Canada legal marijuana: Rocky rollout, thriving black market

Cannabis
users congregate at Trinity Bellwoods Park for a ‘smoke out’ on
October 17, 2018 in Toronto, Canada. Canada became the second
country in the world after Uruguay and the first G7 nation to
legalize cannabis use on Wednesday.
Ian Willms/Getty Images

• 
  Canada officially legalized marijuana, but people across
  the country have had a tough time accessing the product
  legally.
• Canadians are turning to the black market to pick up
  where provincially-run retailers have dropped the
  ball. 
• In Toronto, Canada’s most populous city, the black
  market has seen “new life breathed into it.”

TORONTO, ONTARIO — Canada
officially legalized marijuana on October 17, but Canadians
across the country have had a tough time getting their hands on
the product — legally, that is.

Patrick and Michael, 26-year-old roommates in downtown Toronto,
have had a somewhat typical post-legalization experience (last
names withheld because they purchased illegal marijuana). 

The pair, who work at a tech startup and in commercial banking
respectively, recently ordered $75 worth of marijuana from the
Ontario Cannabis Store’s website. The OCS — the provincially-run
body that supplies Ontario residents with legal marijuana — sent
the roommates a confirmation email that their order would be
processed and delivered to their condo in one to three days. It
would be just in time for Friday night festivities.

Friday came and went, and they heard nothing from the OCS.

“It’s brutal,” Patrick said. “No confirmation or updates or
anything.” That delay in communication forced the pair to hit up
an illegal marijuana dealer.

The supplier met them at a restaurant on trendy Ossington Street
within 40 minutes of sending a text. Patrick and Michael bought
$40 worth of a potent strain, and the dealer threw in a free
joint.

Business, the dealer told Patrick, was “booming” after
legalization.

It’s a strange conundrum. Selling the marijuana to Pat and Mike
was illegal, but once in their possession, the pair could legally
consume the product.

In the grand scheme of things, Patrick and Mike said waiting a
few extra days to get their marijuana wasn’t really a big deal.
But for medical patients who need their marijuana daily — and the
global financial community eagerly watching how this all plays
out in Canada — it’s not good a look. 

The OCS finally delivered Patrick and Mike’s legal marijuana on
Tuesday morning, days after it was supposed to arrive. 

A
man shows off his cannabis purchase outside the Quebec Cannabis
Society (SQDC) store, on the day Canada legalizes recreational
marijuana, in Montreal, Quebec, Canada
REUTERS/Christinne Muschi

The rollout of legal marijuana in
Canada has been bumpy 

The rollout of legal marijuana in Ontario has been bumpy, to say
the least. The former provincial government, under Liberal
Premier Kathleen Wynne, set up a plan to open a number of
brick-and-mortar OCS outlets throughout the city of Toronto and
across the province — Canada’s most populous — on October 17.

When now-Premier Doug Ford took over the provincial government at
the end of June, his Conservative party scrapped the Liberal plan
entirely.

The party settled on a strategy to run marijuana sales
online-only on October 17, the day legalization went into effect,
with a plan to allow private retailers to open pot shops in April
2019.

Under provincial law, the OCS is the only vendor allowed to sell
marijuana until retail licenses are processed and issued next
year. 

Read more: Some
of the hottest companies in the booming cannabis sector are going
on hiring sprees as Canada’s legal marijuana market
opens

The OCS has also created strict packaging rules around the
marijuana products they sell. 

Prior to legalization, there were a number of “medical” marijuana
dispensaries operating in the city of Toronto where people could
purchase marijuana, albeit under a murky legal framework. These
ranged from sketchy to surprisingly upscale, with deep product
inventory and knowledgeable sales reps. 

To send a message, the Toronto Police Service raided five of them
earlier in October, forcing many to close down to avoid
jeopardizing their chances of getting a coveted retail license.

And while regulators figured Ontarians could make do with
online-only sales until April, there were some unforeseen
variables — as with any massive social policy shift.

Devin
Melnyk, a long-time marijuana grower and a consultant with Pure
Sunfarms, holds trimmed marijuana as it comes out of a
high-volume cannabis trimming machine at a massive tomato
greenhouse being renovated to grow pot in Delta, British
Columbia.
AP Photo/Ted S.
Warren

Canada Post goes on strike, and customers are left in the dust

As the OCS contended with
a flood of over 150,000 marijuana orders during the first
week of legalization, Canada’s postal service decided to begin
rotating strikes. There was no one to deliver packages to Ontario
residents who had ordered marijuana legally as a result.

