illegal dispensaries and federally licensed producers are booming, with the main distinction between the two retail channels being that licensed producers can prove where they bought their products.

Marijuana use is expected to sharply increase in mid-2018, when recreational marijuana becomes legal.

A 2016 report from the Office of the Parliamentary Budget Officer projected that in 2018, Canada will have approximately

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4.6 million cannabis users, of which 14 per cent, or 651,000, will use cannabis daily.

The most recent Health Canada data shows that its licensed producers had 201,398 registered clients in June, up from

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

Illegal dispensaries compete with licensed producers

More than 81 per cent of the tickets that the City of Vancouver has issued to dispensary owners have been paid | ROB KRUYT

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188,200 clients in May. Just over 4 per cent of those registered clients were from B.C., despite B.C. having more than 13 per cent of the country’s population.

That disparity is likely because B.C. has a flourishing dispensary industry.

According to cannabis website Leafly’s location tracker, the city of Vancouver has more than 70 dispensaries.

“Who’s taking patients from who is hard to say because the dispensaries were there first,” says Jamie Shaw, government relations director for MMJ Canada, a major retail dispensary chain in Canada.

“Most of those older dispensaries kept operating right through the licensed-producer system. A lot of the licensed producers accessed people that couldn’t necessarily access dispensaries in different parts of the country, [and] it ended up taking a different segment of people that might use cannabis.”

Licensed producers under Health Canada’s Access to Cannabis for Medical Purposes Regulations (ACMPR) can produce and sell dried marijuana and cannabis oil online by mail order to people who have a doctor’s prescription.

According to Health Canada’s website, there are 62 total licensed producers, with 14 of those being in B.C. Storefront dispensaries, on the other hand, despite their proliferation, are illegal in Canada because producing and distributing cannabis is prohibited under the Controlled Drugs and Substances Act. This did not stop the City of Vancouver from allowing dispensaries to operate as long as they get a city-granted business licence. The cost of a business licence is $30,000 for retail, for-profit dispensaries and $1,000 for compassion clubs, which are non-profit versions of dispensaries focused on the medical use of cannabis.

Many dispensaries have applied to get a licence but have not yet received one and are operating without a licence. The city has not ticketed some of these dispensaries because they are in the process of getting a licence, according to the city.

Most dispensaries, however, do not pay fines.

As of November 14, dispensary owners had paid fines

for only 424 of the 2,313 tickets that the city had issued. “[The government] realized that enforcement wasn’t really the answer and so they started trying to deal with it through bylaw enforcement – by creating a business licence for them,” says Shaw.

“It doesn’t affect the legality of [dispensaries under federal law], but at least they have a business licence in the city.”

Among B.C.’s list of licensed producers is newly licensed Tantalus Labs, based in Maple Ridge. Its managing director, Dan Sutton, says he’s not sure if there is any tension between dispensaries and licensed producers.

Instead, Sutton says the success of dispensaries proves that consumers want a variety of channels to get their cannabis.

“Dispensaries have really effectively proven that there’s a demand for retail cannabis, storefront cannabis – people want to walk down to the store, they want to touch the product, they want to talk to somebody, who hopefully has some degree of knowledge around the product, and be able to make a judgment call based on those interactions,” he adds.

The clearest advantage that federally licensed producers have over dispensaries is a transparent supply chain regulated through Health Canada.

“The core advantage boils down to proven providence,” says Sutton.

“When I buy cannabis from a licensed producer, I know that it’s been flushed effectively of its nutrients, I know that it has not had banned chemical pesticides used on it, I know that it is absent of mould, heavy metals, other potential things that could harm me as a user. I can also trace its transparent supply chain all the way back to the farmer that cultivated it.”

The forerunner program to ACMPR, the Marihuana Medical Access Regulations (MMAR), allowed two types of producers: a personal producer, who could grow within the individual limit; and a designated producer, who was allowed to grow for other people.

The main issue now is that dispensaries’ supply chains are not regulated to the same standard as licensed producers, says Shaw.

Health Canada won’t let growers test their products unless they’re legal producers, so sometimes products will get tested under the table, but it’s difficult for dispensaries to test their products properly, she adds.

Meanwhile, the suppliers for dispensaries are all illegal sources and because there is such a wide variety of suppliers, pinpointing one or two specific sources is difficult.

“Some dispensaries have been getting supplied by people that predate any Health Canada program and just never signed up,” says Shaw.

“A lot of dispensaries are buying from MMAR-licensed growers – people that were licensed under previous programs. I’m sure there’re others also, that have just never engaged in the system.”

Shaw believes that even if B.C. tries to establish government-run marijuana stores, dispensaries will continue to flourish.

“The legal market is so far behind what the illegal market offers and they’re bound by regulations – they can’t really offer what the illicit market can,” she says. É

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LEGALIZED WEED IS ON THE HORIZON GLENN FRASER |

T Legal cannabis may well be the best ground-floor opportunity we’ve seen since the early days of the Internet

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he federal government introduced the Cannabis Act (Bill C-45) on April 13, 2017, to legalize and regulate the production, distribution, sale and possession of cannabis in Canada.

