Canada: Why legal cannabis growers can’t compete with the black market — yet - PressFrom - Canada

CanadaWhy legal cannabis growers can’t compete with the black market — yet

18:56  01 february  2019
18:56  01 february  2019 Source:

Fines coming for pot-carrying border crossers

Fines coming for pot-carrying border crossers OTTAWA - Travellers caught sneaking small amounts of marijuana into Canada could soon be required to pay fines. Although stiff criminal penalties will remain on the books, the federal border agency is developing administrative sanctions to give it more flexibility to deal with people who arrive at the border with cannabis in the era of legal recreational use. Since Oct. 17, adults in Canada have been allowed to possess and share up to 30 grams of legal cannabis, but bringing the drug into the country remains illegal. The border agency says the planned new penalties will provide an additional tool for officers when they encounter travellers carrying cannabis.

In Canada’s newly- legal cannabis market , retailers will face tough competition from the established black market . Dried cannabis and oils are legal now but may experience shortages. But those should disappear next year as more growers become operational.

Promotional marketing could give legal cannabis an advantage. But federal law restricts advertising to "informational" purposes; no cartoon characters or Canada will soon become the second country in the world to legalize cannabis — with the provinces left to work out the details of Prime Minister

Why legal cannabis growers can’t compete with the black market — yet© Ryan Remiorz Nearly empty shelves at a Montreal cannabis store in December as supply shortages were felt in many provinces. One B.C. grower hopes to increase its production capacity from just under 10,000 kilograms to 480,000 kilograms annually by 2020.

Despite the persistent media buzz, there are no cannabis supply shortages in Canada, Brock University pot industry expert Michael Armstrong explains matter-of-factly.

“There’s all kinds of cannabis in Canada,” says Armstrong, who teaches operations management at the St. Catharines school. “It’s the legal cannabis that we’re short of.”

And to successfully compete with a stocked and still-thriving illegal market, the country’s licensed cannabis producers must — among a series of moves — ramp up their crop outputs exponentially, offer cheaper, more varied strains and get them into a vastly increased number of stores.

Canada's chronic shortage of legal cannabis expected to drag out for years

Canada's chronic shortage of legal cannabis expected to drag out for years Canada's shortage of pot is now expected to drag on for years. New production is coming online, but ever more cannabis will be diverted to the nascent edibles industry.

Promotional marketing could give legal cannabis an advantage. But that lets black markets continue unabated. Similarly, Newfoundland’s desire for a local cannabis supply is understandable. But offering a million tax break to get it will look expensive if cannabis surpluses eventually

The legalization of cannabis in Canada marks the start of a competition between legal cannabis and black markets . Dried cannabis and oils are legal now but may experience shortages. But those should disappear next year as more growers become operational.

“This is not a new industry, there is an existing industry,” says Armstrong, who analyzed new Health Canada data on the country’s marijuana market for a recent article. “What we have is this new legal version that has to compete with it.”

But that fresh player — who was only allowed into the game on Oct. 17 of last year — is not coming close to competing yet, Armstrong says.

Its primary problem out the gate was production. Armstrong says the Health Canada data suggests the country’s recreational cannabis market requires some 77,000 kilograms of product a month.

“That’s the existing black market, existing legal recreational buyers — that’s the estimate of the whole thing combined,” he says. “In November, roughly speaking, the legal industry produced about one-eighth of that amount.”

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Growers can ’ t meet the cost of complying with regulations, or are Bringing the underground market into the regulated market means more product, more customers and more money. The region’s small and long-time cannabis growers , living in remote places off the grid, are being shut out of the legal

One cannabis expert noted that marijuana growers can get maybe ,500 per pound tops in the legal market , but if they take their supply to illegal states, they can get The bigger issue is organized crime groups masquerading as legal operations and using it to continue pushing black market cannabis .

Clearly, legal growers have a long way to go to catch up with the ubiquitous pot farms and grow-ops that exist across the country, Armstrong says. The good news, he says, is that federally licensed production is increasing at a breakneck pace and that adequate legal supplies should be available countrywide by early next year.

Federal figures show the industry grew production by 12 per cent a month — compounded — in the first nine months of last year, Armstrong says.

“If that continues to grow at that compounded rate, which is really a madcap, frantic rate, they’ll actually have enough raw capacity in about a year.”

As greenhouses and converted factories spring up across the country, and even abandoned soccer bubbles are put to new uses, there are questions about whether that exponential production growth can continue, Armstrong says.

One large licensed grower is planning expansions on such whirlwind scales and beyond.

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When Black Market Cannabis Is So Much Cheaper, How To Get People To Buy It Legally ? Grey market producers tend to be individual growers that sell to their direct social network. A reduction in excessive taxation is an absolute must. If legal cannabis businesses can ’ t compete with street

EGT: Yes, there are growers who cannot get the price they want in dispensaries or do not have the relationship there already. If you are a grower , you GD: I've pondered getting into the industry, but with the trials I have seen people face, it gives me extreme caution. I know many business owners

“We’re currently ramping up all of our facilities, both licensed and those in the licensing process,” says Andrew Grieve, CEO of Zenabis, based in Surrey, B.C.

Grieve says Zenabis is adding two facilities — in Langley, B.C., and Nova Scotia — to its two existing plants in New Brunswick and Delta, B.C. With those additional plants, coupled with planned expansions at its existing facilities, Zenabis hopes to catapult its production capacity from just under 10,000 kilograms to 480,000 kilograms annually by 2020.

“As a result we believe there will be producers, ourselves included, who are able to grow high-quality product and actually satisfy the recreational market in Canada,” Grieve says.

