Cannabis Crunch

I have been joking for a year that when Legalization Day arrives in BC we won’t notice any difference. I suspect that will be true tomorrow simply because very little of the infrastructure of legalized pot will be ready to go on Day 1.

The biggest difference will be that the people who will assemble to enjoy being able to smoke pot without the slightest chance of arrest (not that there is much chance of arrest now) will all be smoking illegal pot because there is, according to the Globe and Mail, exactly one fully licenced pot shop ready to go for Day 1. Plus there is and will remain a significant supply shortage as the various licenced growers ramp up the production of their “biological assets”.

The great error of the Canadian marijuana advocates was to accept “legalization” rather than demanding “decriminalization”. This has doomed Canada to repeat the American experience of creating a heavily regulated cannabis industry with so called “seed to sale” product tracking, licenced pot shops, provincial wholesale monopolies and all manner of other state intrusions. The layers of regulation might even suggest that the idea that pot is harmless does not reflect the Liberals’ actual thinking.

At the same time, the personal grow show exemption allowing the cultivation of up to four plants for personal use is going to hole the great barge of regulation under the waterline. It will not take all that many people growing to provide an abundant, unregulated, supply of potlatch pot. The potlatch element comes from the fact you cannot sell your crop, but you can give it away. A mildly competent grower – and there are plenty out there – should be able to grow a pound of pot per plant. An ambitious grower should be able to harvest 3 or 4 times per year. A pound is roughly 450 grams and if you think about that at the notional rate of $10 a gram, that is $18,000 worth of untaxed pot every quarter.

There is no question that home grows in closets will be a thing, the only question is how big a thing.

At the moment there are some very big companies involved in the cannabis business in Canada. Companies whose market caps are several times the estimated size of the Canadian retail recreational marijuana market. There are also plenty of large scale growers who have not jumped through the Health Canada regulatory hoops. There will be pressure on the federal and provincial governments to enforce the seed to sale regulation of legal pot. But there will be market pressure to ignore the regulatory scheme from pot activists, “independent growers” and, I suspect, urban and rural First Nations who have no particular stake in the regulatory scheme. Just as I can drive three miles from my home and buy fireworks on a nearby reserve in defiance of municipal and provincial law, it would hardly be surprising to see excise stamp free marijuana for sale in those same locations.

Astoundingly, the legalization of marijuana is likely to be the only basic accomplishment of the first Trudeau government. The early indications are October 17 will be celebrated with clouds of illegal pot, regulatory chaos and a boost to the grey and black markets as police and Crown will no longer have even the threat of possession charges. A few months from now there will be the inevitable “oversupply” of recreational marijuana with the corresponding drop in wholesale and then retail prices. Which, in its turn, will collapse such tax windfalls which legal pot were promised to bring.

The chaos of the Canadian “legalization” of marijuana will take a year or so to really hit home. Just in time for the October 2019 federal election.

Well, we can’t have that!

Regular readers and friends will know that I wrote a book last year entitled “Start and Run a Marijuana Dispensary or Pot Shop” (yes, hit the link and buy the book…I make about a buck). The book was written in anticipation of Trudeau’s legalization strategy here in Canada and the likelihood that many more American states would legalize recreational or medical marijuana in the November elections.

I don’t have a particular axe to grind in the pot wars. If I smoke pot I go to sleep in three minutes or less. So I don’t. If I had trouble sleeping, I would. But, politically, I think it is assinine to keep marijuana (and several other drugs) illegal. Doing media for the book I have chattered away on assorted Canadian radio programs and said, bluntly, that for the time being, opening a pot shop in Canada opened you to the business risk of “GOING TO JAIL”. My lovely publicist Hanna probably grimaces when she hear me say that but it is, absurdly enough, true.

Which was proven today.

Police officers in several Canadian cities raided illegal marijuana dispensaries linked to activists Marc and Jodie Emery on Thursday, charging them and several others with drug offences as part of an investigation led by Toronto police.

The raids were the latest attempt by local police forces to shut down pot shops that have been opening in cities across the country, even as the federal government prepares to fully legalize the drug with legislation this spring. It was also notable for the involvement of Vancouver’s police force, which has largely left dispensaries in the city alone, including those run by the Emerys.

The two were arrested at Toronto Pearson International Airport on Wednesday as part of a Toronto police operation called Project Gator. the globe and mail

Now, what is actually going on is that the prohibitionist faction in the Liberal Party, led by ex Toronto police chief Bill Blair, having lost the big argument to young Justin, is fighting a brutal rear guard action against the hippy libertarian pot people who don’t see the need for massively intrusive pot regulation. And there is no better place for such un-Canadian anarchists than court and then jail.

The game here is simple: legalization if necessary but not necessarily legalization. The dumbo Millennials who flocked to hip young Justin heard him say “legalization” and didn’t hear all the caveats. But Bill Blair did. And Bill Blair is not the sort of guy who likes any sort of disorder. (Disorder needs to be kettled in Blair world.) The emergence of a grey market in pot is disorderly. It means that the big money guys at Canopy and the other publically listed potcos might be cut out of a “bottom up” recreational marijuana market.

Blair said a day ago that Canada would not rush into the legalized recreational pot market. First there is the legislation which is expected in spring. Then there are the regulations to be worked out with the provinces…

Lawmaker Bill Blair — the former Toronto police chief leading Trudeau’s legalization effort — confirmed a bill is due in parliament this spring, but it won’t be the last hurdle as ample regulatory work remains. The federal government will take its time and work with provinces, territories and cities to build a framework and develop specific regulations, he said.

The government is also looking for ways to control production, distribution and consumption of legalized marijuana, while testing it for quality and keeping it out of the hands of minors, Blair said. bloomberg

All of which should give assorted police forces plenty of time to raid, charge and crush the emergent, unregulated, pot industry in Canada. (To save the children and ensure “purity” of course.)

Trudeau’s supporters are far too stupid to realize what is going on. In fact, Trudeau himself, who simply wants to legally be able to enjoy a joint after dinner, isn’t bright enough to realize the prohibitionists and the corporate pot guys are now running this show. He’s been played.

Marc and Jodie Emery are the go to people for media on the pot issue. Given the charges filed today, they may not be available much longer. Which is exactly what corporate pot in Canada has been pushing for.

 

(And…WTF? Vancouver too. Shame on you VPD.)

Update: 

Ottawa policeman raids pot shop

Ok, why the mask?

Masked police may make sense in terror situations but, so far as is known, pot shop owners don’t track down cops.

So why the mask. There are other pictures of the raids on Cannabis Culture with other masked officers. Why?

I can imagine the poor buggers are ashamed of themselves but that is no justification for wearing masks. I suspect the elephant gun is for taking down the maddened stoners frequenting the shops. But the mask?

The mask is about intimidation plain and simple. The hidden face of the big state showing those hippie libertarians who’s boss. Anti-terror cops sometimes wear masks although they shouldn’t because they should be proud of what they do. Secret police wear masks because they know they cannot be proud of what they do.

So, Justin, you might ask Bill Blair, just out of interest, why the masks?

 

Pot Leaks

Here are your brownies Mrs. Smith. Can I see some ID?

To my not very great surprise, John Ivison of the National Post had parts of the Canada Marijuana Task Force Report leaked to him.

What was a tiny bit surprising was to be called by “The Morning Show with Matt Gurney and Supriya Dwivedi” http://www.640toronto.com/morningshow/ at 5:30 AM this morning (Producer Ryan…you owe me baked goods.) to comment on the information disclosed in the leak. You can listen to my remarkably coherent (having been awake for a minute and a half) ramblings here.

A couple of slightly less random thoughts on the leaked material.

The leak itself is interesting and more than a little outrageous. The Report clearly favours Health Canada Licenced Medical Marijuana growers and many of those corporate grow shows are publically traded companies. Allowing the report to come out in dribs and drabs (because “translation”) could cause deep uncertainty in the public markets. The government should release the report, in toto, immediately.