If the bill becomes law, adults will be able to legally possess and use cannabis subject to the legislated restrictions.

Details of the bill shed light on the road ahead for the entrepreneurs who have recently entered or are thinking of entering the untapped cannabis market. That includes those already operating at varying levels of legality, from the licensed producers responsible for growing and supplying medical marijuana to dispensary owners currently operating illegally in a number of Canadian cities.

The federal government says Canadians can expect a legal recreational market for cannabis by July 1, 2018. There is enough current evidence to suggest the federal government is happy with the current production model and will continue this going forward.

Federal regulations on production are likely to be strict for the many hopeful producers.

Provinces and territories would be responsible for determining retail and wholesale distribution, including whether the retail channels will be government-controlled or open to licensed private sellers.

Cannabis legalization will open significant new markets – and

Marijuana sector could be worth $21.8 billion by 2020

startups that get going now will be ready and waiting to take advantage of the increased demand.

The Canadian economy doesn’t spawn an entirely new industry very often, and legal cannabis may well be the best ground-floor opportunity we’ve seen since the early days of the internet.

T h e re a re s om e e s t a bl i s h e d businesses in this niche already, thanks to medical cannabis long being legal, but this should not discourage others as it is still very much a growth market with plenty of opportunity.

Whether you are a business in the early stages of this growth market or considering entering it, the revenue potential is significant and there is tremendous opportunity for Canadian businesses that do things right and work within the confines of the legislation.

We are already seeing a Canadian cannabis market that features a variety of product and marketing opportunities, from a vast number of organizations focusing on all aspects from growing to processing, to research and development (specifically around delivery systems and cannabinoids) and even pet products.

T here are also cannabis companies looking overseas to import cost-effective, raw product, and some have already begun exporting their end products. As you can see, there is no shortage of ways to get into this market that is expected to grow to $21.8 billion by 2020.

The federal government’s intention is to foster an industry where

small-scale “craft” or “artisanal” producers are able to participate among larger players.

It recommends taking steps to avoid “the development of monopolies or large conglomerates.”

Once legalized, the craft cannabis market could see further economic opportunities in the way that the craft beer and wine sectors have revitalized rural Canada.

In order to cut out the illicit cannabis market, supply and pricing (taxation included) will be key. The legal cannabis industry is still in its infancy and has only about 25 per cent of required production space, so we still have a long way to go in order to meet the demand. Some estimate that it will be 2021 before supply meets the consumer demand for cannabis.

Working with several clients in this emerging industry, we have been watching very closely and will continue to help our clients understand the regulations and capitalize on emerging opportunities while minimizing the risks moving forward. É Glenn Fraser (glenn. fraser@mnp.ca) has an MBA and is a CPA and CA. He is vicepresident and national leader of food and beverage processing at MNP LLP.

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

MARIJUANA MARKETING EMERGES FROM THE WEEDS

Industry reacts to proposed marijuana advertising regulations

ALBERT VAN SANTVOORT

DARREN DAHL PROFESSOR OF MARKETING, UBC SAUDER SCHOOL OF BUSINESS

Some celebrity endorsements are going to happen because Snoop Dogg or other people are seen with the product. That’s an endorsement but that’s very different than the arrangement Michael Jordan has with Nike

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N

ational Hockey League broadcasts are unlikely to feature commercials for marijuana brands even after the federal government legalizes recreational weed on July 1, 2018.

Just because Canadians will be free to buy marijuana does not mean that corporate marketers will be free to promote their products as they please.

Companies wanting to market their strains of weed will have to pay close attention to rules outlined in the Liberals’ Bill C-45, which are still proposed regulations because the bill has yet to become law.

“Rules surrounding advertising are likely on the restrictive side,” says Dan Sutton, managing director of Tantalus Labs.

“I understand the public health and safety prerogative; however, I wonder if their stated goals are going to be achieved with tobacco-style advertising that’s very bland and comes with a warning on the label.”

THE RULES Q Limiting children’s access to marijuana is one of the government’s prime objectives, so Bill C-45

stipulates that, in advertising, cannabis and accessories may not be displayed with products or services associated with children. The key is not to promote cannabis as a glamorous lifestyle-enhancement product.

Some principles surrounding the advertisement, branding and promotion of marijuana are obvious: no free samples, for example. Firms are also not allowed to hold contests, lotteries or any kind of ganja giveaways.

Other advertising regulations are similar to the cigarette advertising laws. There are strict rules regarding character endorsements, fictional or otherwise, especially ones that may be considered to appeal to children. So Joe Camel’s stoner cousin won’t be making an appearance on any marijuana ad campaigns.

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Industry players such as Sutton agree with the government’s goals but feel the rules will not only limit their businesses from highlighting their unique competitive advantage but also make it difficult to convey basic information about the product.

The current bill bans promoting marijuana in public areas except for the dispensary point of sale. Even basic information like price is not allowed to be advertised. As a result, marijuana retailers will have to rely on phone calls and emails directed to a specific, identifiable person or location.

