Corporations move in on Canada's medicinal cannabis industry

As a result of policy changes introduced by the Conservative government, corporations are taking over medicinal cannabis, concentrating business in the hands of people with ties to Big Pharma.

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      One morning in February, Nanaimo councillors and business leaders met in an industrial area about 20 minutes from the city’s downtown.

      The building they stood before is nondescript. But, recounted Sasha Angus, CEO of the Nanaimo Economic Development Corporation, “It’s like a vault wrapped by Fort Knox wrapped in a castle.

      “Cameras, vibration sensors, and a lot of time and effort,” he continued, describing the facility’s security measures. “There’s a vault that’s two feet thick with more vibration sensors. It’s about one level below a nuclear-missile silo.”

      What all those precautions keep safe is one of the largest marijuana grow-ops in Canada: 60,000 square feet, with plans to scale up to an operation more than five times that size, according to a rezoning application that Nanaimo council approved last December.

      Angus noted that the group was impressed by the facility, which is more akin to a pharmaceutical laboratory than your stereotypical marijuana operation. There are white walls, bright lights, and glass cages holding dozens of strains and thousands of plants.

      “It’s incredibly clean,” Angus said. “Each room is designed with perfect climate control and all of the different pieces that you need to make sure you have the best-quality product for your patient.”

      Asked if there was anything seedy about Nanaimo’s most respected citizens touring a grow-op, Angus noted that the company, Tilray, cultivates a medicinal product with a federal licence. He suggested that nothing separates it from any other legitimate business that calls Nanaimo home.

      “We actually helped bring them to town,” Angus added. “They’re a great corporate citizen.”

      Corporate may be the operative word.

      Tilray declined requests for an interview. However, the company’s new CEO and a 25-year pharmaceutical veteran, Greg Engel, recently shared his thoughts on marijuana in an online essay published by the Huffington Post.

      “Medical cannabis was grown in dangerous and unsanitary conditions without any form of oversight or standards to ensure consistency, quality, safety and integrity,” he wrote. “That’s changed under the new system as we are transforming the industry to be more like the pharmaceutical industry.”

      Engel’s article ran under the headline, “Why I’m leaving big pharma for medical cannabis”. A look at B.C.’s authorized marijuana producers reveals the transition may not have been much of a shift.

      The creation of an expensive pot oligarchy

      On April 1, one year will have passed since Health Canada’s Marihuana for Medical Purposes Regulations (MMPR) replaced the previous set of rules. There have been public stock offerings, American investment bankers have entered the game, and buyouts and mergers have seen millions of dollars change hands.

      Tilray is one recipient of 25 licences issued under the MMPR, which, in the words of Health Canada, “establishes the conditions for a secure and efficient system that provides access to marihuana”.

      The MMPR requires that all 55,180 Canadians authorized to possess medicinal marijuana (as of October 2014) fill their prescriptions via mail order from federally approved producers.

      According to Health Canada, 1,224 companies have applied since the introduction of the MMPR. Of those, 881 were refused or withdrew from the process. Meanwhile, about 320 remain under review.

      By October 31, 2014 (the period for which Health Canada supplied data), 16 of the 25 companies licensed sold 1,400 kilograms of dried marijuana. (Nine companies can cultivate but are still waiting for final approval to sell.)

      The government expects all of these numbers to grow. “The proposed MMPR would enable an entirely new industry to be created in Canada,” reads a 2012 assessment. That document estimates by 2024, the size of the market will expand to 450,000 consumers spending $1.3 billion annually.

      In October 2013, the Straight reported smaller business owners warned Health Canada’s new system would create an expensive pot oligarchy. Now, they say that prediction is coming true.

      Following trends for healthier eating in the food industry, the Whistler Medical Marijuana Corporation offers organic pot certified by the Fraser Valley Organic Producers Association.
      Lift Cannabis

      Eric Nash has grown medicinal marijuana in Duncan, B.C., with an old Health Canada permit since 2001. But he’s struggled since the introduction of the MMPR, stuck doing consul­tancy work for other companies until Health Canada gives his company, Island Harvest, final approval to sell.

      “Health Canada does not want small producers in the program,” he said. “It looks like we can’t be a piece of this industry as a small business, and that is really unfortunate.”

      According to Nash, the most obvious proof of Health Canada’s preference for corporate growers is the startup costs associated with security requirements. “You can’t even get into it now for $1 million,” he emphasized. “It pretty much eliminates the ability for small business to take part.”

