CANNABIS NEWS AND LEGAL COMMENTARY FROM CANADA

BY ROBERT W.E. LAURIE

Never has it been such a pivotal time in North American cannabis history. As a lawyer practicing cannabis law in Vancouver, British Columbia, I provide counsel to wide variety of clients with unique legal cannabis concerns, ranging from encounters with law enforcement and dealings with various regulatory bodies to navigating municipal licensing authorities regarding cannabis and related issues. In my capacity as counsel, having local and international experience of consequence to the cannabis industry, I am very fortunate to advise clients operating in the marijuana space. Some clients are new to cannabis, just trying to carve a place in a unique and emerging market, while others are regarded as Canadian industry pioneers. Conversations with these clients has afforded me a glimpse into their experience, thoughts and insights regarding the history of cannabis, trends of the ‘Black Market’ and speculation on the future of legal cannabis in Canada and the United States.

After presenting at the International Cannabis Business Conference this past October, I met Guy Holmes, Editor of Grow Magazine. Our conversation led to an invitation to write for Grow, to share my thoughts and insights regarding the Canadian cannabis scene, and provide legal commentary. It is a privilege to connect with an American readership and shed light on the happenings of cannabis laws, industry regulations and the cannabis market to the ‘North’ of the U.S. border (the 49th Parallel).

So, where to start? Well, cannabis enthusiasts on both sides of the “49th Parallel” are excited about the commercialization of cannabis. With respect to Canada, there are many topics to discuss with our American cousins, whether it be the regulation of illegal dispensaries in Vancouver that are undermining the federal Licensed Producer (LP) program, to Canadian Constitutional cases under the Canadian Charter of Rights and Freedoms involving municipalities, to what the future of legal cannabis in Canada may look like. With respect to these topics, I will try to highlight and explain in future installments, but for now, allow me to provide you with a starting point for understanding the ‘black’ or alternative market for cannabis in Canada.

The following is a brief historical primer synthesizing the past two decades in the illegal Canadian cannabis industry. “Tales From The Growside” is the account of market prices and thoughts regarding the future of weed with “legal cannabis” on the rise in both Canada and the United States.

So, without further ado, I introduce our newest column, “North of the 49th Parallel”

Installment 1. “Tales From The Growside: A Canadian Cannabis Black Market Street Price Historical Primer.”

The addition of cannabis to the schedule of proscribed drugs by Prime Minister William Lyon Mackenzie King in 1923 through the introduction of an Act to Prohibit the Improper Use of Opium and Other Drugs consequently created a cannabis black market that exists to this day. Conversations with clients have provided me with unique insights into the history and trends of the cannabis black market in Canada, most notably insights over the past two decades. Cannabis market trends and the economic factors noted below, suggests that with increased legalization, the price of cultivated cannabis will continue to decline.

Here is why:

1998 – 2002

From 1998 to 2002 the price of cannabis in British Columbia., per pound, was $2,800.00 – $3,200.00 (CAD). Much of the valuation had to do with external market factors including the fluctuation of the U.S. dollar, which averaged between $1.48 – $1.62 (USD) at this time, meaning the difference in exchange rates created unreal profit margins for growers who were willing to take risks and move product across the 49th Parallel into the United States. Many “old school” growers and cultivators regard the production boom period of the late 1990’s as the ‘Golden Age of Canadian Cannabis.’

The ‘Golden Age’ also corresponded to the end of the Quebec ‘Biker Wars’ (between the Hells Angels and the Rock Machine) but prior to 2000 when the Supreme Court of Canada decision of R v. Parker, establishing the first medical cannabis program in Canada (i.e. a precursor to the Medical Marihuana Access Regulations (MMAR) program)). Accordingly the number of growers supplying the Canadian and U.S. market was limited (compared to present day) with American demand significantly outpacing B.C. supply.

During this period was when the major markets and true commercialization of ‘B.C. Bud’ was established. It was a time when pounds of Canada’s finest cash crop went south of the 49th Parallel and into the United States at an unprecedented of rate. Following a Canadian Royal Commission around the late 1990’s, it was concluded by Canadian authorities that a pound of B.C. marijuana was trading pound for pound in value to the price of cocaine.

2003 – 2005

From 2003 to 2005, because of the ridiculous demand for ‘B.C. Bud’ in the U.S., vast quantities of untraceable American cash flowed into the B.C. economy. At this time the U.S. ‘greenback’ to the ‘Loonie’ was averaging from $1.48 – $1.31, marking a decline in the U.S. dollar resulting in the lowering of the price of ‘B.C. Bud’. From 2003 to 2005 the price of Cannabis sold in the black market began to decline to an average of about $2,200.00 to $2,800,00 (CAD) per pound.

With an explosion in the number of growers in Canada, marked by peak enrollment in the Canadian government’s MMAR program by this time, the ‘black market’ price of Cannabis began to fall sharply from 2006 to 2008. The price of a pound of ‘B.C. Bud’ during this period was around $1,000.00 to $2,000.00, meaning many pioneering “Golden Age” illegal growers shut down their operations due to increased competition and a falling U.S. dollar. With the U.S. dollar hovering at a $1.10 (USD), prices for ‘B.C. Bud’ fell across the board.

2006 – 2008

The drop in price for ‘B.C. Bud’ during the 2006 to 2008 period was also caused by the over-production of common commercial strains that were initially popular, but soon the markets grew tired of them. The development of new strains of cannabis flower to the creation of derivative cannabis products like “shatter” and other concentrates (like butane honey oil) began to pervade the market on both sides of the 49th Parallel.

2009 – 2010

From the years 2009 to 2010 the price for ‘B.C. Bud’ began to rise again due to increased difficulty in smuggling cannabis across the 49th Parallel. This period is marked by the U.S. Department of Homeland Security and U.S. DEA officials taking an interest in Canadian Cannabis growers and seed vendors. Such activity, according to U.S. Department of Justice, represented a National Security threat for the United States. Marc Emery (aka the Prince of Pot), Greg ‘Marijuana Man’ Williams and Michelle Rainey were arrested by the DEA with assistance by local law enforcement. During this period, ‘B.C. Bud’, recovered back to earlier price levels of around $2,200.00 to $2,800.00 (CAD) per pound.

The demand for ‘B.C. Bud’ from “South” of the 49th Parallel started to rise again due the popularity of B.C. producers growing ‘Kush’ and other Indica dominant and hybrid strains. Further, the increasing availability of MMAR licenses (leading to Harper government to repeal the MMAR and replace it with the Marihuana for Medical Purposes Regulations (MMPR)), created a building and construction spree in Canada of new semi-legal medical facilities for licenses issued by the federal government. Prices for ‘B.C. Bud’ climbed back up closer to earlier levels.

2010 – 2012

From 2010 to 2012 the price of ‘B.C. Bud’ was around $2,000.00 to $2,400.00 (CAD) per pound. With the increasing number of MMAR medical growers diverting their produce into alternative “grey” and “black” markets, a steady stream of new Kush strains flooded the market, resulting in saturation. The corresponding market developments during this period (including the proliferation of illegal dispensaries across Canada), had the effect of cooling market demand for ‘B.C. Bud’ south of the border due to oversupply.

2012 – 2014

From 2012 to 2014 the price for a pound of ‘B.C. Bud’ dropped to as low as $400.00 to $1,600.00 (CAD) per pound. Legalization efforts in Colorado and Washington State, were regarded as the ‘death nail’ to an already oversaturated market, again due to the flood of MMAR applications, the mass construction of MMAR facilities and a low American dollar.

Also during this time (2012 to 2014) the Federal government in Canada repealed the MMAR, replacing it with the Marihuana for Medical Purposes Regulations (MMPR) program. By 2015 the price of ‘B.C. Bud’ increased slightly to around $1,600.00 to $2,400.00 due to a rising U.S. dollar. Reaching $1.45 (USD) at its peak the ‘B.C. Bud’ industry started to recover, but nothing like the Golden Age days when scarcity of supply coupled with a significant currency differential compounded the gains made by illegal growers.

2016 – PRESENT

Now in 2016, with a national legalization program looming north of the 49th Parallel in Canada and U.S. states south of the border voting on legalization, prices continue to drop to around $1,000.00 to $2,200.00 (CAD) per pound. The proliferation of illegal dispensaries starting in Vancouver and Victoria and spreading across Canada has incentivized more illicit growers to enter the market, meaning the price of black market cannabis will continue to decline.

The black market price for cannabis is falling primarily due to a lessening demand in the U.S. for ‘B.C. Bud’. Such is attributed to increasing domestic U.S. production and it is predicted is that by March 2017, black market prices for ‘B.C. Bud’ will run somewhere between $400.00 to $1,600.00 (CAD) per pound, representing the lowest ‘Kush’ prices to date.

The prices for illegal cannabis, will continue to fall along with the size and scale of black market grow operations Even with the strong U.S. dollar that has been the backbone of the pricing of cannabis in B.C., the increase of domestic U.S. production (both indoor and outdoor) will be the end of the illegal industry that put ‘B.C. Bud’ on the map.

As both the United States and Canada grapple with implementing their respective ideas of “legal” cannabis programs, it is clear the risk and incentive to produce illegal weed remains. The return on investment, however, for black market growers in today’s market is nothing like its was in the late 1990’s.

More to come in 2017, which is shaping up to be a “bumper” year for Cannabis legalization in Canada and the United States.

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