Vancouver marijuana storefronts blamed for licensed producers falling short of expectations

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      Canada’s legal medicinal-marijuana suppliers are struggling, and part of the reason why is Vancouver’s illegal cannabis storefronts.

      “There is no question it has been a challenge,” Tilray CEO Greg Engel said in a telephone interview. “The proliferation of illegal dispensaries has had a significant impact.”

      In June, the Nanaimo-based company, one of the largest legitimate suppliers of cannabis in the country, revealed it was eliminating 61 of 187 staff positions. More recently, Engel told the Straight Tilray has delayed previously announced plans to expand from 60,000 square feet to an operation more than five times that size. “For now, we have ample inventory from our first facility to serve the market on a consistent basis,” he said.

      According to information supplied by Health Canada, Tilray isn’t alone in failing to meet expectations for sales that were sky high when the federal government introduced its new framework for medicinal cannabis on April 1, 2014.

      Since that date, companies licensed under Ottawa’s Marihuana for Medical Purposes Regulations (MMPR) have collectively experienced growth from one quarter to the next, but slowly. What’s more, authorized companies are producing and storing significantly more marijuana than they are selling.

      MMPR–authorized companies (of which there are now 25) together sold 408 kilograms of marijuana during the second quarter of 2014, 596 the quarter after that, then 789, and then 979 kilograms during the first three months of 2015.

      Meanwhile, the amount of marijuana stockpiled in company inventories grew from 1,134 kilograms at the end of June 2014 to 4,810 kilograms as of March 31, 2015.

      Health Canada declined an interview request and would not provide the Straight with a breakdown of MMPR sales by province. However, some information is provided in an April 2015 email written by Health Canada bureaucrat Eric Costen and released in response to a freedom of information request. It states that between October 2013 and February 2015, MMPR producers sent 5,272 shipments to addresses in B.C., accounting for seven percent of the national total.

      Although B.C. bought only seven percent of Canada’s legal cannabis, the province is home to almost half of all patients authorized to possess medicinal marijuana (48.7 percent, or 18,383 people as of December 2013, the last month Health Canada made province-specific information available).

      According to Cam Battley, communications chair for the Canadian Medical Cannabis Industry Association, that disparity suggests British Columbians holding doctor’s notes for cannabis are finding their medicine outside of Ottawa’s mail-order system. With more than 90 marijuana dispensaries illegally selling cannabis over the counter in Vancouver, he added, it is an easy guess where that might be.

      Battley, however, said those challenges are largely confined to Western Canada. “We notice the impact of B.C. dispensaries in B.C.,” he emphasized. “There is a certain culture and a certain comfort level with dispensaries, and we are not seeing that across Canada.”

      There are however signs MMPR producers outside of B.C. are similarly struggling to meet expectations. For publicly traded companies, share prices have stumbled. Bedrocan Cannabis Corp., for example, saw its stock hit a high of $1.17 in September 2014 before dropping to a price of 80 cents today. In October 2014, Mettrum Health Corp. debuted on the TSX at $2 a share but, since then, has fallen steadily to a value of $1.50. And in November 2014, the price of a share of Tweed Inc. spiked at $2.88 and now its stock is currently worth about $1.85 per share.

      Health Canada

      Engel noted dispensaries aren’t the only force affecting indicators like staffing levels. He said Canada’s cannabis industry is still in its infancy, and as companies scale up operations, they learn more cost-effective production methods. Engel maintained that the layoffs announced in June were as much a result of good news as of bad.

      “That was a combination of the market having not grown as we had anticipated but also some efficiencies in our facilities,” he said.

      Engel cautioned, though, that he sees new challenges on the horizon—for example, a creeping acceptance of recreational marijuana.

      “Go back six months ago: many of the dispensaries were looking to have some type of semilegitimate medical association,” he said. “We continue to hear that that is no longer the case, that many of the dispensaries are now simply acting as recreational distribution points.”

      Battley remains optimistic. He reported that MMPR producers are collectively seeing their patient base grow at a rate of 10 percent per month, adding: “We’re quite bullish on the future.”

      Comments

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      21 Comments

      Dana_Larsen

      Aug 12, 2015 at 5:42pm

      These guys should be grateful to dispensaries, because without the work we've done and the court cases we've funded, the Licensed Producers would not exist.

