Black Market Cannanbis

By Selina Jane Eckersall, O’Cannabiz Conference & Expo

When legalization took effect in Canada in October 2018 it was a contentious issue with communities, municipalities and every level of government.

After all, for decades (despite unchanged consistent usage) we’ve heard all of the familiar stereotypes about cannabis; it’s a gateway drug, it makes people lazy and unmotivated, people who use it are “stoners” or “burnouts”, it attracts crime in our communities… These are the things we’ve been fed during the war on drugs.

Is Black Market Cannabis Better Than Legal Cannabis?So it’s not surprising that some people are still opposed to legalization and are filled with fear about cannabis. This fear however, is still present today in communities and municipal councils all across the country after more than a year of legalization and is fuelling black market activity in a significant way.

The process for obtaining a license to set up a commercial cannabis business is not for the faint of heart. License holders must go through a rigorous, expensive and time consuming process that has taken some companies more than a year or longer to get through. Once a company has reached this milestone, the business becomes one of compliance and regulation. Cannabis is a controlled substance. As such the rules for running such a business are very strict.

There are less than two hundred licensed commercial cultivation facilities (including site B operations) in Ontario today. They range in size from smaller five or ten thousand square foot operations, to much larger operations with hundreds of thousands of square feet. All of these businesses have gone through an arduous licensing process and must meet strict Health Canada requirements to satisfy the rules of a commercial cannabis license. Some of these requirements include implementation of odour filtration, thorough standard operating procedures for product safety and compliance, RCMP security background checks for all key staff, implementation of an organizational security plan, installing an intrusion detection system, and maintaining sound record keeping – just to name a few. There are few businesses that are as strict as cannabis. In fact, even the alcohol industry has less restriction than cannabis does and can enjoy more freedoms with marketing and product packaging.

There are almost ten thousand (yes, ten thousand) licensed medical grows in Ontario. These are relatively easy to obtain and are also issued by Health Canada, however they are not commercial licenses. This means that they are not growing a product to be sold to the public. The licenses are intended for patients who have serious medical conditions and want to grow their own cannabis for cost and access reasons. Many patients rely on this system because access to cannabis would otherwise be too expensive or difficult to find. In general, it is a good program for medical patients. A plant is often a more desirable choice for pain relief than subscribing to a life of pharmaceuticals. The problem is, there is little regulation with these easy-to-obtain licenses and there is known abuse in this system. Some of these license holders are not simply growing for their own medical purposes, but helping to supply the thriving black market and profiting from their grow operations by selling cannabis illegally. As with most illegal activity, there is no way to know the extent of the abuse in the system. But with almost ten thousand licensed personal medical grows just in Ontario, if only 5% were engaged in illegal black market activity, that’s still 500 grow operations in Ontario alone who could be supplying the black market. Some of these licenses were grandfathered in from the old system prior to the Cannabis Act and have significant plant allowances.

The number one complaint from residents in communities is consistently about cannabis odour. And while it’s sort of a strange issue to raise especially in farm communities where manure is frequently used, chicken farms exist and a whole array of other farm smells are floating through the air, it’s nevertheless an issue for people. Commercial cannabis companies, however, are rarely the cause of cannabis odour. The reason being, because in order to get a license, they must install odour filtration before they can begin growing. This is a licensing requirement mandated by Health Canada and something that every commercial cannabis company would be familiar with.

By contrast, individuals who grow their allowable 4 plants per household do not have to worry about cannabis odour. And while some may say it’s only four plants, they can grow the plants in their homes or even outside on their back patios, perhaps beside disagreeing neighbours. Furthermore, licensed personal medical grows also are not required to implement any odour filtration on their grows, regardless of size. And sometimes these operations are huge growing hundreds or in some cases thousands of plants, with no odour control requirement at all. So commercial cannabis companies are likely not the source of cannabis odour in Ontario communities, but rather a high density of personal medical grows who aren’t required to implement any odour filtration at all and who don’t have to self-identify themselves to municipalities.

Communities across Ontario are dealing with floods of cannabis complaints. Municipalities are reacting to community complaints by cracking down harshly on cannabis businesses, making it difficult or impossible for them to operate in the community. Municipal governments are utilizing local bylaw and zoning measures to stall or prevent cannabis companies from being allowed in their communities. They do this by holding off on making zoning decisions for cannabis companies or waiting to see what other communities do. They may also conduct studies to push the decision on zoning out a year or more while they gather information and data. And in many cases they implement interim-control bylaws that prevent cannabis companies from being allowed to set up. Other municipalities are considering bylaws and zoning rules that are simply so heavy handed that they will drive business away entirely. This means no new jobs, no tax paying cannabis businesses, and no bump in the local economy from a new industry. Cannabis businesses are then forced to take their operations elsewhere, to other towns or cities which are more welcoming to commercial cannabis. All the while, illegal grows and medical grows are unaffected by zoning or bylaws and continue to thrive at a rapid pace.

All of this overregulation on cannabis business is what’s fuelling the thriving black market. Municipalities are making it impossible (especially for micro-cultivators) to set up a new operation. All of this fear and hyperbole is also making landlords leery. Many landlords either won’t lease to a cannabis company, period. Or they treat cannabis companies who are just trying to follow the rules unfairly by charging triple the rent, asking for unreasonable down payments, personal indemnification, and generally treating these companies unlike other business would be treated. It’s discriminatory in every way.

Now that cannabis is legal, the general public is less concerned with where their cannabis comes from. So there is no incentive for people to source their cannabis from the legal market, especially when the black market is cheaper, has more product availability, and better product quality. There have been, and continue to be, serious product quality issues in the legal market – many of which small craft cannabis businesses could solve by providing a higher quality product that rivals what’s available on the black market. Yet small craft cannabis cultivation and production businesses are being shut out of the industry by municipalities who don’t want them there, and are having an incredibly difficult time just getting started.

How many people purchase their alcohol from the black market today? I don’t know one single person who does and I certainly don’t know anyone who makes their own hooch. And that’s because alcohol is easy to purchase, there are plenty of retail stores around, and we can visit wineries or craft breweries big and small. There’s no illegal market for alcohol, because the industry functions well without the need for a black market. The same must be done for cannabis. Regardless of personal views on cannabis, it is legal and should be treated and regulated no differently than beer or wine industries – both of which have no black market. Yet prohibition-era stigma is rampant in communities across Ontario, creating a market that punishes businesses while black market operations who pay no taxes cash in big time.

The only way to combat illegal activity is to allow participation and treat cannabis businesses the way that other businesses are treated. Cannabis companies want to follow the rules and already have huge hurdles to jump through just to get a license. Until the industry is treated with fairness like other industries who create jobs and pay taxes, the black market will continue to thrive in an environment that favours them.

Municipalities must look at the consequences of their actions when they ban cannabis companies from operating, and acknowledge that they are inadvertently encouraging illegal cannabis activity in their communities by discouraging legitimate business. Communities would do far better to welcome cannabis companies, rather than deter them. The more craft cannabis companies we have producing high quality product, the more likely it is that the black market will fizzle out. Until then, communities will continue to notice unregulated grows popping up and cannabis odours in the air, and complaints will keep flooding in –  because the black market has never been stronger.