Pubdate: Wed, 30 Aug 2017
Source: National Post (Canada)
Copyright: 2017 Canwest Publishing Inc.
Author: Gordon H. Fox
Page: A9



The Canadian government intends to legalize cannabis by July 1, 2018,
making adult recreational marijuana use legal throughout Canada. This
change does not mean all cannabis will be legal; only marijuana
produced by federally licensed entities will be. Ottawa's licensing
regime will ensure that all lawful cannabis is, in effect, medical
grade, free of microbial contamination, toxins and other illicit
substances sometimes found in "street" marijuana.

A principal objective of the new regime is to eliminate the black
market distribution of cannabis. Unfortunately, as currently
conceived, the new regime may fall well short of that objective.

The illegal market promises to be a very potent competitor for the new
regime. Illicit cannabis is widely available throughout Canada.
Consumers have access to a variety of products that are sold by
dealers with whom they are comfortable, and at prices they find acceptable.

The C.D. Howe Institute and others have repeatedly warned that, to be
successful, the new regime must be price competitive (after taxes)
with the illicit market. But price is not the only consideration. An
equally important - but so far overlooked - factor is ease of consumer
access and product choice. Cannabis products are readily available "on
the street," in unlawful dispensaries and over the Internet. The
illicit market even has a robust home delivery component. The new
legal regime must not simply compete with this illicit market on
price; it must be competitive in terms of the whole consumer experience.

The federal government's current approach under the proposed Cannabis
Act allows the provinces to regulate the distribution of adult
recreational cannabis through licensed or government-owned retail
locations. Since many provinces may not have retail locations ready
for July 1, 2018, Ottawa is contemplating a temporary e-commerce
delivery system, through which Canadians will be able to order lawful
cannabis from licensed producers over the internet (just like they can
with many other consumer products). Lawful medical cannabis has been
safely delivered this way for years without evidence of diversion.
However, comments by various government representatives suggest the
government intends to put an end to this e-commerce model once
provincial retail stores are in place.

Terminating this e-commerce system would be a huge mistake. For a
number of reasons, a robust, permanent e-commerce platform is
necessary to displace the illicit market. For one, traditional retail
distribution will add considerably to the cost of recreational
cannabis compared to e-commerce. Many commentators have suggested it
could double the price - before tax. Some consumers enjoy the
experience of retail shopping for cannabis in bricks and mortar
settings, and will be prepared to pay the premium associated with
traditional retail. Others will not, and will opt for illegal cannabis
if it is the only cheaper alternative.

Second, distribution restricted to retail stores would be inconvenient
for many Canadians, especially those living outside major urban
centres. E-commerce delivery is the most effective way for these
consumers to obtain cannabis. Finally, cannabis is not like beer or
wine, which can remain stable in bottles for years. It's a botanical
that begins to change within 60 days of packaging. As with all
perishable products sold in retail environments, variety and choice
will be lower in smaller markets. E-commerce delivery would enable
these consumers to access a greater range of products. All of these
factors - price, convenience and choice - will create an incentive for
consumers to use the illicit market if "bricks and mortar" retail
distribution becomes the only method of delivery for legal cannabis.

The federal government is the only level of government with the
constitutional authority to govern the e-commerce delivery of adult
cannabis, as the undertaking involves a regulated substance,
inter-provincial trade and commerce, and mail: all federal areas of
responsibility under the Constitution Act, 1867. In making provision
for a permanent e-commerce model, though, the new Cannabis Act should
still allow for retail distribution. Consumers should simply be able
to choose between purchasing cannabis in stores or online. The
provinces and cities could maintain responsibility for the retail sale
of cannabis "at the street level," since these local undertakings are
quite properly within their purview.

Canada's licensed producer industry operates at a disadvantage to
black market distributors: we are required to produce the highest
quality, medical grade product in the world; we are obliged to comply
with the laws applicable to all businesses generally; we are fully
taxable; we are charged with the collection of HST, and soon, excise
and "social responsibility" taxes as well. The black market faces none
of these constraints. However, our industry has one huge advantage: we
don't have to hide. As a result, we can produce at a scale that allows
us to be cost-competitive with the illicit market, even after the
imposition of taxes.

To eliminate Canada's cannabis black market, the one remaining change
our industry now requires is the ability to deal directly with consumers.

Canadians should reach out to their MPs and senators to ensure that
the Cannabis Act incorporates a robust, permanent e-commerce platform
that allows all Canadians to interact directly with licensed cannabis
producers of their choice. By so doing, we'll take a monumental step
toward eliminating the black market and organized crime from cannabis
distribution in Canada, once and for all.

- -----------------------------------------------------------------

Gordon Fox is a lawyer and businessman residing in Toronto. He is the 
CEO of Emblem Corp. a public company. Emblem Corp's wholly-owned 
subsidiary Emblem Cannabis Corp. is a licensed producer of medical 
cannabis under the Access to Cannabis for Medical Purposes Regulations.
- ---
MAP posted-by: Matt