      Most recently, dispensaries put in about a quarter million dollars to a Supreme Court case which has forced Health Canada to license the LPs to sell edible cannabis oils and extracts.

      Just another example of how they really owe us a debt of gratitude, but instead they're in the media calling for more tax dollars to be spent busting their competitors.

      Mike from Nelson

      Aug 12, 2015 at 6:07pm

      I'm a little confused where all of the surplus marijuana is coming from. Your graph shows Q4 production at 2000kg, sales at 1000kg, yet the inventory number jumps up by 2000kg. Are some of the companies importing marijuana?

      Ronald McChronald

      Aug 12, 2015 at 6:40pm

      I have to be completely honest. The reason they have stockpiles of weed and no one to sell it to is simply because its no good. The weed is crap and no one wants to smoke it. These companies go into the game thinking they can grow weed people actually want to smoke. Nope! A very few licensed growers actually know how to grow marijuana, and I have the pleasure to receive product from them. Unfortunately, they would not sell weed to dispensaries unless they paid a premium and most cant afford it so they sell lower grade marijuana from large weed farms who cant control quality. Unless you have been smoking pot your entire life, you should not be growing it. Its as simple as that!

      Ronald McChronald
      Founder & CEO of McChronalds

      Alan Brochstein, CFA

      Aug 12, 2015 at 8:25pm

      Dana, I certainly understand your perspective and appreciate all that you and others have done. With that said, is it feasible that the situation could evolve in a way that dispensaries could work with the MMPR LPs?

      Sheldon

      Aug 12, 2015 at 9:37pm

      Only smokers should be doing the growing. It is the lifelong daily smokers who know the product best. If you wouldn't smoke it yourself you shouldn't be willing to sell it to patients in need. Greed leads to cut corners and lack of quality

      Dee Chardain

      Aug 13, 2015 at 9:26am

      Cannabis is a powerful plant medicine when used appropriately (ie. epilepsy, ms) but much of what now passes as medical marijuana is self-indulgent instant gratification inebriation hype ... The only permanent & lasting high is positive intention, positive thinking & positive action ... Being high on Life!

      Yes Mayor Robertson ... please do knock that pretentious scourge off the civic landscape.

      @Alan Brochstein, CFA

      Aug 13, 2015 at 9:28am

      Dispensaries and LPs only exist due to fascist regulation of the market. Cannabis is a garden vegetable, and only slaves are told by Master which vegetables they can and cannot grow---this was how feudal agriculture worked; the slave had to grow so much wheat so that he could render it as rent to his Lord.

      What we need is legalization, ASAP. Then the people who know what's what will grow enough and give away lots of it, because people who know about the cannabis plant know it doesn't enjoy being grown for profit; it's a sensitive creature, you know, and if you're a cash cropper, it won't kill itself to spite you, but it won't express the most desirable phenotypes. Plants, like people want to be free. This terrifies the thousands of dropouts in the industry. It literally terrifies them because then they'd have to get straight jobs.

      Why don't we have a "tylenol dispensary" selling tylenol for $8-$15/gram? Because it is cheap as chips and can be sold in gas stations, supermarkets, etc. Cannabis belongs in the produce or spice aisle, not in the drugstore.

      Owen Smith

      Aug 13, 2015 at 9:38am

      2 things. My understanding is that licensed producers with foresight have been stockpiling material to make extracted cannabis products with, to capitalize on the SCC ruling Dana mentioned, which was my case.

      The "semilegitimate medical association" that engels refers to is CAMCD and they have not gone away and have instead been steadily growing. It seems that mr engels would like people to believe that the long-standing medical cannabis dispensaries, like the one that launched and funded my cannabis extracts case, are choosing to sell to recreational users. This is indicative of his bias and doesn't imply any likelihood of LP's like Tilray working with existing dispensaries.

      Greg649

      Aug 13, 2015 at 9:48am

      Pricing and quality are key factors that drive consumer decisions. If government prices/quality are not competitive, this will be reflected in sales volume.

      Travis Lupick

      Aug 13, 2015 at 10:16am

      @Dana_Larsen and @Alan Brochstein, regarding Dana's comment, "These guys should be grateful to dispensaries..."

      Both Greg Engel and Cam Battley did express gratitude towards dispensaries during my interviews for this article.

      They both gave credit to dispensaries and specifically to Vancouver dispensaries for paving the way and changing attitudes. I didn't have room in the article (it was for print) to include those comments.