Stoners cheered when Canada legalised cannabis. How did it go so wrong?
The grass is always greener… rows of cannabis plants growing in a greenhouse at the Hexo facility in Gatineau, Quebec.
The grass is always greener: rows of cannabis plants growing in a greenhouse at the Hexo facility in Gatineau, Quebec. Photograph: Bloomberg via Getty Images
Growers have gone bust, and the black market is still thriving
Sun 5 Apr 2020 12.18 BST
The lights shone more brightly than anything I’d ever seen. One million blinding watts strafed across the leaves of countless cannabis plants that peeled off in neat rows in every direction. The warehouse was as pristine as a pharmaceutical facility, and as we strode around in crisp white nylon overalls and box-fresh wellies, the atmosphere was surreal – interstellar, almost: – it felt as if we were on a mission to Mars. It was definitely a glimpse of the future.
It was 2017 and I had been invited to visit this legal medical cannabis “grow” in the town of Gatineau, near Ottawa. I was in Canada after writing a paper for the drug-law reform thinktank Volteface, proposing an online-only, legal cannabis market in the UK as a way to break the logjam between the UK’s two million cannabis smokers and those who fear legalisation. I was meeting with Canadian police and politicians to hear more about that country’s plans to completely legalise cannabis the following year.
Back in the UK, a million-watt grow like Gatineau’s would put you in jail for a decade. Here, it was likely to make its owners a very cool, very legal few million in mere months. Added to that, the state would benefit, too, as taxes from sales of the crop would be collected for the common good rather than enriching criminals. It felt utopian.
Were cannabis activists’ hopes of a regulated cannabis market just a pipe dream?
For the three decades I have campaigned to reform drug laws, I never expected to see change happen so quickly, or at such scale, as it did in Canada. But, two years on, the Canadian experiment hasn’t quite turned out as we reformers had hoped.
The Gatineau greenhouse through which I strode on that day in 2017 was owned by a firm called the Hydropothecary. Now named Hexo, in October 2019 it shed 200 of its 800 staff. On 4 March one of Canada’s biggest growers, Canopy Growth, announced the closure of two mega-greenhouses in the towns of Delta and Aldegrove – with 500 job losses. The firm also cancelled the opening of a new site in Niagara-on-the-Lake, Ontario.
Meanwhile, the black market is still vibrant while cannabis stocks have crashed, medical patients say they can’t get hold of essential medicines, and thousands of jobs have been lost. So what went wrong – and what went right? Were cannabis activists’ hopes of a regulated cannabis market just a pipe dream?
Canada had permitted cannabis for medical use since 2001. Medical patients were allowed to grow up to 400 plants, and licensed producers cultivated larger crops for sale online to those with valid prescriptions. But most Canadian cities had illegal – but tolerated – dispensaries where the drug was sold completely indiscriminately. These stores made Amsterdam’s coffee shops look as prim as a WI cake stand. The quality and variety of cannabis on sale at these illegal outlets was outstanding, bewildering. Business was not just booming, but blazing.And it was all completely illegal.
‘Canada made cannabis boring’: plants being tended at Aurora.
‘Canada made cannabis boring’: plants being tended at Aurora. Photograph: Bloomberg via Getty Images
Canada’s Cannabis Act of 2018 was a bold attempt to impose some order on this anarchic retail scene. It legalised the sale to adults of 30g of cannabis in austere packaging from government-licensed shops. Canadian prime minister Justin Trudeau said: “The old approach to cannabis didn’t work. It was too easy for our kids to get it and gangs and drug dealers were reaping the profits. That changes from now on.”
Bill Blair, a former Toronto police chief, became an unlikely cheerleader for legalisation, arguing that to do so would “keep cannabis out of the hands of youth, and profits out of the hands of criminals”. Two other key goals of regulation were the protection of public health and the reduction in criminality associated with the illegal market. After 50 years of the unending, senseless drug war, peace had broken out.
