Black market could survive if regulations too broad
AS CANADA SEEKS TO LEARN FROM WASHINGTON STATE’S EXPERIENCE WITH LEGALIZING RECREATIONAL MARIJUANA, SOME POTREPRENEURS ARE SKEPTICAL ABOUT WHAT THE FUTURE WILL REALLY LOOK LIKE.
Meet the boss of Canada’s illegal marijuana trade, Don Briere. To police and the criminal courts, he is already a familiar face, a maverick dealer and convicted grower who has served multiple prison sentences for refusing to obey this country’s longstanding prohibition on pot.
Briere has fought the law and lost, most of the time. And yet, even at an age when most Canadians are entering retirement, this 65-year-old British Columbian is more involved in the underground cannabis business than ever.
His Weeds Glass and Gifts sells a vast array of cannabis products from glass display cases: marijuana, potent concentrates, baked goods, even drinks. What started as a single dispensary in Vancouver three years ago has grown into a national franchise, with 23 stores in B.C., Manitoba, Ontario and Quebec. Briere owns six stores outright, and is an equal, jointventure partner in the others.
His chain’s annual sales have reached $20 million, says Briere, adding that more Weeds outlets are the way.
Authorities have slowed him, but it seems they can’t stop him. Police raided seven of his Toronto dispensaries in May; three were back in operation by midsummer. A Weeds store in Quebec City was raided recently, but Briere vows sales will resume.
In Vancouver, police don’t bother trying to shut down his stores. They say their priorities no longer include enforcement of existing marijuana laws.
The landscape has dramatically changed since Briere got into the game decades ago.
In an effort to reduce and cap the number of cannabis dispensaries in Vancouver — they numbered more than 100 last year — the city introduced unique bylaws that required shops to apply for business licences. If they were denied, they would have to close.
That was how the system was meant to work.
None of Briere’s Vancouver stores passed muster with the city; none received the required permits. They have remained open, racking up thousands of dollars in municipal fines, which Briere refuses to pay.
He is not waiting for the federal government to introduce legislation that will legalize and regulate the sale of recreational marijuana to adults in Canada, either. Briere doubts the new rules — expected to come into force in the next year or two — will make room for his stores.
He has, after all, a number of criminal convictions related to the cultivation and sale of marijuana in B.C., going back to 2001. He was also convicted for possession of a prohibited firearm. While on parole in 2004, he was arrested for running an illegal cannabis shop in Vancouver, and sent back to prison.
Briere says he will keep selling marijuana, his way.
He has already scored some minor victories, including a B.C. Supreme Court decision in August that has allowed him to continue operating — temporarily, at least — an illegal dispensary in Abbotsford, about an hour’s drive east of Vancouver.
Briere represents the type of person who has taken over the sale of underground weed in Canada. The illicit pot market is no longer dominated by street gangs, outlaw motorcycle clubs and organized crime.
Small- and larger-scale cultivation have increased, streetfront dispensaries are becoming commonplace, law enforcement has relaxed, and marijuana prices are lower than ever. All of these factors have pushed organized crime to the fringes. The black market has turned grey.
According to several sources, even the regulated medical marijuana market in Canada has been compromised.
Under existing federal law, Canadians authorized by their health care practitioner to use cannabis for medical purposes have several legal product sources: They may grow their own marijuana, designate someone to produce it for them, or purchase it from a largescale producer under license by the federal government.
Hundreds of “designated persons” and 34 corporatestyle, licensed producers in Canada grow marijuana in indoor facilities and greenhouses across the country. They are not authorized to provide marijuana to anyone except individuals holding federal permits.
But Briere says all of the marijuana he buys wholesale — some $10 million this year — and sells through his stores comes from designated producers and “more than one” licensed producer.
“Some of the licensed producers are losing money,” he says. “They have a surplus of product. What are they supposed to do, let it rot?”
Meanwhile, a Colorado executive involved in that state’s legal recreational marijuana trade says Canadian licensed producers have told him 80 per cent of their cannabis products “are going to the dispensaries.”
Such claims are impossible to verify — no licensed producer will ever admit to illegally supplying dispensary owners such as Briere.
In answer to questions posed by Postmedia, Health Canada — the government department that handles medical marijuana licensing — says any producers found to be diverting marijuana to the illicit market will have their licence revoked and the owner and employees turned over to law enforcement to deal with.
But authorities have previously acknowledged Canada’s medical marijuana rules were being exploited.
In 2010, the RCMP found 40 marijuana production licence holders were illegally selling their product. And a 2012 RCMP intelligence report noted that “gaining access to or control of a medical marijuana grow operation is highly desirable for criminal networks due to the array of opportunities it would present for the illicit production and diversion of highgrade medical marijuana.”
