Crime Reducing, Devil’s in the Details

Source: highaboveseattle.com

 
Street gangs and criminal organizations collect billions every year from the sale of illegal marijuana, which then goes back into other criminal activities. The goal of every cannabis law – whether in Canada, Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, or Washington – is to “protect children” and to prevent the “risk of cannabis diverted to an illicit market”. So how exactly will this happen?

Cannabis Tracking System

In a perfect world, technology offers a solution. In Canada and the eight US states where recreational is legal, every dispensaries is required by law to maintain an inventory tracking system. Combined with high-definition cameras blanketing every corner of the store and a third-party security company with monitoring systems, as well as compliant store owners fearful of losing their license if they break the rules, and you find a rock solid security system.

MJ Freeway, for example, offers an inventory tracking software that captures 36 data points, such as date of harvest, strain, plant ID, batch ID, weights of the product at various points in the process. How does it work? Imagine a cannabis plant given a unique identification number that relates it to its source, then divides the plant into bud for smoking, trim for extracts, and waste for disposal. This tracking system carries information on a small tag that allows a scanner gun, similar to that used by a grocery store clerk, to follow the cannabis from 'seed to sale'.

CEO Patrick Vo of BioTrackTHC said, “The software creates an unbroken product lineage. It can forwards-trace a specific plant to every brownie infused with it, and it can backwards-trace a specific brownie to the plant or plants from which its cannabis was derived. The system also then records which licensed dispensary the brownie is shipped to. Regulators will know if a package of marijuana goes missing while in transit. This detailed tracking helps avoid theft during the process and aids product recalls when necessary.”

The problem? It didn’t quite work out as Colorado planned. In July 2011, Colorado’s Medical Marijuana Enforcement Division signed a $636,000 deal with a Florida company to build a new system. But due to a budget shortfall, staff cutbacks meant the division shelved the software nine months later. 

“We have been behind from the beginning because we had a very steep timeline,” said division spokeswoman Julie Postlethwait. “The budget shortfall and the staff cuts were a big blow across the board.” All the work to make this high-tech system a reality came to a screeching halt.

Canada is where Colorado began, starting from scratch. Health Canada is now implementing a new system for collecting product information from licensed producers, distributors and retailers. No one knows how much this new system will cost, only that the costs will be offset through licensing and other fees. Canada has learned from Colorado’s experience – more so, that this plan has federal backing.

Law Enforcement

The first job for government is to control the market. To do this, the power of the licensed producers’ monopoly will keep production under control. At the same time, governments keep the costs of the illegal business high through law enforcement and raids. The federal government is spending $113 million over the next five years to prevent organized crime from infiltrating the legal system. The provinces are initiating plans to shut down illegal dispensaries and grow-ops.

Legal businesses too, have to show some honesty. To stay in business, legal dispensary must routinely show they comply with local permit and licensing rules, criminal background checks on employees, proof of residency and show financial statements. Businesses will need to send shipping manifests to government officials and set up surveillance cameras and security systems to remain in business.

Consumers' Choice

Much attention also has to be given to consumers and their choice to stamp out crime. Medical marijuana customers need pesticide-free and mold-free cannabis. Period. ‘Bad’ weed can make people sicker. People are willing to pay extra for that sense of assurance. They know what you are getting from the start. 

Recreational users also want safe and reliable products. New consumers, for example, know they won't be getting mixed baggies of oregano. With every purchase, consumers can predict the consistency and potency of what they buy without worries. What’s more, they can pay with their debit cards. Consumers will find more choices than they ever had before at a legal dispensary (e.g. lab tested edibles, topicals, flowers and concentrates with varying potency and terpene profiles).

Competitive Pricing

Price is also a key deterrent to crime. Ontario Finance Minister Charles Sousa said $10 per gram is "certainly something that we're giving consideration to". This $10 a gram estimate has to be compared to prices across Canada.