Substantively, the Report apparently recommends that legalization efforts be directed at “getting rid of the $7-billion-a year black market. Sources familiar with the report, which is expected to be made public Dec. 21, say all the other recommendations flow from that guiding principle.”

It is not clear whether that “black market” includes the grey market of dispensaries and pot shops which has grown up in Canada and which continues to expand.

Using “legalization” as a weapon against the “black market” is pretty much the level of restrictive thinking I expected from the Task Force. Rather than seeing legalization as an opportunity to regularize the marijuana market, the language suggests a resumption of the war on drugs by other means.

The Task Force is apparently suggesting that the 40 Health Canada approved licencees remain the only legal source of marijuana and proposes that recreational pot, like medicinal pot, continue to be delivered by Canada Post. A nostalgic bow to the mail and a suggestion pretty certain to keep dispensaries and “Bob on the corner” in business for the foreseeable future. Here is a free clue for the Liberal government: recreational pot users are impulse buyers. As I say in my book, “The most common triggers for the decision is that, by their lights, a customer is running low on pot, has run out of pot or has been out of pot for some time but only now has the money to buy more pot.” In short, not likely to wait a week for Canada Post to deliver.

But recreational pot users may be waiting a lot longer than that. Let’s do a bit of simple math. A 7 billion dollar a year “black” market at, say, $10 per gram implies a 700 million gram market or 700,000 kilograms. According to Health Canada’s market data, Canada’s licenced corporate grow shows, in the quarter ending September 30, 2016 produced 5734 kilograms of pot and had inventory of 13,236 kg. Just for fun, lets say we take quarterly production to 7000kg. Annualized, in round numbers, 30,000kg.

Yup, the combined production of all the Health Canada licenced corporate grow shows is, optimistically, less than 5% of projected recreational demand aka “the black market”. Don’t be looking for the postie with your pot anytime soon.

There is no question that some, but not all, of the current licencees can scale up their operations; however a 20x increase in production is not likely with only 40 licencees.

Ivison’s story goes on to suggest that, at least initially, Canada Post would have a monopoly on pot deliveries. The logic here being that Canada Post would verify the identity and age of the people it was delivering to. Right. Just for fun think about how that would work. Would you go to your local post office and present ID to pick up your pot? Would the postie (for those of you who still have home delivery) ask for id at your door? Canada Post according to its 2015 Annual Report delivers millions of parcels. Some days it delivers over 1 million parcels. E-commerce is taking off and Canada Post is getting its share of the business. But a great deal of the parcel post does not involve any interaction with the recipient.

If you take the “black market” number of 700 million grams and assume people will buy in 10 gram parcels – call it $100 – that is 70 million face to face deliveries a year. There will be new jobs at the Post Office.

The only encouraging thing in the Ivison piece is that distribution and production will have to be discussed with the provinces. Ivison suggests that, at least in BC, “which already has a large number of pot shops, the expectation is that the provincial government will require dispensaries to buy marijuana from a licensed producer.” This would make a heck of a lot more sense than distributing through the Post Office.

I am waiting for the release of the actual report, but if Ivison’s article is substantially correct, the Liberal Government is being handed a largely unworkable plan for marijuana legalization. Insufficient supply, inefficient distribution and a prohibitionary mentality seem to have destroyed the entrepreneurial opportunity marijuana legalization presented.

I’m not surprised.

 

What to Look For in the McLellan Task Force Report on Marijuana Legalization

I’ve written a book about how to “Start and Run A Marijuana Dispensary or Pot Shop”. You can buy it at Amazon at this link. When you write a book about a subject which is in the news you get to do a fair bit of media. The Canadian Marijuana Task Force Report is being delivered to Cabinet tomorrow and will be released to the public “in due course”. Preparatory to that release I made a few notes for my publicist which I thought might be of interest to my readers. Here they are with a few comments below.

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The McLellan Task Force Report on Marijuana Legalization Report is supposed to be released in the next few days. The Task Force was charged with working out how best to legalize the recreational use of marijuana in Canada. Its findings are likely to determine how the Liberal government implements its campaign promise to legalize marijuana.