Many of these regulations also apply to promotion directly on the packaging of marijuana and accessories.

While the proposed legislation lays out strict regulations limiting what can be featured on marijuana packaging, the tobacco industry feels that the bill is not as tough as current plain-package regulations for cigarettes.

THE SMOKY GREY AREA Q Rules on celebrity endorsements could give rise to a smoky grey area.

While fictional endorsements from branded characters are easy to avoid, what about celebrity endorsements?

Bill C-45 specifically prohibits endorsements of any kind, regardless of fame. But what are the ramifications if a comedian includes a Canadian marijuana brand in

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a Saturday Night Live skit or if a rapper refers to it in song lyrics?

Darren Dahl, professor of marketing at the University of British Columbia Sauder School of Business, explains that there are nuances to celebrity endorsements.

“Some celebrity endorsements are going to happen because Snoop Dogg or other people are seen with the product,” says Dahl. “That’s an endorsement but that’s very different than the arrangement Michael Jordan has with Nike.”

However, the difference between what is or isn’t a celebrity endorsement can’t always be distinguished by whether or not someone is being paid directly for the support.

For example, in late September 2016, Canopy Growth Corp. announced its subsidiary, Tweed Inc., would sell Snoop Dogg’s marijuana brand, Leafs by Snoop, in Canada.

Canopy partnered with the rapper’s company, LBC Holdings, to sell three varieties of marijuana under Canada’s medicinal system.

Before the announcement the stock was trading at $4.04; two months after the announcement, the price had more than tripled, increasing 211 per cent to $12.60.

It is unclear how Bill C-45 would deal with this kind of

Tantalus Labs managing director Dan Sutton wants marijuana marketing rules to be similar to those for alcohol, as opposed to those for tobacco | CHUNG CHOW

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Marijuana marketing emerges from the weeds

UBC Sauder School of Business marketing professor Darren Dahl believes courts could become involved to determine what marijuana marketing will be allowed | ROB KRUYT

arrangement, which is not as unusual as one might think.

Ross Rebagliati, Canadian snowboarder and Olympic gold medallist, threw his name into the pot with his own marijuana brand, Ross’ Gold.

Dahl says that the brand’s legality is an open question that could end up in a court case.

“My guess would be that they’re not going to go after Snoop Dogg unless he starts to actively market and brand himself with respect to the product,” says Dahl. “So I guess there’s some shades of grey and over time it’ll get defined on what they do or don’t go after.”

Jordan Sinclair, director of communications for Canopy Growth Corp., says that working with a company owned by a celebrity is fundamentally different from a celebrity endorsement since Canopy Growth is simply distributing Snoop Dogg’s product and not leveraging his personal brand to sell separate products.

“Nothing that I’ve seen would indicate that it’s going to affect our business relationship,” says Sinclair.

“We think we’re going to be able to continue business as usual.”

If Bill C-45 does snag Canopy Growth Corp., one strategy to overcome the hurdle would be to remove the reference to Snoop Dogg and change the name of the brand to LBS, Sinclair says.

The company could then rely on public attention and media coverage of the change to inform people that the acronym stands for Leafs by Snoop.

BURNING THROUGH THE RED TAPE Q While there are currently strict advertising rules in place for the medicinal market, there are still advertising opportunities that companies can take advantage of.

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So-called “earned media,” where companies are written or spoken about within traditional media, is one way.

Among the innovative tactics to brand products while still complying with the law is one strategy that a variety of businesses have been experimenting with: retaining third-party marijuana experts, specialists and social influencers to discuss and post pictures of products in a non-promotional way.

Another way to remedy the promotional deficit is to ramp up customer service and customer care. By having active social media profiles, companies can engage with customers about their products without violating advertising regulations.

Sutton and his industry peers want to see a balance struck between the public good and what they perceive to be consumer knowledge. The greater the restrictions on things like packaging, the more difficult it will be for companies to convey the story of how their product was cultivated and packaged, he says.

Not only is allowing some advertising important for telling a company’s story and informing consumers, but Sutton thinks it will also help chip away at the black market. He argues that commercially branded products will better identify professionally grown, legal cannabis from its black-market counterpart.

While the rules seem strict now, the industry is optimistic about the future. Sutton describes Bill C-45 as “conservative” but is hopeful that advertising restrictions will eventually be loosened. Sinclair agrees, saying softer restrictions will come after the initial stages of legalization when people are more comfortable with the product and its relative risks.

ONCE THE SMOKE CLEARS: HOW MARIJUANA ADVERTISING WILL EVOLVE Q The idea of loosening

regulations over time may be surprising. Especially when drawing the obvious parallel with tobacco, an industry that went from being widely advertised on television and in print to not being able to be seen in a store. However, there are industries that have had restrictions on advertising relaxed.

Two industries that have previously experienced a trend of softening advertising restrictions include condoms and erectile dysfunction medication, says Dahl.