The Parliamentary Budget Office reported one gram of marijuana cost an average of $8.32 between February 2015 and August 2016. Average prices were lower in British Columbia, New Brunswick, and Quebec, and higher in Alberta, Manitoba, Newfoundland and Labrador, Nova Scotia, Ontario, Saskatchewan, and the territories. According to Brad Martin of CannStandard in Calgary, as of March 2017, the average price of marijuana from licensed producers was $9.12 a gram.

Mark Stupak, founder of SoCo Medical Cannabis Collective in Toronto, believes that Ontario's $10 a gram price is a tipping point. Stupak told CBC radio, “If the government proposes to sell pot below $10 a gram, then yes, they will eliminate the black market. If, on the other hand, they keep selling at above $10 a gram, then I don't believe the market will be gone.” 

Canaccord Genuity estimates that average prices for legal cannabis across Canada will stay steady around $8 per gram until 2019 or 2020, with illicit prices remaining slightly higher, between $8 and $9 per gram. Canada is an in-door growing country. Prices will likely continue to remain stable for legal cannabis producers.

Cannabis Shortage Woes

But dark clouds loom ahead. 

In Washington and Oregon, when recreational marijuana was first legalized, prices actually did rise due to the higher demand and low supply. There are already growing numbers of medical patients who could pose competition for recreational cannabis supplies during this initial time.  Health Canada is normally slow at approving licenses for new producers. Given the predictions that Canada will see demand exceed supply by July 1, 2018 and that millions of Canadians will shop online to buy recreational cannabis before July 2018, could Canada see a shortage of legal weed on dispensary store shelves?

Licensed producers are expanding their facilities. Canopy Growth is Canada’s largest cultivator, supplying a third of the medical marijuana patients in Canada. The company is getting ready for 2018. “This is a very big leap, in terms of our output, our capacity, our footprint,” said Bruce Linton, Canopy Growth’s CEO. Canopy Growth is spending at least $21 million US to upgrade its Tweed Farms property with an aim of tripling its production by the July 2018 deadline. 

But will this be enough for the market? Existing licensed producers are stocking up inventories for this demand. Health Canada has pledged to speed up its approval process for applicants to grow marijuana - a process that still takes 12 months or more for new producers to ramp up production and get product to market. 

As Cam Mingay, a senior partner at Cassels Brock, said, “I don’t know what anyone can do about it -- you can’t force the plants to grow faster. You could approve 50 more tomorrow, and realistically they could probably be in production by the end of 2018 in any meaningful capacity.”

Provincial finance ministers and health ministers are expressing concern about the timeline, saying it feels too rushed for the July 2018 deadline. Since initial sales will come from online first, government-run dispensaries may not have enough inventory for their shelves.  New Brunswick solved this for themselves and became the first province to sign a multi-million dollar deal with Organigram.

“Ultimately the biggest problem that appears after today’s discussion is one of supply,” said Ontario finance minister Charles Sousa. The demand is already high in Canada, “So we want to make certain that, when we do proceed, there is sufficient supply to accommodate the activity because what we’re trying to do is curb the illicit use and organized crime that now exists around it.”

What About Taxes?

Once legal cannabis has cornered the market – that is, gotten the black market out of cannabis business – federal, provincial, and municipal governments will want to raise taxes revenues, as we see with alcohol and cigarettes. But charging too much tax will raise prices, risking a return of black market growers back into the market.

The 2016 Task Force on Cannabis Legalization and Regulation warned that, “Taxes should be high enough to limit the growth of consumption, but low enough to compete effectively with the illicit market.” With this keenly in mind, federal finance minister Bill Morneau strongly favours keeping a low tax rate on cannabis for now.

Troubles, worries and uncertainty will always be present for anyone who does something for the first time. This is a very young industry. Countries like Canada and the eight US states to have legalize recreational cannabis are breaking ground to create an industry. It is a monumental task to fight crime and to ensure the health and safety of a society. Someone has to get started first. 

No doubt more challenges and victories are coming ahead.

WHAT DO YOU THINK?

Milton Wani is interested in the business and regulation side of cannabis. Learning about cannabis is new for everyone. That's why I wrote a book: Retail Cannabis Handbook. It's meant for people who want to open and run a retail marijuana dispensary and for people who want to learn about the industry. 

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