Bay Street law firms going to pot

Corporate lawyers aim to gain from changes to rules governing access to medical marijuana

The pot industry has long created work for criminal lawyers. But now it’s attracting some of the biggest corporate law firms on Bay Street.

A change in the federal rules governing access to medical marijuana has created a wave of new business opportunities, not just for pot growers, but also for lawyers, accountants and investment bankers.

Need help filing a licence application? Raising money on the TSX? Signing commercial agreements with suppliers? There’s an expert for that. “You have an industry where there’s going to be real commercial activity and consumers of legal services,” says Hugo Alves, a partner with Bennett Jones LLP, a leading corporate law firm in Toronto. “We want to be the go-to advisers.”

Bennett Jones is just one of several law firms trying to get in on the ground floor of an industry that Health Canada figures suggest could be worth $1.3 billion within a decade.

Under the old rules, Alves said, there was really no way for corporate lawyers to get involved in the medical-marijuana market.

Since 2001, patients who required medical marijuana were essentially allowed to apply for a Health Canada licence to grow their own.

Initially meant to serve a limited number of seriously ill Canadians, the program quickly spiralled out of control, the federal agency has said.

Some 37,000 Canadians now have personal production licences. The system was fraught with potential health and safety hazards, not to mention the risk of diversion to criminals, Health Canada claims.

Under the new rules, patients must buy their medical marijuana from commercially licensed producers.

The rule change created a “Green Rush” of so-called “pot-preneurs,” one that has seen some of the first licensees raise millions of dollars from investors.

Toronto-based PharmaCan, which began trading on the Toronto Venture Exchange on Dec. 17, 2014, is one of the new breed of investors.

A private equity firm, the company has raised $13.5 million in four rounds of financing and invested in eight companies, including five licensed production facilities.

PharmaCan’s current market value is $27.5 million, a figure that’s dwarfed by Tweed Marijuana Inc., the first publicly traded producer. Housed in the old Hershey’s chocolate factory in Smith Falls, Ont., Tweed is valued at $97.5 million.

Still, the industry is facing a number of challenges, including backlogs in the licensing process, product recalls and inadvertent drug seizures, along with delays in receiving needed RCMP security clearance.

Investors are also awaiting the outcome of two critical legal challenges that could determine the size and scope of the market for these new commercial enterprises.

The first case, which goes to a federal court in British Columbia on Feb. 23, will determine whether the thousands of Canadians with personal licences to grow medical marijuana can be forced to switch to commercial suppliers.

Vancouver-based pot activist Jason Wilcox, who is leading the challenge under Canada’s Charter of Rights and Freedoms, says many patients can’t afford the higher prices commercial facilities will charge.

PharmaCan chief executive officer Paul Rosen says he’s not worried about the outcome. Most patients are going to want to buy from highly regulated, inspected commercial facilities, he says. “We’re in this for the long term.”

The second case, which will be heard in the Supreme Court of Canada in March, will determine whether medical marijuana can be sold in other forms besides dried flowers.