Health Canada Releases Public Engagement Paper

The engagement paper is part of the mandated Cannabis Act Review and contains data collected from a number of sources, including population surveys, data sets, academic research and surveillance tools administered by Health Canada. Key areas of discussion include harm-reduction, consumption patterns, education and awareness, Indigenous engagement, combating the illicit market and much more.

The Breakdown

• 10 standard license holders account for 43% of all dried cannabis production in Canada between October 2019 and December 2021. Another 56% came from 307 standard license holders. Approximately 178 micro licensees accounted for less than 1% of all cannabis production in the country.
• 10 companies account for 66% of all legal sales, while another 200 accounted for one-third of all sales between October 2019 and December 2021, with micro license holders accounting for 0.3% for all sales in the period.
• Micro license holders account for 38% of all federal licensees. A number that has grown from 20 at the start of 2020 to 340 as of July 31, 2022.
• Since legalization less than 10% (approximately 95 cannabis license holders) exited the industry.
• The data shows a notable decline of unlicensed brick and mortar stores operating in Canada, however there was an increase of illicit operations in Indigenous communities.

Our Perspective

This data shared by Health Canada contains several fascinating insights that covers a wide range of different areas and therefore we highly recommend reading the paper in its entirety. The fact that 10 companies account for almost half of all dried cannabis production in Canada might come as a surprise to some, it clearly shows that the huge oversupply of cannabis in Canada is the result of a small minority of licence holders. Furthermore, data shows that significant progress has been made in terms of displacing the illicit market. However, the paper did highlight one study that indicates “individuals who continued to purchase cannabis through illegal channels were more likely to be male, less likely to be college or university graduates, consumed cannabis more frequently, and agreed more strongly that illegal cannabis is cheaper and of higher quality and should not be regulated by the government”. Converting this particular type of consumer, as well as mitigating the growth of illicit online cannabis sales channel, will continue to be major challenges when it comes to displacing the illicit market.

B.C Introduces New Legislation to Control Online Illicit Cannabis Sales

In an attempt to control the proliferation of online illicit cannabis sales, the BC Government has introduced new legislation, the Cannabis Control and Licensing Amendment Act, 2022 (Bill 30), per StratCann.

The Breakdown

• The Legislation, introduced by BC Minister of Public Safety and Solicitor General Mike Farnworth, would amend the existing provincial cannabis regulation and provide more enforcement power to the BC Community Safety Unit (CSU), which is authorized to carry out compliance and enforcement activities against unlicensed cannabis retailers and other illegal sellers across the province.
• The CSU was initially tasked with overseeing enforcement on the illicit brick-and-mortar cannabis stores in the province, however, they are seeing an increasing number of illicit operators shift to distributing cannabis online.
• As of September 28, the CSU has made 308 visits to unlicensed retailers for educational purposes and has seized 31million worth of cannabis with 180 unlicensed retailers either closing or completely ceasing illicit cannabis sales.

Our Perspective

This story highlights several interesting areas of concern that echo the engagement paper released by Health Canada mentioned above. There has clearly been a shift from illicit brick-and-mortar cannabis stores, particularly in places like Vancouver and Toronto, to illicit online cannabis sales. It is now easier than ever to obtain cannabis online that some would argue is of higher quality and lower cost despite it not being subject to the rigorous quality and analytical testing requirements required by Health Canada in the legal market. Furthermore, there is an increasing amount of cannabis stores operating within First Nations communities. As the article points out “although some [of these businesses] argue they are not beholden to provincial law, the BC government has disagreed, arguing that BC’s cannabis regulations are a law of general application and are enforceable on First Nations reserves”. This complicates things even further and can lead to frustration and division amongst the legal operators.

AGCO Issues Warning on Cannabis Product Diversion

The AGCO sent out a warning to cannabis retail store owners regarding a “retail support program” operated by Leafythings, an online platform that lists various illicit cannabis brands and businesses. According to the AGCO, the program involves the solicitation of cannabis retailers for the purpose of purchasing cannabis in bulk by unlicensed third parties upon the closure of the store.

The Breakdown

• According to Leafythings, the retail support program involves buying all available inventory from stores who wish to wind down in a timely fashion and that they will be sharing and gifting these products at [Leafythings] events and exhibitions.”
• The AGCO reminded licensed retailers that, they are required to comply with all applicable legislation and standards to ensure there is no diversion of legal cannabis product to the illicit market and that failure to properly dispose of inventory before you close may result in compliance activity by the AGCO or action from other law enforcement agencies.

Our Perspective

We have heard rumblings of deadstock product from producers and retailers being diverted to the illicit market, but for the AGCO to send out this warning and call out a specific company that is blatantly disregarding the rules is not something we have seen yet. Frankly, it’s shocking to see a company like Leafythings make a formal press release like this that is a clear violation of the rules. Hopefully most retailers know better and will not put their licence, or more importantly livelihood at risk by falling into these traps.