Pubdate: Sat, 18 Nov 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Author: Mike Hager and Carrie Tait
Page: S1


As Canada moves toward marijuana legalization, officials in Vancouver
and across the country are looking for ways to bring in black-market
customers, and for some, that means offering the option to shop from
the comfort of their homes

A small, nondescript parcel arrives at the doorstep of Candice Beyer's
Edmonton home every couple of months. She signs for the delivery, then
quickly and quietly squirrels the shrink-wrapped, odourless package
away in a secret drawer.

The mother of three says the cannabis helps her unwind on the odd
Saturday night when her kids are out of her hair, a comfort she likens
to the glass of wine other parents might enjoy.

She's not a medical-cannabis patient, so she has no way to get the
drug legally. She's not keen on buying from a street dealer and with
no illegal cannabis dispensaries in Alberta, Ms. Beyer sought out one
of the dozens of underground Canadian companies selling the drug
online and started getting the special deliveries about a year ago.

"I've never liked the idea of buying it off of random people [on the
street] that I don't really know or trust," she said.

Ms. Beyer is exactly the type of customer that governments hope to
bring out of the black market once recreational cannabis is legalized
next year.

As provinces reveal their plans for how they will allow cannabis to be
sold, much of the focus has been on bricks-and-mortar retail stores
and whether they should be private or public. However, online sales
might be as lucrative - or more so - as people already accustomed to
shopping online look for a way to get the drug easily and, for the
most part, anonymously.

And in almost every province that has announced its plans for legal
cannabis, provincial governments are keeping exclusive control of the
online market - and the profits.

Canada's cannabis black market is estimated at about 400,000 kilograms
a year, although it's not clear how much of that is from online sales
from dispensaries, which ship their products undetected through Canada
Post. That's on top of the legal medical cannabis system, which
shipped 33,000 kilograms of product to 168,000 patients across the
country last year.

Licensed medical cannabis growers across the country have been telling
provincial governments they have the capacity and expertise to run
online sales directly to consumers. So far, all provinces except
Manitoba have opted for a public system of online sales meant to
capture consumers such as Ms. Beyer. British Columbia, long home to
the country's largest illicit cannabis industry, has yet to unveil its
plans, but has signalled it favours a mix of public and private
retailers similar to the model Alberta has proposed.

On Thursday, Alberta introduced a hybrid system in which the province
runs online sales and allows private businesses - including licensed
cannabis producers - to operate special stores where the drug is sold
separately from tobacco, pharmaceuticals or alcohol. The provincial
government said this strikes a balance between bolstering its
entrepreneurial image - in a place where consumers are long accustomed
private alcohol sales - and providing the oversight needed to ensure
legal cannabis stays out of the hands of minors.

Oversight of minor use is one of Ottawa's key priorities behind this
historic policy shift. To do that, government workers may end up
delivering the cannabis.

Alberta has not decided whether it will mark up online product to
match its competitors in private storefronts, but Justice Minister
Kathleen Ganley told reporters on Thursday that, especially in the
first few years, as the legal market is established, the costs to the
provincial government - in terms of areas such as policing, education
and health care - will exceed any revenues.

Ms. Ganley said the province does not yet have a forecast for revenues
from online sales and her spokesperson said no business case was
available for this nascent public enterprise.

Potential profits from online sales would be over and above tax
revenue. Ottawa has proposed an excise tax of roughly 10 per cent,
split evenly with the provinces. Provincial governments say that share
would be insufficient, since they have to deal with all of the issues
related to legalization, including law enforcement, public health and
establishing a regulatory framework and system of sales. A consortium
of 12 licensed medical-cannabis producers had pitched Alberta and B.C.
on allowing them to run a co-operative network of stores with an
e-commerce platform to sell the drug at no extra cost to the
provincial government, even floating the idea of a profit-sharing
dividend. Pierre Killeen, vice-president of corporate communications
at Quebec-based Hydropothecary and spokesman for the Canadian Cannabis
Co-op, said it is natural for governments to want to retain tight
control of all facets of the market at the dawn of

A spokesperson for Liquor Stores N.A. Ltd., Alberta's largest chain of
alcohol retailers, declined to comment on his company's plans for this
new sector.

Jeremy Jacob, president of the country's largest dispensary trade
group, the Canadian Association of Medical Cannabis Dispensaries, said
a government-controlled online sales system runs contrary to the
spirit of free enterprise and will push black-market retailers to
continue operating outside the regulatory environment.

"What other industry would you be given the right to retail, but not
online?" he said. "Unless [governments] can show that private
businesses will not be able to do age verification, then it seems to
me that there would be no clear reason for the provinces to reserve
retail for themselves other than to gain the revenue."

Alberta's hybrid approach seems much more sensible than that of
Ontario, New Brunswick and Quebec, where in-person and online sales
will be run solely by the government, according to Anindya Sen, an
economist at the University of Waterloo who studies public
intervention in markets.

"If Amazon is any indication, [online] is definitely where retail is
going," he said.

Whereas the Eastern provinces will want to keep online and in-person
pricing level, so one arm of their public-sales system doesn't vastly
outperform the other, Alberta can dictate the market price it wants
private retailers to meet through what it charges on its government
website, Prof. Sen said.

"It's a smart move because they won't have any overhead and, if they
set prices a bit lower, they can ensure that the bricks-and-mortar
retailers will also ensure that they keep their prices low," he said.
"From that perspective, it's very useful to control black-market growth."

Rielle Capler, a University of British Columbia PhD candidate who has
been studying how Canadians access legal and illicit cannabis for
almost two decades, said provincial governments may be damaged
politically for creating retail systems that make it easier for people
to buy cannabis, but that is the only way the black market will be
squeezed out.

"They have to look at the evidence and not the politics," she

A study published in the March, 2016, issue of the peer-reviewed
journal Health Affairs found that U.S. states with less government
control over legal cannabis sales saw more people join the regulated
market, she said. She added that some people will continue to fear and
distrust any government involvement in the cannabis market as long as
criminal penalties related to the drug exist.

Skye Bergen says she has a prescription to use the federal e-commerce
system for medical cannabis, but she says her trusted street dealer
has more strains, which she can get cheaper and faster than from one
of the country's six dozen licensed commercial growers. The Edmonton
mother of two says some of the licensed firms are better than others,
but the price must come down and shipping times must be cut
drastically for any legal medical or recreational market to beat out
its underground competitors.

"It doesn't make sense to put that order in and wait for a week and a
half to two weeks when I can call somebody and have them come to me,"
she said.
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