The dealer wants in on Quebec’s marijuana plan
Marc just wants to be a legitimate business owner.
For more than a decade, he’s worked in the illegal cannabis industry.
Now, with the legalization of cannabis looming, Marc, who spoke to the Montreal Gazette on the condition that he not be identified, wants to become part of the new legal market.
But that won’t be an option.
The only legal seller of recreational cannabis in Quebec will be a government-owned monopoly that plans to source cannabis from a handful of big growers already operating within the legal medical cannabis system.
It’s one of the core arguments behind Prime Minister Justin Trudeau’s promise to legalize cannabis, the idea that consumers will turn away from the black market and start buying from legal sources.
That, the government says, will drive black market sellers out of business and divert billions of dollars from organized crime into a legal, taxed market.
But two experts who have studied cannabis policy say that approach is unlikely to work and that, without an opportunity to join the legal market, people like Marc will probably continue as they were.
A boost for the black market
Quebec’s plan to sell cannabis after legalization will in fact benefit the black market, Marc says, because government-owned stores and large commercial growers will do a bad job: The products they sell will be lower quality and the sommelier-like approach offered by many current black market sellers will be lost.
Experts agree with Marc.
“Certain (provincial legalization) plans are more likely to create an incentive for the black market,” said Neil Boyd, a criminology professor at Simon Fraser University with expertise in drug law and policy.
While the Société des alcools du Québec (SAQ) will operate the SQC, the provincial bill to create the monopoly won’t allow alcohol and cannabis to be sold together, meaning that the SQC will have to open all new stores.
If the federal legalization bill passes the Senate — though just when that might happen is unclear — the SQC plans to open 20 stores across the province.
While that’s set to grow to 150 outlets by 2020, it pales in comparison to the more than 800 SAQ outlets and agency stores — a number that doesn’t include grocery and convenience stores that sell beer and wine.
“If you have very few retail outlets, you’re not really meeting the needs of consumers. People are going to keep going to the black market,” Boyd said, “as they have been doing for years and years. To change it over to a regulated industry, it will take time. I think it will happen, but it’s a funny way that Ontario and Quebec are going about it.”
Supply & demand
Andrew Hathaway, who teaches in the Criminal Justice and Public Policy department at the University of Guelph and has studied cannabis use, worries that the low number of SQC outlets won’t be able to meet the existing demand, pushing consumers to continue buying from illegal sources.
“There are certainly concerns about the extent to which that would meet the significant demand that we know exists,” Hathaway said. “If the reason for the legalization is the recognition of high demand and relative acceptance for it in society, then why not something a little more ambitious?”
The SQC does plan to offer online sales, which Hathaway said could address some of those supply issues.
“The prospect of online sales sounds very convenient and in keeping with current trends in retail. I think that would be a very attractive option for a lot of people,” he said.
However, many illegal sellers already offer home delivery, including some who openly sell online.
But whether or not the government is successful will depend on more than just convenience.
“They’ll have to find a way to provide a better product at a cheaper cost and I don’t think they’re going to manage to pull that off,” Hathaway said.
The legal market will be able to offer a similar quality product and will have the advantage of being able to say that its products are grown in accordance with regulatory standards, which ban certain pesticides and can address concerns over things like mould, Hathaway said.
The SQC will also have to compete on price.
Currently, most black market suppliers offer a lower price to customers who buy larger quantities of cannabis, Hathaway said.
While that might be comparable to the black market price for an individual gram, many black market suppliers sell 3.5 grams (an eighth of an ounce) at a lower per-gram price and offer lower prices for larger purchases. One online seller was recently advertising ounces of some cannabis strains for $145, which works out to $5.18 a gram.
“I think that’s something that needs to be considered in terms of setting costs and factoring in taxes. That does present a problem in terms of competitiveness,” Hathaway said.
If government monopolies can’t compete on price, they’re unlikely to attract the vast majority of cannabis users, Hathaway said.
“If they’re already happy with what they’re getting, it may not be enough to lure them to the government sources of supply,” Hathaway said.
Boyd said he thinks customers will be willing to pay a bit more for a regulated product, but not much.
Marc said he thinks that large corporate grow ops will have lower-quality products and cut corners.