Even so, Health Canada says it “has no information” to suggest licensed producers and individual licence holders are supplying illegal dispensaries.
Whatever the case, the Trudeau government insists making marijuana legal and available to Canadian adults will do more than any other measure to cut big-time criminals out of the trade.
A government discussion paper prepared this year for the federally appointed Task Force on Marijuana Legalization and Regulation says, “the illegal trade of marijuana reaps an estimated $7 billion in income annually for organized crime. ... In 2015, the Criminal Intelligence Service Canada reported 657 organized crime groups operating in Canada, of which over half are known or suspected to be involved in the illicit marijuana market.”
But in an August submission to the same task force — headed by former federal justice minister Anne McLellan, it will recommend how the government should proceed with legalization — three Vancouver-area drug policy experts warned that organized crime’s involvement is overstated.
“Evidence suggests a very low level of involvement of organized crime in the cannabis industry in Canada,” the trio writes. “The majority of those in the industry tend to be non-violent and have minimal involvement with other criminal activities.”
In its own task force submission, a group of small producers called the Craft Cannabis Association of B.C. wrote that, “craft producers and retailers wish to be part of the legal industry. ... We do not want the federal government to exclude them based on the unfounded notion that these people are members of ‘organized crime’. ”
Whomever the federal government allows into the recreational marketplace — large corporate players, smaller mom-and-pop operators, or both — regulations and efforts to inoculate the industry from criminal elements are necessary.
The danger is rules meant to block bad guys could reach too far, producing unintended consequences.
Legal recreational marijuana was introduced to Colorado in 2014. While most industry participants say the state’s regulatory environment has allowed them to succeed, some arcane requirements and potential changes tilt the playing field.
“Legalization was sold to voters as something to be regulated, like alcohol,” says Tim Cullen, CEO and coowner of the Colorado Harvest Company, which produces, processes and sells recreational pot. “But the rules aren’t the same. They aren’t even close. We have residency rules, purchase limits, and advertising, packaging and labelling restrictions that the alcohol industry doesn’t have.”
There is a proposal before voters to limit the potency of all marijuana sold in Colorado. Forcing licensed marijuana producers to cut the strength of their product is “a ridiculous idea,” Cullen says, “because it would benefit black market producers. They are already our strongest competition. Right now, we beat them with the quality and selection we offer in our stores.”
The biggest difference between black market weed and legal marijuana has less to do with quality and variety and more to do with price. The government-regulated market is taxed; the black market is not.
When legal recreational marijuana was made available to adults in Washington State two years ago, the state imposed three levels of taxation: Licensed producers, processors and retailers were all forced to pay a 25-per-cent excise tax on marijuana products. These duties were passed along to the customer, and the average price for a gram of dried marijuana sold in regulated shops was US$30, about four times the street price.
Hardly surprisingly, consumers avoided the legal market in droves, says Rick Garza, director of the Washington State Liquor and Cannabis Board, the public body that enforces local pot laws. The state responded a year later, overhauling its tax regime so that a single, 37-percent excise tax would be applied to marijuana products at the point of sale.
As a result, the average price for a gram of marijuana sold through legal channels in Washington State is now about US$9.
After a slow start and a glut in supply the first year, total sales of marijuana under the regulated system reached the US$1-billion mark in June this year.
“That’s double what we expected,” says Garza.
Meanwhile, the state has collected more than US$270 million in marijuana excise taxes since legalization.
Washingtonians may love their legal pot, but the local black market hasn’t died. Garza estimates it represents about 28 per cent of the market. That should not come as a surprise, he says. Some buyers live in areas of the state where legal pot is not close at hand, due to county-wide bans. Some prefer to deal directly with underground growers and dealers.
“It’s like booze after Prohibition,” he says. Some people continued to buy liquor from bootleggers. But with time, the black market shrank to insignificance.
The same may happen with marijuana. A lot depends on the rules governments impose on the legal market, and on the levels of taxation they apply.
Garza has received visits from a number of Canadian lawmakers and law enforcement officials, looking to learn from the Washington State experience. His advice? “Start conservatively.” Create limits, but don’t burden a nascent legal marijuana industry with more rules and restrictions than are necessary to protect children, and society at large. Don’t over-tax the system, or the whole exercise may fail. And don’t expect to eliminate the black market overnight.
On that point, at least, Don Briere can agree. Canada’s king of retail pot stores is speaking to investors and scouting potential sites for low-cost, outdoor grow-operations and greenhouses.
“We’re looking at going into production ourselves,” says Briere. “We’re not going anywhere.”
SOME OF THE LICENSED PRODUCERS ... HAVE A SURPLUS OF PRODUCT. WHAT ARE THEY SUPPOSED TO DO, LET IT ROT? DON BRIERE