On top of that, some of the licensed producers in Canada had
earlier warned that there would be supply chain issues providing
the amount of marijuana the provinces requested,
according to The Financial Post. And a quick scan through the
OCS store on Saturday showed that to be the case. Most products
were either sold out entirely or had a limited supply left. 

I visited one dispensary — decked out in psychedelic colors —
that had a few guys in their mid-20s sitting behind a counter.
“We have nothing to sell you, bro,” they told Business Insider,
unprompted. “We’re all out in the back. We’re hoping to get a
license so we can reopen next year.”

Read more:

Some of the hottest companies in the booming cannabis sector are
going on hiring sprees as Canada’s legal marijuana market
opens

A dispensary on Queen Street East, one of Toronto’s major
thoroughfares, had the feeling of an illicit drug market. To get
in, you buzzed a door while you were evaluated on a security
camera. Once through, you had to hold up your ID against a small
window of bulletproof glass.

Then another door was unlocked, and you entered a small interior
room, where two young employees — behind another set of
bulletproof glass — presided over jars of marijuana labeled with
names like “Alien O.G.” and “Bubble Kush.” This was not a legal
operation. Nor was it an operation that would bring any new
customers into the fold. 

Customers are irate — and so are analysts

All this has led some customers to file formal complaints with
the Ontario government. Others are speaking out on social media
platforms about how OCS dropped the ball on their orders.

“Canada Post was never the issue here though… This is all
just bullsh-t they keep feeding us using them as an excuse,”
one
Twitter user said on Sunday.

The OCS released
a statement on Sunday that said there was “adequate product
supply,” and pinned some of the blame on the “mail and package
backlog” at Canada Post. 

“Efficiencies and ways to further expand capacity at the
OCS distribution facility continue to be made to help meet the
massive demand. Our staff continues to work around the clock to
fulfill customer orders and respond to customer inquiries and
calls,” the OCS said. 

The story is the same in other provinces. In British Columbia,
the only legal dispensary open for recreational consumers on
legalization day was not in Vancouver, by far the province’s most
populous city, but in Kamloops, a small town of about 90,000
people in the center of the province.

Small
marijuana plants grow in a lab at the new Commercial Cannabis
Production Program at Niagara College in Niagara-on-the-Lake,
Ontario, Canada, October 9, 2018
REUTERS/Carlos Osorio

In Quebec, the province’s provincial retailer said on Friday it
would close all 12 of its stores between Monday and Wednesday
until the supply chain issues were ironed out. The Canadian Press

reported Quebec residents waited hours in line, only to enter
a store with no products on its shelves.

GMP Securities, a Toronto-based investment firm, blamed the rocky
rollout and distribution issues for the recent selloff in
Canadian pot stocks.

“The extremely limited distribution network in many
provinces, fulfillment challenges in Ontario, inventory shortage
in Quebec and LPs coping with limited availability of excise
stamps may take several months to be resolved,” GMP Securities
analyst Martin Landry said in a Monday note to clients.

“It becomes increasingly clear that recreational cannabis
sales in 2018 will be much lower than previously expected,”
Landry said.

Canada’s still working out the kinks 

The whole point of marijuana legalization in Canada was to

eradicate the black market and make it more difficult for kids
under age of 18 to access the drug.

“The grey market is getting a little bit of new life
breathed into it,” Emma Baron, the founder of the Toronto-based
cannabis accessories brand Milkweed, told Business Insider. The
grey market refers to the dispensaries and dealers who are
capitalizing on the murky area between legal sales and illicit
sales.

“The province has set the bar as low as it possibly can,”
Baron said. “To be fair, they also haven’t been in the
marijuana-dealing business before. They’re working out the
practicalities.”

But still, it’s given savvy dealers a leg-up, Baron said.
“Your go-to guy from way back is powering up his cell phone
again,” she said.

According to Jay Rosenthal, who runs  Business of Cannab, a
business-to-business news and policy platform for Canada’s
cannabis industry, the rocky rollout was to be expected.

“This is a transformational social policy shift,” Rosenthal told
Business Insider. “These are such early days. How could you not
work out the kinks?”

Read more of Business Insider’s cannabis industry coverage: