The New Canadian Cannabis Oligarchy

Source : http://www.thefix.com/content/canadian-cannabis-oligarchy

Under new Canadian regulations, Health Canada will be minding your « cannabusiness » rather than personal growers. This oligarchy not only hurts growers, but consumers as well.

According to Health Canada, the projected value of the marijuana business is $1.3 billion (Can), but this figure is possibly grossly inflated. In the chaos of the burgeoning « cannabusiness » north of the border, it’s not just investors that could suffer. Patients, too, are caught up as Health Canada unloads their responsibilities into the private sector.

Up until March of last year, the system for providing marijuana to patients in Canada was administered under the Marihuana Medical Access Regulations (MMAR). Patients could apply to grow their own products for legal consumption with the collaboration of a doctor. Individuals had to go through a long and lengthy process to get permission to obtain marijuana for medical purposes. If they didn’t want to grow their own, there were two other ways to get hold of legal marijuana: they could designate a personal grower, or purchase it directly from Health Canada.

On April 1, 2014, Health Canada essentially did away with the home-grown method—revising the rules and establishing Marihuana for Medical Purposes Regulations (MMPR). Now, a patient has to buy legal pot through Health Canada approved growers. This has created an oligopoly, with Health Canada licensing a small number of companies to be the official producers of medical cannabis in Canada.

This made life a lot easier for the government. According to Health Canada, there were huge problems with MMAR as it existed before April 2014. There had been various public safety risks, like fire hazards and other health risks due to the presence of excess mold and poor air quality. The complex application process slowed the patient’s access to the medicine. And many patients objected to the one strain of dried marijuana Heath Canada made available. Mostly, though, the authorities were concerned with the lack of control they had over where the pot ended up. A lot of homegrown marijuana produced for medical purposes ended up on the black market.

The introduction of MMPR has shifted the burden of quality, security and production into the private sector. Start-up companies like Tweed, one of 13 Canadian Licensed Providers (LPs) and Bedrocan, the established Dutch exporter, are two of the 20 suppliers who will now shoulder the burden for the government.

But, it stands to reason that if a patient is authorized to grow their own, then they’re in a much better position due to the convenience and low overhead. Those already financially disadvantaged by severe illness don’t have to travel to get it or pay taxes on it—marijuana will be taxed like Tylenol, or over-the-counter cough drops, and users will have to pay shipping as buyers are only allowed to purchase online or through callcenters.

Though they may still produce their own, individuals’ production is capped at 150g per day, insufficient to meet daily needs. They complain that this forces them to choose between « liberty or their health » and that the cost under MMPR is much higher. Instead of $1-$4 (Canadian dollars) per gram from a home plant, the costs is doubled or tripled. Bedrocan advertise their three brands at $7.50 (Can) and Tweed lists a variety of strains between $5-$9 (Can). According to lawyer John Conroy, the leader of a federal class-action lawsuit that’s challenging the new regime, this is potentially unconstitutional. Conroy obtained a federal injunction to protect those still cultivating and in possession of drug, basically extending MMAR until a ruling could be made on the validity of complaints that patient’s right to access important medicine was being steamrolled because of the cost of commercially available marijuana.

There will be no relief for the huge price increase, either. Currently, insurance carriers will not cover stigmatized « alternative » medications, like marijuana. Clearly, the 40,000 users registered aren’t going to spend $10 a day on their medication. Matt Finston, an investment blogger at Seeking Alpha, believes Heath Canada’s projections of $1.3 billion are grossly inflated. The true sum, he believes may be closer to $500 million.

“Based on the data from Health Canada, Mettrum, and Bedrocan, it appears that the daily consumption is actually a lot lower than originally projected.”

Still, the markets are beside themselves with excitement. Possibly, it’s the whiff of something rebellious that’s encouraged Silicon Valley’s finest to invest in new pot projects, but the venture capital firm behind Facebook, SpaceX, Airbnb, announced just last month a massive multi-million dollar investment in Privateer Holdings, a private equity firm specializing in legal cannabis including Tilray, the Canadian online medical marijuana distributor. This is the first time any first division venture capitalist has invested in Canada’s cannabis business.

The cost of starting up a domestic growing center in Canada is enormous. Interviewed in 2014 by the New York Times, Tweed’s then flamboyant CEO, Chuck Rifici, spoke of the difficulty in funding the venture that has become the first publicly traded marijuana company in Canada. Largely, because of the government’s regulatory demands he believes they underestimated the money they would need by a « factor of three. » The biggest challenge was the gamble taken to secure premises before the application was submitted—the base-line requirement. The banks refused the company loans because of the stigma attached to the business. They had to convince the town of Smith’s Falls, Ontario, to let them move into the vacant Hershey factory, which had once been the main employer of the town.

Slow-moving bureaucracy and a general tightening of already strict regulations has made life for the new weed farmers even more difficult. Mounties seized mislabeled shipments bound for two Ontario weed farms in April 2014 and Health Canada recalled moldy and bacteria-ridden products from three companies. Advertising of products, in terms of therapeutic benefits and descriptive terms like « earthy » and « sweet, » have also been banned in recent months.

Commercial producers have reportedly only signed up about 14,000 clients, yet Tweed have plenty of equity generated cash on-hand to offset operating losses. Their expansion into aeroponics research may bring genuine innovation to the fledgling industry. However, unless a ruling in the federal courts falls in their favor, it seems inevitable that those patients that could actually benefit from the new marijuana industry in Canada will continue to suffer.

The trial begins this month.

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