In the 1950s and 1960s, because of societal taboos, even health-care products weren’t advertised publicly.

Over time, however, as more people began to accept these types of products, they became more openly advertised. This is the trajectory that industry players like Sutton and Sinclair are expecting.

While there is precedent for softening advertising regulations, Dahl thinks the more logical comparison is to cigarette advertising. While marijuana has the advantage of having some health benefits, unlike tobacco, Dahl thinks ultimately regulations will likely remain strict.

The tobacco industry has dealt with similar advertising difficulties starting in the 1960s as laws gradually became more restrictive.

This has largely been the result of continued efforts by anti-tobacco activists and lobby groups. Continued pressure by these groups has garnered change even to

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the detriment of what was once one of the most powerful industries.

Eric Gagnon, head of corporate affairs at Imperial Tobacco, says while he cannot predict what will happen, if his industry’s experience is any indication, advertising laws will not be loosened.

“If the tobacco industry and the anti-tobacco lobbyists model is to be adopted, I think that the marijuana industry is only going to be hit with further regulation in the future as anti-marijuana lobbyists start building their capacities,” says Gagnon.

Tobacco industry insiders are looking to see if less restrictive rules are implemented in the marijuana industry that could spark change in the tobacco industry and lead to less rigid packaging restrictions and perhaps even lower tobacco taxes.

“The approach the government wants to take on marijuana seems to be a more reasonable and appropriate framework than the excessive approach it does on tobacco,” says Gagnon.

Both the tobacco industry and the emerging marijuana industry have concerns relating to plain-packaging laws.

However, the two industries that would seemingly make natural allies have no plans to work with each other on the shared goal.

When asked, neither Sutton nor Gagnon is interested in working with the other industry on a shared fight against plain packaging. Each is adamant that they are different

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products and seemingly do not want to be associated with the negative connotations of the other.

Sutton also contrasted the proposed legislation regarding marijuana advertising with the alcohol industry.

It is uncertain whether marijuana advertising will ever make it to the level of beer advertising, where marijuana brand names are printed on NHL rinks and marijuana accessories are prominently held on screen with the label facing the camera during prime time. É

Canopy Growth Corp. subsidiary Tweed Inc. sells Snoop Dogg’s marijuana brand, Leafs by Snoop, in Canada | CANOPY GROWTH CORP.

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

CANNABIS SECTOR IN ITS INFANCY DAN SUTTON |

T Whether you are interested in operational efficiency, breeding new strains, leveraging unique agricultural technology, or concepts like vertical farming, cannabis will be a central discussion point over the next decade

he emerging opportunities in cannabis will change the face of industry across the nation of Canada, and it is coming sooner than most think.

Billion-dollar stock valuations and ever diversifying dispensary product segments might suggest to some that big players are already dominating the space.

Nothing could be further from the truth.

This industry is truly in its infancy, and opportunities abound for diligent entrepreneurs to build value in the cultivation of the plant, technologies facilitating its consistency in user experience, and brand stories touching novel conversations and communities.

From a busi ness case, t h is cou ld be the most exceptiona l Canadian-made wealth creation opportunity in our nation’s history.

Through the lens of social progress, new entrants in the space can make tangible impact with the opportunity to write a new textbook on how users interact with this maligned substance.

PRODUCTION Q Cannabis cultivation is certainly a centre of opportunity in the new context of a regulated market. One does not need to build million-square-foot greenhouses to capitalize on a specialized and discerning marketplace. From craft scale production

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Business opportunities sprout

to focus on the cultivation of small seedlings for home growers, new licensed producers are emerging every week with diverse offerings and perceptions of opportunity.

Whether you are interested in operational efficiency, breeding new strains, leveraging unique agricultural technology, or concepts like vertical farming, cannabis will be a central discussion point over the next decade.

Institutions such as Kwantlen Polytechnic University are already offering courses that explore cannabis entrepreneurship, marketing, and cultivation, and are an excellent place to start as you find the product market fit that best suits your personality as an entrepreneur.

TECHNOLOGY Q Ca n nabis is

benefiting from a new host of technology entrepreneurship in the U.S. and Canada. Seed-to-sale tracking, centralized government reporting, and environmental analysis of cultivation environments draw the excitement of those who are interested in procedural efficiency.

Delivery services, e-commerce portals and strain-rating applications cater to a more creative audience. Think through the cannabis experience as it exists today, and there are thousands of opportunities for advances in the user experience. Imagine your ideal cannabis technology offering, and Vancouver is likely home to the development talent to bring it to life.

BRANDING Q Branding may be one of the greatest opportunities for revisiting the cannabis conversation in a tasteful, design-focused way. New brands are emerging, talking to communities who might feel disenfranchised by the dreadlocks and grunginess preferred by the current status quo. High-desig n reta i l env i ron ments, concierge-level hospitality and new conversations beyond “indica and sativa” are yearning for a makeover.

Subtlety, minimalism and vision of a 10-year future are screaming new opportunities.

If these concepts excite you, now is your time. Cannabis has been subjugated to the shadows for far too long, and the opportunity for entrepreneurs to champion it into the light has arrived. Please. We need you. É Dan Sutton is the founder and managing director of Tantalus Labs, a BCbased, licensed producer of cannabis.

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ALL THAT GLITTERS IS NOT ALWAYS GREEN TONY WILSON |

T For every gold rush we’ve had in Canada and the U.S. in the past 150 years, those who profited consistently were not the miners.

Instead, they were the service providers

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here’s no doubt that many Canadians think they’re living in the Wild West with respect to the anticipated legalization of marijuana in Canada that will allow lawful distribution and sale of weed to Canadians, as if they were buying a bottle of wine. There’s also the potential windfall of money for entrepreneurs from the so-called Green Rush.

Many stories are coming out of the U.S., where Washington, Colorado and other states have legalized or otherwise decriminalized the sale of marijuana, and where other states are set to legalize the sale of marijuana within the year.

In August, American Green, one of the largest U.S. marijuana companies, bought the entire town of Nipton, California (32 acres, in fact), to grow cannabis, and to turn the town into an Old West marijuana-themed tourist destination.

Says David Gwyther, the company’s CEO: “The cannabis revolution that’s going on here in the U.S. has the power to completely revitalize communities in the same way gold did during the 19th century.”

With my “lawyer hat” on, I would simply make two observations to compare the legalization of marijuana to various “gold rushes” of the 19th century. The first and most obvious point is that the Liberal government in Ottawa has not yet passed legislation legalizing marijuana. It is still illegal.

But the second obvious point involves history: for every gold rush we’ve had in Canada and the U.S. in the past 150 years, those who profited consistently were not the

No need to touch plants in order to make money

miners. Instead, they were the service providers who sold the miners their tents, clothes, picks, shovels, axes, rope, horses, pans, food and the other staples the miners needed before any gold could be panned or claims could be staked. Add to that list hotel and bar owners, liquor distillers and suppliers and, dare I say, prostitutes, and you might be persuaded that service providers seem to do better than the gold miners in most gold rushes.

I n my ow n fa m i ly, my g reatgrandfather Harry Parsons, an experienced mariner, moved from Harbour Grace, Newfoundland, to B.C., not to mine for gold, but to ferry miners up and down the Yukon River as part of a crew and then as captain. He made enough money to build a small house in Victoria, where he settled and became one of the town’s leading marine pilots.

But not a penny of it came from gold. It all came from servicing the gold miners and the 19th-century mining industry. Somebody had to pilot the boats up the Yukon River.

It’s still unclear how marijuana will be sold at retail after it’s legalized in July 2018, because retail sale of marijuana is a provincial responsibility and the provinces have yet to develop a unified plan.

This is Canada, after all.

Although the Ontario government announced in September that marijuana will be sold through standalone stores controlled by the Liquor Control Board of Ontario, other provinces may adopt different sales models. B.C. hasn’t committed yet to its model and says “all options are on the table,” including selling marijuana through government liquor stores.

If that’s the case, and B.C. sells

marijuana through liquor stores or stores operated by the B.C. Liquor Distribution Branch, the scores of enterprising mavericks in Vancouver who have been opening up “marijuana dispensaries” since 2013 (and, in effect, forcing the City of Vancouver to license them) may find that their former gold mine is a dry gulch.

So, for those wanting to profit from this industry, consider supplying goods and services that the growers, suppliers, distributors and consumers of marijuana may need.

To name only a few, financial and insurance products and services; legal services for the preparation of various commercial contracts; business planning services; surveillance and security services; bonded shipping and courier services; or even trade shows. And, to be blunt, addiction counselling and rehabilitation services.

Remember that although there may be “gold in them thar hills,” historically, those who serviced the industry tended to do consistently better than those who didn’t. É Tony Wilson, QC, regularly practises in the areas of franchising, licensing and IP law and is ranked as a leading Canadian franchise lawyer by Lexpert, Who’s Who Legal and Best Lawyers in Canada.

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

PROVINCIAL FRAMEWORK FOR MARIJUANA

UP IN THE AIR

Contrasting legal approaches evident in U.S. states, cities

PATRICK BLENNERHASSETT

V

ancouver pot shop owner Don Briere has a message for any British Columbia cities or municipalities that may be thinking about banning dispensaries or sales of marijuana within their jurisdictions.

“What will happen is the same thing with alcohol prohibition,” says Briere, the president of Weeds Glass and Gifts Ltd., which has 16 pot dispensary shops across Canada, according to its website. “Some communities said, ‘We don’t want alcohol in our community.’ And what happened over many years was these communities slowly died.”

The B.C. government has not yet revealed what retail model it will allow for cannabis. Premier John Horgan, in the last election, said that he favoured a “mixed” approach.

Ontario, Quebec and New Brunswick have announced

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plans to have government-run stores sell cannabis while Manitoba and Alberta plan to have mixed models.

In Manitoba, for example, the Liquor and Gaming Authority will regulate the purchase, storage, distribution and retailing of cannabis while the Manitoba Liquor & Lotteries Corp. will secure and track cannabis sold in the province. The private sector will then sell cannabis.

Alberta will have a similar model.

Regulatory framework lessons, however, can already be learned from the United States.

Public Safety Minister and Solicitor General Mike Farnworth and Finance Minister Carole James went to

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Washington state and Oregon in April 2016, when the NDP was in opposition.

Farnworth tells CannaBiz magazine in an exclusive interview that the two states differ in what distribution methods they allow for legalized weed.

“Oregon was much more open in terms of the number of licences,” he says.

“Let me rephrase that: Washington state had a much tighter grip on the number of licences that they issued for the retail of cannabis.”

Municipalities across Washington state and Oregon implemented their own rules.

Some cities and counties ban sales outright. Other councils have voted against banning pot sales. There have also been instances in Washington state where selling and cultivating weed is restricted to industrial zones.

Oregon has expanded its laws to include edibles and extracts.

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Weeds Glass and Gifts president Don Briere believes it is wrong-headed for municipalities and cities to ban pot sales | ROB KRUYT

In August of this year, the California city Fresno voted to ban the sale of retail marijuana within city limits.

California will see legalized recreational marijuana on January 1, 2018, and the state – which has nearly 40 million people – is estimating that it can raise $1 billion annually in tax revenue.

Farnworth says any B.C. municipalities or cities that choose to outlaw the sale or distribution of marijuana might lose out on provincial tax revenue as a result.

Jessika Villano, the owner and operator of pot dispensary store Buddha Barn in Kitsilano, says she has put her expansion plans on hold, and will be waiting to see where the provincial government falls before considering opening stores in other cities.

“We don’t know what each municipality is going to do as well,” she says.

Richmond city council on October 23 unanimously reiterated that it “strongly opposes” legalizing marijuana

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

Provincial framework for marijuana up in the air

and voted to send the province a letter with a host of objections to the planned liberalization. The Corporation of Delta, meanwhile, recently went to BC Supreme Court to shut down its only dispensary.

TO TAX OR NOT TO TAX? Q Washington state made recreational pot legal in December 2012; however, the first official retail store didn’t open until two and a half years later. The state initially had three levels of taxation on the sale of weed: ■25 per cent on the grower; ■25 per cent on the processor; and ■25 per cent on the seller.

The state then pivoted and passed legislation to get taxes down to 37 per cent in July 2015, when it appeared many citizens were driving south across state lines to Oregon to buy bud.

The Canadian federal government recently announced a proposed $1 excise tax per gram, up to prices of $10; and 10 per cent on prices of more than $10 per gram.

The proposed system would also split tax revenue evenly between the provinces and the federal government.

When it comes to determining how much of a cut the provincial government should take from the marijuana industry, Briere – who has been advocating for legal weed for decades – says Washington state did something B.C. should avoid at all costs.

“They overtaxed it,” he says.

“The criminal element were laughing in their faces.

People were driving across the border [to Oregon from Washington] because cannabis went from $10 a gram to $35 or $45 a gram.”

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Jars of medical marijuana sit on a shelf at Eden Medicinal Society on Kingsway in East Vancouver | ROB KRUYT

Stephen Easton, a professor of economics at Simon Fraser University (SFU), says the biggest reason that the government’s cut should be kept down is to stamp out the black market.

“I think the tax regime should be minimal to draw as much as possible from the illegal and homegrown market,” he says.

Easton adds that no matter what type of provincial framework the NDP decides to roll out, there will be issues.

“I think that there will be chaos in the first couple of years,” he says. “Embrace the chaos and learn what makes sensible regulation.”

The B.C. government is looking for feedback on a range of issues related to marijuana and its online feedback form has 10 pages of questions.

Victoria wants to know if respondents use cannabis, whether they support the federal government’s proposed 30-gram personal-possession limit and if residents should be limited in how much pot they grow.

The most controversial question could be how Victoria will allow recreational marijuana to be distributed.

Four main options as answers are: ■a government-operated distribution organization; ■a private distribution organization; ■a mix of both; or ■the option to say, “Don’t know/no opinion.”

Neil Boyd, a professor in the School of Criminology at SFU, says the most likely scenario for retail sales in B.C. will be a mixed model that includes private dispensaries and government liquor stores.

He believes the best-case scenario for B.C. is low taxes and a private sector with public oversight.

“A transition to a legal market will not happen overnight, but experience in Colorado suggests that the black market will gradually decline,” he adds.

While Colorado has largely stamped out illegal production by keeping taxes low and allowing residents to grow up to six plants in their home, smuggling operations have popped up.

Neighbouring states are now dealing with an influx of legally grown yet illegally transported marijuana, as crossing state lines with pot is still a federal crime. Boyd adds the best bet for B.C. is to offer pot as seamlessly and cheaply as possible to citizens, while still taking into account the health issues.

“I think the best opportunity for [the decline of the black market] will be the existence of a publicly regulated private retail market, where consumers will have a breadth of choice, along with information about the THC and CBD content of the products and a guarantee of the safety of the product through mandated testing for bacteria, moulds and pesticides.”

Farnworth joins a growing list of provincial representatives who are concerned this is all approaching too quickly and want more breathing room to determine regulatory frameworks.

“I would like to have more time,” he tells CannaBiz magazine. “I know the provinces would like to have more time. We’ve asked for it. Whether or not we get it, I’m not sure, but we are going to continue to work to the July 2018 deadline.” É

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Buddha Barn owner Jessika Villano has put expansion plans on hold until she knows what retail sales channels the B.C. government will allow | ROB KRUYT

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

EDIBLES’ SALES GROWTH HIGHLIGHTS BUSINESS OPPORTUNITIES ROSY MONDIN |

V Sales data from our neighbours south of the border also show consumer preference shifting to extracts

entu re i nto a Va ncouver dispensary and you’ll find an extract-based product to suit just about any ailment or social craving. From cannabidiol (CBD) capsules and cannabis-based topicals to flavoured vapour oils and infused edibles, it is hard to talk about the future of cannabis in Canada without mentioning the tremendous shift in consumer demand from smoking joints to vaping oils, extracts and the host of new products emerging beyond bud.

Just last week I stopped by a local craft producer to pick up wholeplant CBD extract capsules as well as some beautifully packaged lowdose infused chocolates for a friend who loves edibles.

Although cannabis edible products are currently illegal for sale in Canada, products like these are

Consumer preferences tilt toward oils and extracts already being mass-produced in states such as Oregon, Colorado and Washington.

Although Canada’s “legal” product d iversity is sti l l relatively limited, demand for extracts and extract-based products is growing exponentially – in fact, extracts are the fastest-growing category of cannabis products. According to the most recent cannabis sales data, from March 2017 and published by Health Canada, oil sales by Canada’s licensed producers account for nearly 50 per cent of total sales.

This is a very significant shift; cannabis oil sales in Canada are already significantly outpacing sales of dried “bud” – and these figures don’t even consider the sales of oils and extracted products sold through dispensaries and the black market.

Sales data from our neighbours

south of the border also show consumer preference shifting to extracts. In the state of Washington, concentrate sales skyrocketed to US$140 million in just 2.5 years since legalization. Data is still being collected for 2017, but Washington expects to see continued steady growth of extract sales.

In California, the trend toward oil-based products is also evident.

A February 2017 California study of 250,000 consumers and 5,000 survey participants found that in one year (December 2015 to December 2016) sales of cannabis oil cartridges for vaping exploded to 24 per cent from 6 per cent of total sales. That is a 400 per cent increase.

Here i n Ca nada, pred ictions for consumption trends indicate that demand for oils will increase 198,000 per cent by 2020 (Mackie

Canadian cannabis market forecast Assuming full legalization in 2018 2016

$33m

$93m

Total market size: $126m

Extracts/oil 2017 est.

$132m

$185m

$317m

2018 est.

$755m

$431m

$1,19b

Dried cannabis 2019 est.

$1.37b

$784m

$2.15b SOURCE: MACKIE RESEARCH CAPITAL CORP.

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Research Focus Report 2016).

With legalization on the horizon, it is not surprising that Canadian producers are shifting their product development into higher-pricepoint cannabis extracts, concentrates and edibles; it’s a reflection of a legal industry commercializing and maturing.

T he growth of ancillary businesses and consulting services is also impressive. Investment in the ancillary market in the U.S. (i.e., businesses that do not touch the cannabis plant) grew by 161 per cent in 2016 compared with 2015.

Advancements in science and research are also playing a central role in the developing cannabis industry, particularly for the extracts market.

Catering to the demand for extracts and the emerging ancillary marketplace is exactly where we decided to

enter the cannabis landscape. For us, with our company, Quadron Cannatech, the “picks and shovels” side of the industry made the most sense.

The legitimization of the commercial cannabis industry is still in its infancy: from innovation and entrepreneurialism and job creation to the ancillary businesses that feed the supply chain, there are, and will be, many opportunities to participate. Craft and artisanal producers as well as new industry entrepreneurs can see the opportunity to develop unique offerings and brands.

P roducers t h at prov ide consistent, quality, tested product and well-packaged, branded materials will create new standards and set the bar for the industry. Understanding the role of cannabis extracts and compounds for treating various medical conditions is vitally important. With their unlimited combinations of synergistic effects,

research, development and product formulation of cannabinoids and terpenes will likely open up new scientific and medical terrains for cannabis research – the next frontier.

As the cannabis industry transitions from prohibition to a legal commercial marketplace, I for one am very excited to be involved in this fast-growing industry. É Rosy Mondin is president and CEO of Quadron Cannatech and executive director of the Cannabis Trade Alliance of Canada.

She is a leading advocate for the legalization of recreational cannabis in Canada and is at the forefront of emerging cannabis industry and policy.

Custom risk solutions to keep your production running With decades of experience and specialized expertise in the marijuana industry, our Risk Advisors design custom insurance solutions to protect your operations and facilities.

