Pubdate: Fri, 04 Aug 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Page: A10


If the legislative timeline holds, it will be possible for Canadians
to legally buy marijuana by this time next year.

But as revealed by the news this week that a major Canadian clearing
house may refuse to settle some share trades involving cannabis firms,
far too many questions remain unanswered.

This chronic lack of clarity from Ottawa is the reason why Canadian
Depository for Securities Ltd. (CDS) is worried about potential
liabilities it would face if it facilitated a trade involving a
pot-selling company that does business in the United States.

U.S. President Donald Trump seems intent on enforcing federal laws
that prohibit the growing and selling of pot, in spite of the fact
that more than two dozen states have legalized those practices for
both medical and recreational use.

It's not clear yet whether CDS will indeed refuse to settle trades
involving some marijuana companies. It's not even clear whether it has
the right to do that.

But the CDS quandary is emblematic of the uncertainty that faces a new
industry in which companies are jockeying for position at the starting
gate when pot becomes legal in Canada. The provinces and their
regulatory agencies are also in the dark about what to expect.

Here's the basic question: What is the new recreational pot industry
actually going to look like?

The proposed federal Cannabis Act covers a lot of ground when it comes
to Ottawa's responsibilities "respecting the importation, exportation,
production, testing, packaging, labelling, storage, preservation,
sale, distribution, possession, disposal or obtaining of or other
dealing in cannabis or any class of cannabis."

But the finer regulatory details haven't been settled. As Queen's
University economist Allan Gregory put it in a recent article for
Policy Options, the Cannabis Act doesn't contain the rules for
creating "a fair and orderly market."

It falls to Health Canada to create that framework, and while the
ministry does a respectable job with things such as regulating
medicines and food safety, it's not known for its expertise in setting
the rules for a large-scale commerce.

As a spate of recent incidents involving unauthorized fertilizers and
other substances in medical-grade marijuana suggest, it's not even
clear that Health Canada can enforce quality control.

Then there's the way the department handles and discloses information,
and the question of whether it can adequately police insider trading
and self-dealing.

Under its current remit, Health Canada collects huge amounts of market
info. But as Prof. Gregory wrote, "these data requirements touch the
entire industry, both publicly and privately held companies. I know of
no other market where such a situation exists."

Under the federal law, Ottawa will have the right to release
business-related information - even proprietary, confidential data -
"if the Minister considers that the disclosure is necessary to protect
public health or public safety." This has to be a worry for companies
that will be operating in a very competitive market.

Meanwhile, the provinces are scrambling to prepare for the new
reality. They are the ones charged with the specifics of distribution
and retail, and it is clear that they have varying levels of
enthusiasm for the enterprise.

Some, like Quebec, are already warning they simply don't have enough
lead time to set up a comprehensive retail framework.

It's entirely possible, even likely, that a number of provinces and
territories won't be ready when the Cannabis Act goes into effect. As
a result, it will be up to Health Canada to establish an interim
federal distribution scheme.

The existing federal medical marijuana market, in which licensed
medicinal users get their product via mail-order from approved
producers, is the obvious template for a national recreational
version. (It's not an accident that many of the therapeutic growers
are ramping up their operations in preparation of legalized
recreational use.)

And yet much about the medicinal market, a relatively small industry
involving 130,000 registered customers and fewer than 50 producers,
remains haphazard.

There is no public disclosure as to how much medicinal cannabis
producers are allowed to grow, or even how much they have in stock
(this information is collected but not released).

And the granting of licences is often announced on an ad hoc basis.
Some would-be producers have complained they couldn't get detailed
reasons why their applications were rejected.

In this day and age, it is entirely appropriate for marijuana to be
legal, provided it is properly regulated. It's the latter bit that
must be the focus of government's attention for the next 12 months.
There is still time to establish clear rules to create a fair, orderly
and safe marketplace. But it will run out quickly.
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MAP posted-by: Matt