      Nash’s estimate for security costs roughly matches numbers provided by everyone interviewed for this story. To grow marijuana in accordance with Health Canada regulations, businesses are spending $500,000 to $1 million or more before they can even begin to sell product.

      Stringent requirements on matters like security and bookkeeping must be met on a continual basis. According to the government’s 2012 analysis, that will cost producers between $290,000 and $395,000 a year.

      John Moeller is the cofounder and general manager of Broken Coast Cannabis, which also grows in Duncan. In a telephone interview, he told the Straight the struggle for his group (whose operation covers just 12,000 square feet, compared to Tilray’s planned 345,000) wasn’t so much financial as it was bureaucratic.

      “The application itself was very large and very complex, with a lot of facets to it,” he said. “Writing and understanding it was a challenge in itself, and then you have to put it all into practice and build the facility accordingly. That is definitely not a simple thing for a small company to do. And it looks like it’s getting more difficult.”

      Whistler Medical Marijuana Corporation founder Christopher Pelz is a fan of the new rules. Noting his company offers organic pot certified by the Fraser Valley Organic Producers Association, he argued regulation is what’s required to help clean the industry of unchecked pesticides and chemical fertilizers.

      Pelz argued the most determined can make it, but he agreed regulatory costs will likely weed out most mom-and-pop shops.

      “The evolution of the business after 12 months here [since the MMPR took effect] is showing that the capital costs are favouring the bigger companies,” he said. “What likely will start to happen is you’ll maybe see the bigger companies start to absorb the people that are in the lineup.”

      A trend towards a smaller number of larger producers

      Health Canada has long refused to grant the Straight an interview on the topic of marijuana. A bolded message at the top of its website on marijuana emphasizes the Conservative administration’s opposition to the medical applications of cannabis. “The Government of Canada does not endorse the use of marijuana, but the courts have required reasonable access to a legal source of marijuana when authorized by a physician,” it reads.

      The B.C. Ministry of Finance declined a request for an interview on the taxation of marijuana. According to spokesperson Jamie Edwardson, Ottawa’s system dictates medicinal marijuana is taxed based on a person’s province of residence. B.C. does not collect provincial sales tax on medicines and, since marijuana sold under the MMPR is classified as such, the province is seeing little in the way of financial benefits from medical cannabis. (Marijuana sold for recreational use would be a different story. When the previous minister, Kevin Falcon, was in office, he shared his thoughts on pot’s potential: “The revenues are very enticing to this particular minister of finance,” Falcon said in 2012.)

      The MMPR is presently in the courts, subject to a lawsuit that claims a prohibition on cultivation for personal use is a contravention of the Canadian Charter of Rights and Freedoms. John Conroy, the lawyer arguing that case, told the Straight a victory for his clients wouldn’t necessarily disrupt the business of Health Canada’s established growers.

      “A lot of people make their own beer, a lot of people make their own wine—it hasn’t been a problem for the brewers,” he said. “I don’t see personal production preventing the development of the market.”

      B.C.’s authorized growers have so far mostly decided to remain private companies. But a number of MMPR–licensed operators across Canada have gone public. A look at three Ontario businesses reveals the value of legitimate operations and a licence from Health Canada.

      When in August 2014 Bedrocan Cannabis Corp. appointed a trio of former life-science executives to its board of directors and went public through a reverse takeover, the company’s stock price tripled, from 40 cents a share to $1.17, on the first day of trading. In October 2014, Mettrum Health Corp. debuted on the TSX and its stock price jumped from 15 cents to $2. And when Tweed Inc. named a former DelMar Pharmaceuticals executive to its board of directors, its stock recovered from a near low of $1.80, surging to $2.88.

      Tilray is owned by Lafitte Ventures, a Nanaimo company that in turn is owned by Seattle-based Privateer Holdings. Privateer has made headlines for an influx of cash worth millions it received in January from Founders Fund, a major financial player in Silicon Valley run by PayPal founders Ken Howery and Peter Thiel.

      Financing a number of B.C.’s other private marijuana operations is a group of investment bankers and entrepreneurs based in Toronto. According to the website of PharmaCan Capital, the group owns 100 percent of In the Zone Produce, which is located in the Okanagan Valley; holds a 21.5-percent stake in Whistler Medical Marijuana Corporation; and has the option to acquire a 25-percent interest in Evergreen Medicinal Supply, an MMPR applicant based in Victoria.

      On the phone from Toronto, PharmaCan president and CEO Paul Rosen said investing in cannabis is just like investing in other sectors in which he’s had dealings.