He points to the number of cannabis recalls that have been issued under the current system, which allows a number of private companies, called licensed producers, to sell cannabis to people who have a prescription from a doctor.
Since that system was introduced, cannabis grown by licensed producers has been recalled 13 times, with eight in 2017 and one so far in 2018.
Six recalls were issued after Health Canada found that cannabis had been exposed to banned pesticides. One came after inspectors found bacteria in cannabis. Others were due to labelling issues — often, an inaccurate reflection of the quantity of various active ingredients in the cannabis.
While all the recalls were voluntary, a number came after inspections of growing facilities by Health Canada.
A former employee of one company, Mettrum, told a Toronto newspaper that a prohibited pesticide was hidden in a ceiling during a government inspection. At least 10 people reported adverse effects from consuming cannabis grown by Mettrum that was later recalled, according to Health Canada. Mettrum has since been acquired by Smiths Falls, Ont.-based Canopy Growth Corporation, Canada’s largest legal grower.
Proposed class-action lawsuits have been filed in Ontario and Nova Scotia, based on the claim that the illegal pesticides used by Mettrum caused health problems. Wagners, the Halifax-based law firm behind one of those suits, is also seeking to file a class action against another grower, New Brunswick-based OrganiGram, on similar grounds.
None of those cases have yet been certified as class actions.
‘Big weed’ and brand names
To Marc, it looks like the new rules will allow the wealthy and well-connected to steal the cannabis industry from people like him.
Under the federal legalization plan, provinces will be responsible for sellers, while the federal government will regulate growers.
Some have political connections. Cannabis executive Chuck Rifici, who has worked with several of the largest players in the industry, was the treasurer of the Liberal Party of Canada and a member of the party’s board of directors between 2011 and 2016.
“Big weed,” as it’s come to be called, has attracted former politicians and police officers.
While the federal government has said it plans to introduce new regulatory frameworks for the legal recreational market — including one for smaller “craft” growers — the existing licensed producers have first-mover advantage.
While many popular black market strains are being sold by licensed producers, they’re often given new brand names. On the websites of large legal growers, the new brand names are usually listed more prominently than the older black market names, still there for those users who want to find familiar strains.
Marc said he sees that as an attempt to pretend the people who developed those strains, and the market they were a part of, never existed.
Hathaway said some of the culture around cannabis may be lost with legalization, particularly since he believes government outlets will be sterile.
The change of culture
“Those that feel like the industry, the culture, has always done very well by itself, thank you very much, are highly distrustful of these moves going forward and don’t see it as a major score for liberty or freedom necessarily,” he said.
“There are all kinds of people who clearly have nothing but profit in mind who are going to be big players in this industry now and, yes, there was always big money and profits to be had, but those players tended to have certain characteristics that made them part of something special, a cannabis culture. Well now that’s going to be changing.”
Marc said he sees himself as being part of the marijuana industry’s “middle class,” growers and sellers who are trying to supply a quality product to their customers, who have a limited clients base and often have other jobs or are attempting to support artistic careers.
If Marc was selling any other sort of product, he’d be the type of entrepreneur that politicians like to talk about.
He runs a small local business entirely by word of mouth, employing a couple of people and selling a Canadian product.
Not only does Marc plan to continue as he was, he thinks he’ll do well after legalization.
While the prices paid by consumers have remained stable, the perception that the legal risk of growing cannabis has diminished is already driving down the prices distributors like Marc pay to growers, he said.
However, he’s not happy about the potential profits.
“Short term, in a year, everybody makes a ton of money but only a few people can righteously be happy about it, because you’re still operating in the shadows, you’re still off the grid, you’re still a non-person,” Marc said.
‘Want to be legitimate’
He would have liked to see a legalization strategy that allowed people like him to enter the legal market. He would like to see private sales allowed and for small- and medium-sized growers to be able to participate in the market.
“Most people that work in the middle class of the cannabis industry want to be legitimate. They want private sales in a safe space, to provide clean product for customers at a decent price,” he said. “They want to continue to work in their field without being criminals.”
Personally, Marc feels that working with ‘big weed’ is also out of the question. He sees those companies’ values as antithetical to his.