Talk to a Risk Advisor today.

1 800 263 3313 1 800 670 1877

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

MARIJUANA-TESTING LABS

BRACE FOR SALES SPIKE Supply of tested weed may not keep up with demand

TYLER NYQUVEST

A Avtar Dhillon, executive

ny good businessman knows the consistent quality of a product determines the likelihood of returning customers.

With recreational marijuana set to be legal Canada-wide on July 1, 2018, many industry professionals are wondering whether the availability of quality marijuana will be sufficient to keep up with demand.

chairman of Emerald Health Therapeutics, doubts that in the early days of legalization, there will be sufficient supply of scientifically tested recreational marijuana | SUBMITTED

00_CannaBiz 2017_00.indd 28

“There are not enough labs right now to be able to test for the vast amount of product that is going to become available next summer,” says Avtar Dhillon, executive chairman of Emerald Health Therapeutics.

Emerald Health is a medical marijuana company based out of Victoria and the eighth company in the country to receive its cultivation licence.

“How are you going to get $6 billion to $8 billion of quality product in the marketplace? One way to do that would be if we could use pesticides but, unfortunately, pesticides are an illegal product.”

Uncertainty about sufficient supply comes as the

marijuana-testing industry is in flux.

Health Canada is devising a list of banned pesticides and other substances that all marijuana must be tested for before it can be approved for sale.

The presence of pesticides, however, is just one thing that will restrict recreational marijuana from being able to be sold.

“From coast to coast, all cannabis sold under a commercially regulated scheme, whether it’s medical or recreational, will have to be tested,” says Jonathan Page, entrepreneur and founder of Anandia Laboratories Inc. He is a well-known scientist in Vancouver with an

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Jonathan Page, entrepreneur and founder of Anandia Laboratories Inc., is a wellknown scientist in Vancouver with an extensive history in cannabis genetics | ROB KRUYT

extensive history in cannabis genetics.

Anandia Labs is one of 33 Health Canada-approved laboratories with responsibility for safely testing marijuana for licensed producers (LPs) and patients. There are nine Health Canada-licensed laboratories like Anandia in B.C. Cannabis testing is broken into five categories: potency, heavy metals, bacteria and mould, toxins and pesticides.

A cannabis company or patient can register with a lab that is certified to test marijuana by providing proof that the applicant has a cultivation licence.

All labs that conduct marijuana testing must have a dealer’s licence.

That licence certifies, under Ottawa’s Access to Cannabis for Medical Purposes Regulations, that Health Canada has certified the lab to test cannabis for safety concerns.

Once an LP or patient is registered with a lab, those registrants can send samples for testing. At least 50

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CANNABIZ 2017 PUBLISHED BY BUSINESS IN VANCOUVER

Marijuana-testing labs brace for sales spike

Dispensaries such as Buddha Barn in Kitsilano rely on testing facilities to ensure that cannabis is tested for impurities | ROB KRUYT

00_CannaBiz 2017_00.indd 30

milligrams of dried cannabis is required for the lab to conduct an adequate test, and the samples have to be sent to the lab via bonded courier. The lab then adds the cannabis to be tested to an inventory, which is usually held in a vault.

The cannabis to be tested is divided by weight and separated depending on what testing method the lab will use. The lab then collects data using software that condenses test results into a certificate of analysis (COA).

The lab then delivers the COA to the client.

Labs usually charge about $1,200 for what executives call a “full batch release” of testing. That testing includes screening for all five categories of harmful substances.

“The vast majority of product is destroyed in the testing process but there is always leftover, and that is destroyed with Health Canada’s permission,” Page says.

“We have to apply to have material destroyed on a regular basis. Nothing is stockpiled.”

Anandia Labs conducts testing for between 15 and 20 recurring LP clients and approximately 100 patients.

Page believes that this number will increase.

“I think there is going to be as strong an emphasis on consumer safety in the recreational market as there is in the medical cannabis market,” he says. “Testing really is the final step; it’s the quality-control step.”

B.C. Solicitor General Mike Farnworth has said that he considers safety to be a “cornerstone” of the recreational market, and the local industry is taking safety concerns as seriously as are industry insiders in Oregon, Washington and other U.S. states where recreational marijuana is legal.

“There is ample data supporting that unregulated cannabis products contain banned pesticides far more often than not,” says Tantalus Labs founder and managing director Dan Sutton.

“It is feasible that you could get sick from smoking mouldy cannabis, but it is admittedly unlikely.”

He believes that the primary health concern with smoking untested marijuana is that the product will be more potent than expected or have heavy metals and pesticides.

A list of banned pesticides is being drafted, and labs already test for more than 50 types of pesticides.

“One of the most dangerous pesticides that everyone is in a panic about is myclobutanil, which, when you heat it up, produces cyanide,” says Dhillon.

“If you ate an apple and someone put turpentine or another chemical, it might taste funny but it wouldn’t be the end of the world. If someone put cyanide on your apple, you aren’t going to be so happy.” É

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