Or so it seemed. Because while Canada may have lit the fuse on an ambitious experiment, every high has a low. Within a year the industry was experiencing mass layoffs, multi-billion-dollar stock-market losses, executive firings and corporate scandals as the overhyped new sector experienced a dramatic and humbling public correction.
What went wrong? Alastair Moore, co-founder of Hanway Associates, a London-based cannabis consultancy, says the Canadian industry has been driven by vulture capitalism and wishful thinking. “A mix of greed and naivety led this industry to great heights – and has left it on its knees. While some made lots of money, others lost their investments and now many others have lost their jobs.”
According to Moore’s fellow founder, George McBride: “The key thing is that Canada did actually get the reforms through. In and of itself, that is a huge feat. It’s the first time any major developed country has done so. And so, kudos. However, getting it through has involved a lot of politicians who didn’t understand what they’re talking about designing a really complicated system.”
So just how does a state create and regulate an entirely new business of intoxication that has always existed, essentially, in a countercultural, outlaw space? Canada, it turns out, did so cautiously, with every decision deliberated over by a centralised government Task Force.
Added to the complexity of the policy and its implementation, the needle of international capital’s wonky moral compass swung straight at these lucrative new markets. Hundreds of millions of dollars were raised on global capital markets and the Canadian landscape was quickly dotted with massive new grow sites.
The so-called “green rush” had started and production went into overdrive. Stock prices soared and fortunes were staked, made, doubled and tripled in an atmosphere reminiscent of the 90s dotcom boom, or the Yukon gold rush of the 19th century, when 100,000 prospectors headed into the Canadian hinterlands in search of riches. Many firms hoped to corner the Canadian market by throwing millions of dollars of shareholders’ money into massive grow sites. This time, the gold was green. But soon, things started to fall apart.
The main problem Canada’s smokers and growers faced was access: too few retail shops were able to open to serve the eager new market. Canada is a country of 38 million people, divided into 10 provinces that are similar to US states, with provincial governments producing a patchwork of varying regulations. Over a third – 13.5 million – of all Canadians live in the state of Ontario. But as of 2 March this year, Ontario had just 41 retail cannabis stores. The province of Alberta, home to 4.4 million, has 423 stores.
And where there was product available, the price was almost double that of the illegal market. C$5.59 to C$10.23 per gram (or over £40 a quarter ounce). That was caused by tax burdens and overheads: the legal market has to comply with regulations on fungicide and pesticide residue levels, and draconian security requirements for grow sites, such as huge vaults in which to store the cannabis and record-keeping for every person who enters these vaults.
The illegal market, meanwhile, is completely unregulated – and thriving. Statistics Canada, a state agency, reports that just 9% of cannabis users buy all of their product from a legal source. Four in 10 Canadians told the organisation that they bought at least some cannabis from illegal sources in 2019.
The next problem was that many stores sold poor-quality grass, with smokers complaining that it had been poorly dried and cured, and tasted bad. Modern cannabis users are accustomed to a range of flavours, from lemon to mango, pineapple, strawberry and pine. These flavours are derived from the plant’s natural aroma profile, which skilled growers preserve by careful breeding, correct harvesting and slow, cautious curing of the fragrant flowers.
Many players in the new mass market often skipped these steps in the pursuit of profit, says David Brown, a British Columbia-based cannabis industry analyst. “Many consumers have had complaints about high prices and what is perceived as lower quality, especially the tendency of many of the legal dried flower products to be overly dried, often from a rushed or improper curing and drying process.”
Why would anyone drive a few miles up the road to score bad weed from many of the government shops when your regular black-market dealer lives nearby, has better product and brings it to your door for half the price?
The nose knows: a customer sniffs display samples at Evergreen Cannabis in Vancouver.
The nose knows: a customer sniffs display samples at Evergreen Cannabis in Vancouver. Photograph: Elaine Thompson/AP
It’s worth reflecting, also, on the psychology of some of these users. “For a long time, cannabis has been the mark of the rebel, the outsider, the outlaw,” says Brown. “A lot of the people who complain about ‘bad weed’ and so-called ‘fake legalisation’ are doing so because parts of their countercultural identity have been altered forever by this law change. Canada has made cannabis boring – and that was kind of the point.”
With few shops to sell to and customers clinging to their traditional dealers, the new cannabis corporations found themselves holding a glut of product. There is a stockpile of grass weighing in at 400 tonnes, at last count, according to official government inventory figures.
The rollout of retail shops was left, in many cases, to inexperienced officials in provincial government departments, says McBride. “Ontario authorities said, ‘We don’t trust private organisations to run cannabis shops. We’re going to do it all ourselves.’ Then they tried to do it, but they squandered about $80 million trying to figure out how to do it, and got absolutely nowhere. They had to cancel it and invite private tenders. All these big, shiny grow facilities that cost C$10m, C$20m or C$30m to build, and which all grew loads of cannabis – there was nowhere to sell it, because there weren’t any shops,” he says.
In a stinging irony, medical patients – the very people whose decades of activism had driven the wider reforms, faced cannabis shortages and a steep increase in price after legalisation as suppliers diverted their medical product in bulk to the new recreational market rather than in hundreds of smaller deals to medical patients.
Dan Sutton of Tantalus Labs, a British Columbia-based grower that uses natural sunlight and greenhouses, says legalisation has been “largely negative” for medical cannabis users because of this new sales dynamic: “Physicians have been telling medical users they should buy from the recreational marketplace, which is completely inappropriate – and it loads them up with extra taxes and tariffs.”
Sutton originally built his low-impact, sunlit grow to service medical users, and still focuses on this original customer base – though they make up just 10% of his sales. “Many licensed producers now don’t,” he says. “Some have just pulled their financial resources on their medical platforms. If a medical user can’t get their medicine – for people, with, say, multiple sclerosis – that can lead to severe impairment, traffic accidents and potentially death. That blood is on those licensed producers’ hands that stopped serving those users’ needs,” he says.
Paul North, director of communications at Volteface, which commissioned me to write the paper, says Canadian customers’ response to the malfunctioning new markets is understandable: “You have to provide a superior experience to the illicit market. When it comes to cannabis, this is not easy. Dealers have no marketing restrictions, and can offer a sweet deal and deliver a product to your door. For most people, cannabis use is a relaxing, problem-free and enjoyable experience. Buying the drug needs to match that experience, and; until it does, the illicit market will continue.”
Hype talks, but money walks. The early euphoria in the cannabis stock market has been replaced by a major dose of paranoia. All cannabis stocks have tanked, with an average 50% wipeout in value right across Canada and the US in the last year. Major players such as Aurora Cannabis took the biggest hit, with its shares falling from US$12.83 in March 2019 to US$2 today. Another bud behemoth, Tilray, has also had its share price slashed by 80%, from over US$81 to US$16 within a year. Other cannabis giants including Aphria lost 60% of their paper value in 2019, while Canopy Growth sank by 54%. Financing has dried up for the new industry, and small-scale retail investors – often young professionals investing via smartphone apps – have lost large sums of money. None of this is to assert that Canada’s policy has been a failure. If we compare it to the UK cannabis industry, where illegally trafficked children have been found enslaved in abandoned buildings growing cannabis for gangsters, it is better by several orders of magnitude.
Steve Rolles of UK-based drug law reform group Transform agrees that it is harsh to judge the project’s success so soon. “We are still in the rollout phase. They are still in a transition from an illegal economy to a legally regulated one. It will take some time for new market equilibrium to be established, and for new social norms to emerge, and for teething problems to be addressed.”
Big, shiny grow facilities cost C$20m or C$30m to build and grew loads of cannabis – but there was nowhere to sell it
How best to create a legal cannabis industry is a question with a particular urgency in the UK today as we build a market for medicinal use – albeit agonisingly slowly. I strongly believe that cannabis will be legalised for adult use in the UK within five years. And it all goes back to that Gatineau greenhouse I visited in 2017. https://www.theguardian.com/society/2020/apr/05/stoners-cheered-when-canada-legalised-cannabis-how-did-it-all-go-wrong