What’s Up in Weed

Recreational cannabis stores to be run by LCBO: Ontario

• The Government of Ontario recently announced that:
  • Cannabis retail stores will be overseen by the LCBO (the Liquor Control Board of Ontario, the province’s monopolistic alcohol retailer) through a subsidiary corporation.
  • Approximately 150 standalone stores will be opened by 2020, including 80 by July 1, 2019 servicing all regions of the province.
  • Ontario will comply with federal requirements that restrict advertising, do not permit products to be visible to youth and require a behind-the-counter type of retail environment similar to how tobacco is now sold.
• Illicit cannabis dispensaries, including those representing themselves as legal retailers of medical cannabis, are now and will continue to be illegal under the new rules. The Province stated that it “will work with and support law enforcement to shut down these illegal operations.”
• It’s no secret that Ontario’s “CCBO” government-monopoly sale model was not the dream of many business players in this industry.  Canopy Growth Corporation established Tweed Main Street Shops a while ago, a network of bricks-and-mortar footholds that seemed like they could have been easily convertible into cannabis distribution and sale shops.  Existing storefront dispensaries, which are illegal, have publicly longed for a chance at legitimacy.  Countless others have stood on the sidelines, preparing to leap at the regulatory pistol if US-style private dispensary licences went up for grabs in Canada’s most populous province.  Policy analysts have called it a missed opportunity for Ontario to capitalize on existing infrastructure.

It’s canna-planning season!  New Brunswick announces its own distribution plan

• The Government of Ontario’s plan bears a lot of resemblance to the distribution model announced last week by the Province of New Brunswick, and so there seems to be something of a trend going (if two provinces can count as a trend).  New Brunswick has come out with retail cannabis sale plans of its own, also opting for a government-run Crown corporation, but one which will work with “another entity” to run retail operations.
• Licensed producers Organigram (based in Moncton, New Brunswick) and Canopy Growth Corporation (which recently acquired a facility in Fredricton, New Brunswick) have signed on to supply the entity with a combined nine million grams of cannabis per year once the market opens.
• CBC reports that the new arm of the New Brunswick government was incorporated last week as a numbered company and has no other name yet.  Details of the retail model, how and where sales of legalized pot will be carried out, and what the “other entity” will be are to be worked out in the coming months.

All quiet on the CDS front but Sunny Ways Aphria finds possible pre-emptive solution

• Following up on my previous post about the country’s most interesting boring company, The Canadian Depository for Securities Limited, or CDS, Aphria has gone ahead and formed its own pre-emptive solution to potential clearing and settlement hurdles if CDS were to decide not to settle trades in securities of Canadian issuers with US cannabis investments.
• “In addition to the TSX and CDS, Aphria’s securities continue to trade on the OTCQB and it is a client of the Depositary Trust Company (“DTC”) and any trades in its securities are eligible to be settled via DTC,” the giant licensed producer announced in a cheerful press release.  You can practically hear the Leamington, Ontario birds chirping in the background.  Aphria is really the Sunny Ways of cannabis companies in the CDS dilemma. The next question, though, is: would DTC continue to process trades that CDS refused to settle?

Choose carefully…

• Canadians who admit to having consumed marijuana to a US border guard may be prevented from entering the US – potentially forever.
• I had a brush with US customs once on this subject.  Travelling to Las Vegas to speak on cannabis regulation at the 2014 MJBizCon Marijuana Business Conference and Expo, I was asked by the US border agent for the name of the conference I was attending.  Gulp.  “Marijuana?”  As his eyes widened, I had to quickly, politely explain that marijuana could be used by sick people to help them feel better (he had apparently never heard of medical cannabis).  Ultimately, he barely wrapped his head around the idea of the conference, and let me through.
• I’d love to hear from you if you’ve been asked about cannabis or drug use.

Rehash: quick links to other interesting news

• More than 90% of Canadians disagree that recreational cannabis will actually lower consumption among youth under 18.  57% of those polled were not confident in Ottawa’s ability to have a legal framework in place by July 1, 2018.
• In a surprise to no one, Ontario Premier Kathleen Wynne has announced penalties for impaired drivers who have cannabis in their system.  Next requirement here: a reliable roadside test for cannabis.
• California, which apparently may export as much as seven times as much cannabis as it consumes (I’ll let that sink in), is having a hard time getting cannabis growers out of the shadows and into a regulated program, with only months to go until legalization of recreational cannabis in the state. (Thanks to CB for this link!)

Wanted: Business Sense

• Let’s come back to Ontario for a moment and take a closer look at its cannabis distribution announcement.  I have some opinions.  First, it’s not all bad news.  CCBO staff will be properly trained in cannabis products and public health information.  Good, I guess?
• In searching very hard for a nice thing to say about the LCBO, I would venture that it does a decent job of presentation inside its stores.  Probably too good of a job, considering the harm its product causes.  Maybe that interior design talent will be passed down to the CCBO.
• Or maybe it will be totally irrelevant.  According to the Province, cannabis products will be kept behind the counter similar to cigarettes.  Ontario’s announcement attributes this policy to “federal requirements”, although I can’t find any such requirement in the Cannabis Act.  Sure, there are restrictions on advertising, promotion, and visibility to youth, but I see no requirement in the draft Act about product placement within stores.
• In fact, if cannabis products are stocked similar to how tobacco is now sold (their words, not mine), this suggests that they could even be stored behind closed cabinets.  Hopefully this depressing vision is not the plan.  Not only would a cigarette-like presentation do little to reduce the stigma around medical cannabis use, but it could also make the glass-countered, apothecary-style illegal dispensary down the street all the more inviting.
• A better plan would be to simply not let underage people inside the store, and then design a mature, professional retail environment inside.  Here’s an example of a Colorado dispensary which did just that:

• Secure, non-promotional, and not visible to youth don’t have to mean ugly.
• The next talking point in the Province’s announcement is its non-statement about enforcing the law against illegal dispensaries: “Ontario will work with and support law enforcement to shut down these illegal operations.”
• That would be the same law enforcement that is publicly announcing they will not have the resources to enforce the Cannabis Act by July 1, 2018, D-Day for the federal government’s plan to enact the Cannabis Act.  They’re supposed to solve Ontario’s dispensary problem at the same time?
• Because it’s not like the police have spent the past two years wandering into dispensaries looking for a bathroom.  Project Claudia, which involved police raiding 43 dispensaries and arresting 90 people, has resulted in charges dropped against 72 of those individuals.  Most dispensaries reopened, and continue to reopen, within days. The reality is, illegal dispensaries have big profits, little overhead, and resilient ownership, and Project Claudia and subsequent raids have had little impact on them.  If they had, Weedmaps wouldn’t look like this.
• Maybe the “work with and support” part of the Province’s announcement is code for “fund” – that’s the only way this remotely resembles a solution.
• Because if the extent of the Province’s plan is to “work with and support” law enforcement to do exactly what they have been doing over and over already, then telling us that we should all expect a different result is the definition of… well, you know.
• Unless we’re getting our very own Ministry of Magic to oversee coordinated dispensary disappearances, the Province should recognize that the criminal law is a terrible regulatory tool, and a better way to combat dispensaries is through simple economics: out-price, out-product, and out-convenience them.  Just like many people choose to purchase music on iTunes for a nominal sum instead of downloading it for free, it is possible to beat the dispensaries at their own game if you offer a good enough alternative.
• Price and product range are unknowns right now.  Although medical cannabis is priced around $8-12 per gram, the price point of recreational cannabis will be significantly influenced by federal and provincial taxes.  Product range will be governed by the federal government’s highly-anticipated edibles regulation(s) to the Cannabis Act, still unreleased.
• Convenience and capacity are big factors, too, and we have a bit more data to work with there.  Ontario has promised 150 standalone stores by 2020, including 80 by July 1, 2018.  Let’s run the numbers.  13.6 million people live in this province.  Conservatively assuming only 5% of them would be interested in purchasing recreational cannabis regularly (government data suggest that 10% of Canadian adults use cannabis recreationally), that makes for 680,000 customers attending 80 stores, or 8,500 regular customers per store.  Are these stores going to be ready for that kind of capacity?  Will their locations and hours be convenient and stocked-up enough to justify passing by a bunch of illegal dispensaries on your way there?
• Government of Ontario, if you can hear me, it’s not too late.  Let’s keep our fingers crossed for a little business sense in all of this.