      “Marijuana as a black-market industry is probably very different from other industries,” he said. “But participating in the delivery of a regulated program where government is giving licences to companies—the fundamental principles that would guide a business to success or failure are highly relevant to the emerging legitimate medical-marijuana industry.”

      Marijuana sellers in U.S. states that have legalized pot for recreational use have encountered trouble banking on account of federal laws that still outlaw the drug. But in Canada, Rosen reported, that hasn’t been a problem. He noted Toronto-Dominion Bank handles the money for two of PharmaCan’s marijuana investments, the Bank of Nova Scotia deals with a third, and Moneris Solutions processes credit-card payments. “We don’t have issues opening bank accounts at all,” he said.

      Where does Rosen see the industry headed?

      “There is a trend line forming towards a lesser amount of larger licensed producers rather than a larger amount of smaller licensed producers,” he concluded. “I’m quite confident Health Canada wouldn’t look credibly at any company if they were not larger in scale. I think the likely minimum capital to get a licence is measured in millions, not hundreds of thousands, of dollars.”

      Comments

      17 Comments

      Nanaimoguy

      Mar 18, 2015 at 3:12pm

      The MMPR has been an absolute catastrophe for patients. High prices are the number one obstacle for patients... medical cannabis should not be viewed purely through the guise of what it means as a commodity. What does it mean TO PATIENTS when only a few corporations own an this industry? That is the type of question we should be asking. This article is almost congratulatory. Coming from the pharmaceutical industry...these guys acting like they are here to be kind to benefit patients and act ethically in all regards is truly a laughable notion. We have a chance to build things right and we are wasting it...so shame on Tilray for their complacency and shame on Health Canada for putting patients through the ringer the way that they have....seriously what is this thing...an advertorial?! And for those of you out there who actually care about this topic... if you are actually sick and your life or that of a loved one actually depends on this matter...know this: Growers collectives in Spain empower citizens to own a few cannabis plants that are grown under a regulated system by the collective and deliver the medicine to the consumer at only a few dollars on the gram. Health Canada cannot seem to envision a world that does not rely on corporate oligarchies but this article does little to fight the notion that we should resist the same. That this take over does not benefit the people that this system is supposed to serve. Cant we point that out? Is that not safe reporting? Has Tilray bought up too many adds in your paper? Well that's what the comments section is for right, now worries! We are not talking about liquor or cigarettes here. Cannabis means life and death for some people and an improved quality of life for many more. That makes the ethical dilemma completely different and we need to start acting like it.

      Blergh

      Mar 18, 2015 at 4:40pm

      Gosh, I remember when people wanted to legalize drugs! The only justification for this horrible overwrought security is that cannabis is worth more than many other things pound for pound. Once it is legal, there is simply no need for any security beyond that which we have for tomatoes.

      But even under prohibition, the regulations are ridiculous---they have requirements governing the thickness of walls, etc. because, you know, we live in an action-thriller movie where people do things like bore through walls in order to get at the sweet, sweet marihuana inside. Has that ever actually happened?

      When it comes to drugs policy, the inmates have been running the asylum since the 1890s, when opium prohibition came to BC, which is when the Pharmacy College members were granted a monopoly on its sale within municipalities. Good to know that frat-house style "solidarity" comes before liberty or security in BC and Canada!

      francis

      Mar 18, 2015 at 6:58pm

      my god, everyone should simply be allowed to grow this harmless, healing plant in their backyard gardens, if they so choose; and even share their beautiful buds with family, friends & neighbours. whether it be for medicinal or recreational use, the prohibition of marijuana is such a draconian policy. if our drug laws made any sense at all, we'd prohibit alcohol & tobacco products instead; both of which are responsible for thousands of early deaths every year; whereas marijuana has never killed anyone, ever. and the drug WAR itself has killed exponentially more people than any drug possibly could. our drug laws are are just asinine.

      Buddisle

      Mar 18, 2015 at 10:00pm

      There is one universally known truth in Canada. Government has the " Midas Touch". In reverse. The illegal pot industry will thrive, the gov't sanctioned enterprise will be a giant fail. I hope those who invest in it can afford to suffer financial losses. There are simply not enough medical marijuana patients to support their expectations of great financial gain. High prices and poor quality will insure failure. Legalization will be the final blow to this ill conceived enterprise.

      Dan V.

