Pubdate: Thu, 25 Feb 2016
Source: National Post (Canada)
Copyright: 2016 Canwest Publishing Inc.
Contact: http://drugsense.org/url/wEtbT4yU
Website: http://www.nationalpost.com/
Details: http://www.mapinc.org/media/286
Author: Peter Koven
Page: FP1

COURT RULING RATTLES POT FIRMS

Allowing Home Growers May 'Disrupt' Licenced Producers

Canada's nascent medical marijuana industry is being thrown into new 
turmoil by a court ruling that threatens to undercut its business model.

Leading pot producers such as Canopy Growth Corp., Aphria Inc., 
Aurora Cannabis Inc. and Mettrum Health Corp. came into being for one 
specific reason: The federal government introduced rules in 2014 that 
required patients to buy marijuana from licensed producers. Prior to 
that, patients were getting licences to grow at home, making it 
difficult for Ottawa to regulate the sector.

The decision Wednesday from federal court judge Michael Phelan could 
bring elements of the old system back. He gave patients the right to 
grow their own cannabis, arguing the current system restricts access 
to the drug.

It is another potential game-changer for this industry, which always 
seems to be in some stage of transition. Currently, the licensed pot 
producers are fighting competition from illegal dispensaries and 
trying to launch new oil-based products (after a separate court 
ruling legalized them).

Share prices fell across the sector Wednesday as investors reacted to 
Judge Phelan's decision. But the declines were modest, in part 
because no one is certain what impact the ruling will have. Canopy 
shares dropped six per cent, while Aurora "There's a lot more 
questions than answers at this point," said Aaron Salz, an analyst at 
Dundee Capital Markets.

Nothing changes in the short term, because the government has six 
months to rewrite the law.

Health Canada has already invested enormous time and money into 
developing the current regulatory system, and can't be eager to go 
back to the drawing board. Likewise, the ruling is frustrating for 
many licensed producers, which have spent millions of dollars 
developing production facilities that meet strict security and 
product quality standards. Now they face the risk of losing business 
to home growers who won't have to deal with the same regulations.

But Canopy president Mark Zekulin maintained he is not concerned 
about losing market share. He thinks most people are happy with a 
system that delivers a high-quality product to their door at a 
relatively low price.

"There's a lot of people who don't want to be converting their 
basement or closet into a high-grow growing area," he said.

Neil Belot, Aurora's chief brand officer, argued there should be 
plenty of room for both licensed producers and home growers. He said 
he is happy about the court decision, noting that it shows Canada has 
come a long way in reducing the stigma around marijuana and 
highlighting its health benefits.

Salz said it makes sense for Ottawa to allow home growing if it also 
cracks down on the more than 100 illegal dispensaries that have 
popped up in Canada, mainly in Toronto and Vancouver. But if it 
allows both, he said it could be "potentially disruptive" for the 
licensed medical producers.

The court ruling does not address the biggest issue facing the 
marijuana sector: the recreational market.

The medical pot market is tiny, with about 40,000 registered 
patients. The amount of money the licensed producers can make by 
servicing this customer base is very limited. But assuming the 
federal government legalizes recreational use, the customer base will 
grow exponentially.

Experts said it is unclear what impact this decision could have on 
the recreational market, if any. If it only affects the medical 
market, it may look insignificant for the producers in the years ahead.

For now, the ruling just adds more uncertainty to an industry that 
already has a lot of it.

"Nothing surprises me in this sector anymore," Zekulin said. "Every 
few months there's something new that is exciting and potentially 
changes the landscape."
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MAP posted-by: Jay Bergstrom