Ups and Downs in the Canadian MMJ Industry

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By Tony C. Dreibus

New regulations in Canada designed to improve access to higher quality medical cannabis have shaken up the market.

The rules have left some patients with few options to purchase and consume their medication, leading to several lawsuits. Meanwhile, the licensed cultivators and sellers who are now responsible for supplying safe, tested cannabis are laying down expansion plans amid optimistic growth forecasts.

Canada legalized medical marijuana on a federal level 15 years ago, and last year put in place new regulations that have smoothed the road for marijuana entrepreneurs. The path, however, has been a bumpy one, and further uncertainty looms on the horizon.

New Regulations Gives Boost to Licensed Operators

Health Canada, the agency tasked with overseeing the country’s medical cannabis program, implemented a set of rules last year known as Marihuana for Medical Purposes Regulations (MMPR) which outlined rules for growing, buying and selling MMJ in Canada. The rules replaced an earlier program under which patients could grow their own cannabis.

Under the new regulations, all marijuana is grown at one of 23 government-approved cultivation facilities and is tested for THC levels and microbial contaminants with inspection standards on par with those required of pharmaceutical companies, according to Health Canada. Seventeen of those cultivators are also licensed to sell finished product and ship it directly to consumers.

With the number of patients expected by Health Canada to reach 450,000 by 2024, the changes have been a benefit to large growers such as Tilray, owned by Privateer Holdings, a U.S.-based investment company that also owns the dispensary listing and strain review site Leafly.

Tilray said last month it received approval to add 16 new grow rooms in addition to the eight the company announced in January. The additions will nearly triple the grow space the company had in 2014, the company said on its website.

Broken Coast Cannabis, another operator with both a cultivation and sales license, sold a 49% share of its company earlier this month to Australia’s Capital Mining for $7 million in cash plus $25 million in stock options. The investment money will help Broken Coast more than double its production capacity, Capital Mining said.

Banking, Safety Successes

Marijuana’s legal status positively impacts the industry in an area where US business owners are stymied: Banking.

“We don’t have a roadblock in regards to banking,” Privateer’s Brendan Kennedy told the business network CNBC. “We don’t have a roadblock in terms of conflict between state and federal law.”

Another knock-on effect of the MMPR’s implementation has been increased scrutiny of the marijuana that’s being sent to patients. The government-approved marijuana growers must have their product tested to detect several impurities including carcinogens and mold, which has led to several product recalls.

While that may have short-term impacts on sellers, it also goes a long way to allay fears by anti-cannabis advocates that patients are receiving substandard marijuana, a common refrain in the US.

Limited Access Leads to Lawsuits

But not everyone is cheering the changes in the market.

Although the new program ostensibly provides better access to higher-quality cannabis, the new regulations don’t fully take into account patients’ needs, said Dieter MacPherson, the executive director of dispensary Victoria Cannabis Buyer’s Club. MacPherson is an adviser to the Canadian Association of Medical Cannabis Dispensaries (CAMCD) and the co-founder of software company Canlio Ltd.

The MMPR made growing cannabis at home illegal, leaving government-approved cultivators as the only lawful source for MMJ. Also illegal are dispensaries and any forms of MMJ other than dried flower. Because of these restrictions, the price patients pay has jumped almost tenfold and those who don’t enjoy smoking marijuana, rather than consuming it as an edible or elixir, have few alternatives.

“Diversity of choice and access is paramount to patients’ well-being,” MacPherson said. He said that on the government’s priority list, “secondary, or maybe even tertiary, concern is what’s right for patients.”

The access changes prompted a lawsuit heard in Canadian federal court last month pitting home growers against the new government regulations. In the meantime, patients are allowed to continue home cultivation under a temporary injunction order.

A separate lawsuit involving production of edibles is currently being considered by the nation’s Supreme Court.

In that case, a man was caught baking marijuana-infused cookies for members of the the Victoria Cannabis Buyer’s Club . The charges against Owen Smith were dropped as prosecutors entered no evidence, and Smith filed suit to challenge the constitutionality of the law – specifically, that people who are authorized to possess and use cannabis should not be forced into a particular consumption practice. Smith prevailed, and the federal government has appealed.

Other lawsuits have been filed against the government, including one spurred by a Health Canada mailing to registered patients informing them of the changes in the law. The flyers contained the program’s name, indicating that recipients were part of the MMJ program. The plaintiffs, who number in the hundreds, claim the federal government violated privacy laws and disclosed health information.

Reclassification of Cannabis?

While there are benefits, and the government is doing its best to regulate MMJ, declassifying or reclassifying cannabis so it’s not considered a controlled substance would go a long way in fixing the problems the industry faces, Victoria Buyer’s Club’s MacPherson said. By classifying it as a narcotic, any government regulation “is colored by the fact that they don’t support this as medicine,” he said.

“On one hand they say they want to treat marijuana as a controlled substance because it’s harmful to humans, so the government has a mandate to contribute to public safety,” he said. “But it’s a red herring that we need to protect patients looking after their health.”

Tony Dreibus can be reached at