      Mar 19, 2015 at 5:12pm

      Oh look. The elite, rich, and powerful are once again moving to 'administrate' (dictate) self-serving terms to the general public.
      Nothing is ever done in our society unless it can be used to enlarge the bloated hoard of a greedy dragon.
      The marijuana (marihuana?) industry is more than just the plant. There are thousands of artizans and businesses that benefit from the industry in other ways in BC alone. So many economic benefits while it was illegal. The government is either very blind or very corrupt.

      Seriously?!?

      Mar 20, 2015 at 4:00pm

      What did you geniuses expect? Pop & mom Emery's family pot store? It is hilarious that the figurehead crusader cum martyr's entire motivation for getting into the weed business and pushing legalization was to make his millions and he was right: you can make millions in legal weed. What people forgot to consider was who is better at running profitable businesses: pothead lefties or pothead righties?

      OldCosmonaut

      Mar 20, 2015 at 4:24pm

      OK, so loosen up things a bit re personal gardens, like tobacco and beer and wine. And yeah, the mom and pops are largely incompetent, as are almost all of the "organic" and "medical" growers. I have memberships at almost 20 of the outlets in Vancouver proper, and most are profiteers, gouging their clients, while selling amateur-grade product. The stuff needs to be regulated, and 9 out of 10 medical dispensaries should be forcibly closed. At least these huge multi-million-dollar facilities are clean, controlled, tested, and documented. We need clean, mineral and chemical free cannabis. Maybe they'll actually grow some real weed which may approximate some of the original strains, UBC chemo and USGS-13 etc. Old strains have been lost a long time ago, and a large long-term professional outfit may be able to create and maintain stable strains. There are costs, and advantages, in doing things legally. I'm glad that retired cops are now overseeing their legal grow-ops, putting the motorbike enthusiasts to shame. It's a good start, but there's room to grow. Canada's on the right track, and we tokers would be happy to do our part in reducing (or eliminating) the national debt. Go corporations go!

      E.L.

      Mar 21, 2015 at 11:58am

      There are over 10 weed stores within 5 blocks of where I live. Where do they get their product from and how much of it was grown using pesticides/fungicides? Do any of them accurately measure the percentage of CBD and THC before they sell it? What percentage of buyers are buying it for medicinal purposes? This thing is getting very big and where there's a fast buck to be made, greedy people will use pesticides. If I needed pot as a medicine, I'd rather buy it from a controlled and inspected operation...or grow it myself (like that poor fellow next to the elementary school in Ontario who has a license to grow over 140 plants for his sore legs...LOL).

      @OldCosmonaut

      Mar 21, 2015 at 7:38pm

      what's the difference between the Hell's Angels and the cops?

      If you leave the HA alone, they leave you alone.

      @OldCosmonaut

      Mar 21, 2015 at 8:12pm

      There is no more need to have million dollar buy-ins for growing pot than there is for growing tomatoes. You don't need a license to farm, take your produce to a farmer's market. If there are serious issues with the eating of plants grown under various conditions, then we should all be a lot more worried about the vegetables we eat---we eat pounds of those things every week, most people don't eat a pound of pot in a year, let alone in a week.

      "We need clean, mineral and chemical free cannabis"

      Mineral free cannabis? You're aware of what plants are made out of, right? Nitrogen, phosphorus, potassium, among other things? You're not going to get "mineral free cannabis." As for chemical free cannabis, if you think that "big agri/big pharma" is in it to produce a chemical free product, I don't think you have much sense. The organic farming movement was spurred by small groups of people dedicated to producing chemical-free foods, not by big business. Sure, big business is onboard now that it's demonstrated that they can charge a premium, but the because big business has a million dollar buy-in, they're going to sort of you, know, recoup that investment. And if shareholders are involved, then there comes the issue of "fiduciary responsibility to shareholders" concerning maximizing profit, minimizing expense.

      As for Emery, for as long as I can remember he has talked about the future of legal pot, where people can grow it in their back yards, etc. then trade with friends. If everybody does it, nobody steals it. The only thing that creates the inflated price is prohibition. Emery is lots of things, but he's not a prohibitionist---he wants it legal, and he understands that there is always loads of money to be made in a legal environment, even one with very minimal regulation. He's not a Canadian College Socialist, like our doctors/lawyers/pharmacists are, who're all into restricting practice/trade in order to maximize profit.

      "Canada's on the right track, and we tokers would be happy to do our part in reducing (or eliminating) the national debt."

      Speak for yourself. I have no desire to contribute one red cent to an economy that has made an industry out of oppressing drug users. The bastards can starve, along with their union-hack cop children for all I care.