The Verdict is in, and Year One of Legalized Cannabis in Canada was a Dud

Article by Jameson Berkow, Globe and Mail

The verdict is in, and Year One of legalized cannabis in Canada was a dud JAMESON BERKOWCANNABIS PROFESSIONAL REPORTER The bulk of cannabis sales are still underground. JEFF MCINTOSH

There’s no getting around it: Year one of legalized cannabis in Canada was a dud.
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It was an unmitigated disaster for many investors. The bubble burst, and the shares of most large Canadian marijuana producers dropped by at least 50 per cent. The public markets are largely closed to the industry; at the moment, there’s simply no appetite for more pot stocks.
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The Trudeau government’s goal wasn’t to make shareholders or investment banks rich, though. It was to whittle down the black-market marijuana business. Giving cannabis users a place to buy regulated marijuana would generate new tax revenue, open up new business opportunities and reduce the burden on police and the courts.
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By that measure, the first year was underwhelming, to say the least. The best estimates are that the legal market represents somewhere between 12 per cent and 30 per cent of cannabis consumption. The bulk of sales are still underground. That’s partly because the rollout of stores has been so slow in Ontario, where a new provincial government did a U-turn on retailing policy just weeks before legalization day on Oct. 17, 2018.
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Some of this will get ironed out in Year 2. But entrepreneurs across the country say new products and more stores will not be enough to turn the Canadian cannabis industry into a world leader. They point their fingers squarely at governments for their approach – which, they say, has been to legalize but then overregulate, rather than get behind the sector.
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At every link in the newly built cannabis supply chain, there is a common feeling among growers, processors, wholesalers, retailers and even delivery drivers that governments at all levels are messing up the legalization process. Many feel their sector is stuck between two worlds: They are both law-abiding and shunned. Cannabis companies must comply with a thicket of new regulations, including severe restrictions on advertising, sponsorship and other brand-building activities, but many still cannot access basic financial services or tax credits, employment incentives and other government help made available to other sectors.
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A number of industry participants say the federal government brought in the Cannabis Act with great fanfare a year ago, but then stepped away from the file, leaving most of the work to Health Canada, whose primary interest, naturally, is in enforcing Ottawa’s rule book rather than seeing the industry develop as an economic force.
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In the meantime, cannabis producers have struggled to offer low-cost, high-quality products capable of enticing consumers away from illicit alternatives. Thousands of independent farmers who have been refining the art of cannabis growing through the medical-marijuana system for decades are still looking at the recreational sector from the outside, unable to get in.
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Over the course of three weeks, The Globe and Mail’s Cannabis Professional news service travelled more than 7,000 kilometres across Canada, visiting 14 communities in 10 provinces to learn what those on the front lines of the industry say about the fight to make legalization a success, and to make inroads in a market dominated by established criminal enterprise.
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“My hope for whichever party gets into power [in the Oct. 21 federal election] is that they seriously rethink the entire cannabis system,” said Rudi Schiebel, chief executive of Habitat Craft Cannabis Ltd., a licenced microcultivator in Chase, B.C., that uses aquaponics to farm both cannabis and salmon.
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“The barriers to entry make it incredibly hard for the expertise that exists today to enter the market [and] instead of empowering our competitive advantage in Canada, the government has systematically treated both the growers and the users looking for quality cannabis as a nuisance.”
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Mark Spear spent two years working for industry giant Canopy Growth Corp., when it was still known as Tweed Marijuana. He is now the CEO of a cannabis startup that guides existing farmers who want to apply their generations’ worth of cultivation expertise to cannabis.
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He says with his company, Wildfire Collective, filling a void of assistance to farmers, it’s another symptom of Ottawa’s “nonchalant” attitude toward legal cannabis that is allowing a Prohibition-era mentality to remain part of mainstream society.
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“While cannabis was legalized federally, you wouldn’t know it in many cases,” Mr. Spear said. “From provincial and municipal fear-mongering on the risks of retail or cultivation, to suspended bank and social-media accounts … the federal government in particular should be working closely with other levels of government to ease misguided anxiety.”
Some say government ambivalence begins at Health Canada. No other sector of the economy is managed by a single federal agency with no economic mandate.
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“They have let one department [Health Canada] manage the whole file, and if they want to grow the sector, they can do more from a multidepartmental base within the government to really support the sector in a more pro-active and open way,” Jeff Purcell, senior vice-president of operational services at Organigram Holdings Inc., said during a tour of the company’s massive cultivation facility in Moncton. The operation employs 750 people and is expected to surpass 1,000 in the near future.
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“They really could stand to put more resources toward understanding the sector a bit better,” Mr. Purcell said.
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Several industry insiders also pointed at provincial and municipal governments as part of the reason for the legal industry’s slow start. Mr. Spear’s company, for example, had to abandon one site where it had been planning to build an indoor cultivation facility after the local township expressed concern and threatened to change its bylaws. Several months later, after Wildfire had invested time and money finding a new site, the township invited Mr. Spear to return, having since realized his business would be overseen mostly by the province.
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Omar Yar Khan, a political strategist and vice-president of communications firm Hill and Knowlton, said that if Ottawa really wants the industry to succeed, it should consider the creation of a cannabis-sector strategy.
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“The federal government has a life-sciences sector strategy and they will have an advanced manufacturing sector strategy and a machine-learning sector strategy, but there is no cannabis-sector strategy that I am aware of at the federal level,” said Mr. Khan, who works with clients in the cannabis business.
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Other federal departments should play a larger role, he said; this would allow the sector targeted grants, financing for new equipment and tax credits for investments in R&D, among other programs.
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“Up until now at the federal level, anything to do with cannabis has been based out of Health Canada and out of Public Safety, but it would make sense, particularly after the election, to feed some responsibility, particularly around the economic development aspects of the industry to the [Ministry of Innovation, Science and Economic Development],” Mr. Khan said. “Provinces are responsible for health care, but that doesn’t mean that there is no health innovation strategy in Ottawa, of course there is.”

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