Industry expert Nick Pateras says the widespread carping over product shortages since the legal market opened was unwarranted given the predictable production lags that were forced on growers by simple economics.

Pateras, vice-president of strategy at the cannabis resource and information company Lift & Co., says the licensed producers could not have been expected to build enough stockpile or capacity for day one when they had no revenues to cover those costs.

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StatCan says 4.6 million Canadians use weed OTTAWA - The national statistics offices says legalizing cannabis doesn't seem to have much changed how many people use the drug. Figures released Thursday morning from Statistics Canada show about 4.6 million people, or 15 per cent of Canadians over age 15, reported using cannabis in the last three months. Nearly half of Canadians who reported using cannabis said they did so for non-medical reasons, while one-quarter said they used it for medicinal purposes.

This means that legal cannabis operators cannot bank with nationwide financial institutions and are prevents the national government from prosecuting medical marijuana users and growers . some in the industry warn that legal operators will be unable to compete with the black market — and some

The legality of cannabis for medical and recreational use varies by country, in terms of its possession, distribution, and cultivation, and (in regards to medical)

“That’s a pretty big ask to have them grow it … and sit on it for months and months,” he says. “I think (the supply shortage) was always going to happen.

But Pateras says he’s confident production will scale up enormously.

“I think that you are going to see a ton of production capacity come online” in the next two to three financial quarters, he says. “So within a year that supply demand imbalance that we see now will have narrowed greatly.”

Most industry watchers think product shortages will greatly ease over the coming months. Pateras, however, believes that true production needs may have been underestimated, given the high percentage of raw crops that will be demanded by the edible and beverage products hitting the Canadian market next October.

He says offerings like pot-infused gelatins and beer — which together could attract 60 per cent of the market — require far more plants to produce a desired amounts of THC or CBD than combustible products. “It’s a pretty inefficient production process,” Pateras says.

He adds that industry production growth forecasts are often spotty, and notes that many Canadian producers are looking to export some of their wares and that crop loss is often a wildcard factor.

Brock’s Armstrong stresses that these are far from the only challenges the legal industry will face in its push to displace the black market. “The next trick is taking that raw material and getting it into final-product form and out to the retailers,” he says. “That appeared to be one of the bottlenecks in November.”

Traffic stop near Banff leads to seizure of 148 kg of cannabis, RCMP say

Traffic stop near Banff leads to seizure of 148 kg of cannabis, RCMP say RCMP seized a huge stash of cannabis during a traffic stop near Banff last month that was estimated to be enough to make more than 440,000 joints. RCMP said a pickup was stopped for speeding on the Trans-Canada Highway near Banff on Jan. 26. According to a news release, a search of the vehicle revealed that the lone occupant was in possession of 148 kilograms of cannabis, 4.5 kilograms of psilocybin mushrooms — also known as magic mushrooms — two kilograms of cannabis resin (shatter), THC edibles, and $11,000 in Canadian currency. A 39-year-old Saskatchewan man was arrested.

Why buy through dispensaries vs. the black market ? The primary reason driving people to purchase through dispensaries is the desire to avoid legal complications, cited as a main driver for nearly Bottom Line. Dispensaries cannot compete with the black market in terms of price, nor will they ever.

But the California legal market is dwarfed by the state's black market and could act as a reality check on the euphoria cannabis businesses are feeling in the DeAngelo says if thousands of California marijuana growers and product manufacturers don' t get licenses, there will be a damaging ripple effect.

Armstrong says that with the mass increase in shipping volumes that producers faced in October, many also experienced logistics problems in transporting, testing and warehousing their products. He also says producers and retailers have to put much more work into assessing which products and strains are most popular with consumers and adjust appropriately.

In comparison with the black market, however, price, quality and access — along with increased policing — are going to be key, Armstrong says.

The stick of more and increased legal perils for black-market sellers will surely help the sanctioned industry make headway, he says. Provinces have vowed to boost enforcement of the illegal trade while the federal criminal code sets out harsh sentences, especially for anyone selling to minors.

“I think the main emphasis has to be on the carrot side,” Armstrong says.

Aside from formulating the most desirable and consistent products — something legal producers can do better with laboratory backing — growers and regulators must make cheaper products available to complement high-end wares, he says.

“Governments so far have kind of talked about $10 a gram including taxes, (and) that’s not going to cut it very well against the black market that’s charging $5.50 or $6.50,” Armstrong says.

“It doesn’t have to be all cheaper, but if you can at least have a value brand (so) people can say, ‘I’m not saving any money going to the black market why not go legal?’ ”

Armstrong says the industrial-scale operations legal growers will build will give them and advantage over their furtive, underground counterparts in offering cheaper goods — should regulators allow them to go on sale.

Grieve says his company is intent on offering such cheaper alternatives if allowed.

To compete with underground dealers, many of whom offer customer loyalty discounts and pizza-like delivery times, the legal market must also open far more stores, Armstrong says. While product shortages have limited initial store openings in Ontario to 25, for example, this province needs 1,000 or more stores to be competitive, Armstrong says.

Armstrong says producers must also be freed from the draconian advertising and promotion restrictions Health Canada’s legalizing regulations have imposed.

While regulators have a duty to limit the use of a product with known health and public safety risks, producers need some latitude to compete, Armstrong says.

Current rules limit virtually any advertising and promotion and insist on plain packaging with minimal product information and a tiny producer label.

“But if you really want to get people to switch, you’ve got to explain why, you have to make a sales pitch,” Armstrong says. “And that’s something industry is really going to struggle with.”

Joseph Hall is a Toronto-based reporter and feature writer. Reach him on email: [email protected]

Cannabis co-ops form to protect B.C.'s bud cred.
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