There are a number of questions which the Report may address:

• Regulatory regime: will the Task Force opt for a Colorado style “seed to sale” regulatory regime where every step of production and sale is tightly controlled and subject to video surveillance, inspection and high security or will the Task Force adopt a less intrusive regime closer to the regulations governing liquor or tobacco?
• Regularization of the “Grey Market”: Will the Task Force give grey market dispensaries and pot shops a route to above ground operations or will the Task Force take the position that the grey market must be eradicated for legalization to be effective.
• Growers: Will the Task Force take the position that the only growers who should be allowed to operate are those already licenced by Health Canada or will it provide a pathway for non-licenced growers to participate in the recreational marijuana market.
• Age limit: The Canadian Medical Association has suggested to the Task Force that the minimum age for recreational marijuana consumption be set at 25. Will the Task Force accept that recommendation or will it set 18 or 19 as the minimum age.
• Federal/Provincial issues: This being Canada there are a number of issues surrounding legalized marijuana which engage the Constitution. Will the Task Force recommend that marijuana continue to fall under the Federal Criminal Code and Narcotics Control act with legalization consisting of forbearance where licencing and regulations are in place? Or will the Task Force recommend leaving the regulatory details to the provinces?

The marijuana legalization debate in Canada comes down to a question of top down, centralized regulation versus bottom up, decentralized regulation.

The experience in Vancouver and Victoria suggests that a decentralized, bottom up, lightly regulated model is viable and can meet the needs of marijuana users with minimal disruption. It offers entrepreneurial opportunities and, properly taxed, could prove to be a significant, low cost, source of revenue to government.

However, against the Vancouver model, there is a significant strand of prohibitionary thought. If the McClellan Task Force takes a prohbitionary line it will treat marijuana as a “dangerous” substance which needs maximal, top down, regulation. This line will emphasize “protecting the children” and keeping “organized crime” out of the marijuana business as goals more important than entrepreneurial opportunity, competitive pricing or easy access.

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If I was to bet I would think the Task Force is going to go for a restrictive, possibly very restrictive, set of regulations regarding recreational pot.

While there are a lot of people who would like to see full decriminalization and a general bottom-up approach, there are lots more who come at marijuana from a prohibitionist perspective. Given McClellan’s background as an anti-drug health minister and a long time advisor to a law firm representing several of Health Canada’s licenced medical marijuana grow shows, the Task Force is unlikely to adopt a laissez-faire  approach.

The only question is how restrictive and comprehensive the Task Force reccomendations will be. Or, put another way, will there be room for the bottom up, Vancouver, style approach within a national framework?

A creative Task Force could craft a regulatory regime which allowed the grey market to be regularized by requiring dispensaries and pot shops to obtain their supplies from licenced growers. (And which eased the current absurd backlog of applications at Health Canada: over 1400 applications, 40 licences granted.) The retailers could be licenced at a local or provincial level – rather like private wine stores – and would have to conform to local zoning and other by-laws.

The licenced growers under such a scheme would, in effect, become the pot equivalent of wineries which are only allowed to sell to licencees. Thus, whatever quality concerns arise could be addressed at the grower level. The number, location and size of pot shops would be a purely local matter. (And, if I were designing the regs I would drop the increasingly implausible “medical marijuana/recreational marijuana distinction”.) If we insist upon preserving the medical marijuana category as a somehow constitutionally guaranteed Canadian right, then licencee growers could continue to sell to mail order customers and individuals would be allowed to grow their own or designate a grower.

You could set a federal minimum age for pot purchase but, despite there being medical evidence that long term heavy usage is not good for the young brain, it would be unwise to set it much above 19 as that would simply create black market opportunity.

This regulatory outline would allow the cannabis culture driven grey market to be regularlized while ensuring that the Health Canada “Big Pot” industrial grow shows stayed in business and allowing new entrants at the grow level. It would be relatively easy to administer and would allow different communities to craft by-laws to reflect their individual community values.

I am not holding my breath.