However, some black market growers have gotten jobs with legal producers, Hathaway said.
“I think you see a lot of those with growing expertise have found their way, through various channels, into the new facilities that are growing large quantities of cannabis for the new regulated market. To a certain degree, growers have been able to make that transition,” Hathaway said.
But that opportunity won’t be open to everyone — people with criminal records, for example, might not be able to transition to the legal market. In Quebec, it goes even further. People with criminal records for drug offences are barred from working at the SQC and just being connected to someone who has been involved in selling cannabis before legalization — whether or not charges were filed — could disqualify someone from working there.
“It’s unfortunate if those who have been saddled with a criminal record with that kind of expertise would be excluded. It’s also unfortunate that there wouldn’t be some kind of a pardon for those who have been convicted of cannabis-related crimes over all these years,” he said.
Currently, the Canadian government has no plans to offer any sort of relief to people who faced criminal prosecution for acts that could soon be legal. Up until the day the legalization bill goes into effect, possession, growing or selling cannabis without the proper federal authorization will remain a crime.
What about organized crime?
Even if the federal government were to shut down the black market, it’s unclear just how much that would affect organized criminal groups. Organized crime plays a role in the cannabis trade but that does not necessarily mean groups like the Mafia and biker gangs.
It comes down to “this question of what we mean by organized crime,” Boyd said.
Public Safety Canada, and the Criminal Code, define organized crime as “three people who are trying to make a material gain through something illegal. So, yes, by definition, growing and distributing is organized crime,” Boyd said. “But (the Department of) Justice, when they talk about organized crime and organized criminals, they talk about there being threats of force or violence, fraud, so that’s a very different kind of standard as to what we mean by organized crime.”
The latter, more predatory type of organized criminal group is “not that common in the cannabis industry. There are elements of it, there’s no doubt, and they’ll pop up from time to time in different regions, but I don’t think that’s a dominant feature,” Boyd said. “It’s never been a hierarchical business. People haven’t been involved in turf wars except at a very low level and that was mostly a U.S. phenomenon.”
Hathaway said he doesn’t know what role criminal groups, like biker gangs and the Mafia, play in the cannabis business, but they’re not something he’s encountered.
“I guess at some levels, you’re dealing with guys who are perhaps more hardened criminals, people willing to take the chance of moving large amounts of product,” he said. “They’re only hardened criminals because of the potential sentences and penalties that they face for getting caught.”
A path to legality
He says he’s an otherwise law-abiding citizen who is only breaking an immoral and selectively enforced law.
Part of the reason he’d like a path to legality, he said, is because he feels he should be paying taxes on his profits.
Marc said he doesn’t know why people like him won’t be accepted in the legal market.
“I think it’s just pure greed. I don’t see any other reason for it,” he said.
In many ways, Canada’s cannabis market has become part of the broader trend toward artisanal products.
According to multiple cannabis consumers, many drug dealers specialize in marijuana and sell few, if any, other drugs. Their customers now expect to be able to choose from a variety of strains — and they expect sellers to know the strength and effects of these strains, as well as their botanical provenance.
Marc compares them to sommeliers and said some of this will be lost after legalization.
As Canada moves toward legalization, some parts of the market have started operating more openly.
Dozens of websites now openly sell cannabis, shipping it via Canada Post. In some Canadian cities, though not in Montreal, black market dispensaries operate as if their business was already legal.
What happens to these businesses after legalization remains an open question.
Hathaway said a crackdown might be a tough sell for governments.
“You’re saying that something is benign enough to legalize and regulate and yet we’re going to have stepped-up police enforcement against those who refuse to co-operate with the regulated system? That’s a little hard to stomach and comprehend,” he said.
That raises the possibility that some of these sellers will follow the lead of companies like Uber — breaking the rules and paying fines until the rules change.
And while no one knows how the cannabis market will change, everyone agrees that adjustments are likely.
“At least we’re moving somewhere. In the Harper years, there wasn’t even a question of the door opening,” Marc said. “Even with all this stuff, I see it as moving somewhere and it’s not where the people who drove the industry initially wanted, but I think it will get there. I’m pretty optimistic.”