Ben Kaplan is the editor of kind, a cannabis lifestyle magazine, and author of the forthcoming book High: The Rules, Stakes and Market Valuations of Canada’s Marijuana Wars.
My neighbour sells recreational marijuana illegally from her Instagram account and the trendy coffee shops and restaurants around our homes in Toronto’s west end. Before COVID-19, she sold edibles from the local hipster clothing and novelty stores, but when they closed for the lockdown, she pivoted, like any smart entrepreneur, to the businesses still generating foot traffic for takeout and delivery. Sometimes, when she uses social media to announce a shipment, a line forms at the entrance of one of her illicit partners and snakes down the block.
My neighbour’s not a drug dealer; she’s a digital influencer with an established brand.
I work on the fringes of the cannabis industry, and partake myself, so I recently stopped by her house so that she could show me the ins and outs of her business. Her startup is national: Anyone across the country can order a 10-pack of 10-milligram THC baked goods for $75 from her, or else three for $25. There’s a minimum order of $50 if she has to deliver to your home or mail you a package of her cute, contraband wares. She describes her gig, which takes up about 20 hours a week, as a side hustle, albeit one that nets around $40,000 a year.
“Buyers say they’re happy to support small businesses,” she told me, adding that her clients like shopping local and knowing where their money’s going. “It’s the difference between buying a book on Amazon or frequenting the small local bookstore. I can’t keep up with demand.”
What about the cops? I asked her.
“To be honest,” she said, “I don’t think they care.”
This coming Tuesday is April 20, 4/20 in stoner parlance, the annual celebration of cannabis culture – also a time to celebrate Canada becoming the first Group of Seven country to legalize marijuana. For me, it’s a day of appreciation for the activists who fought before the Supreme Court to make this happen. But many in the community will be celebrating on Tuesday not with product purchased from Tokyo Smoke, Fire & Flower or any of the legal dispensaries that have become ubiquitous in towns and cities across Canada since the Cannabis Act legalized pot on Oct. 17, 2018, but other sources. Sources like my neighbour. Among its other promises, the act was supposed to make the black market burn out, like the last embers of a joint. Let me assure you: That has not happened.
That Canada still has a robust illegal market shouldn’t come as a surprise. While the pandemic has hurt small-business owners from coast to coast, it has been a boon to the black market: Why don a mask and risk infection at a licensed store when a dealer is more than happy to deliver product right to your door?
That said, legal cannabis sales have also significantly increased since the start of COVID-19, and the Centre for Addiction and Mental Health has reported that, among those who responded to a survey as having consumed cannabis in the past week, one in two consumers has increased their usage. (Their survey was conducted last May and June, and suggests that sustained pandemic increases in cannabis habits may have emerged).
The Statistics Canada numbers for the fourth quarter of 2020 reveal that while more Canadians are now buying their cannabis products from legal sources, the non-licensed market still takes up more than 40 per cent of sales. In Ontario, specifically, the illegal market may be even deeper. According to Auditor-General Bonnie Lysyk’s 2020 annual report, “the illegal sale of recreational cannabis accounted for about 80 per cent of cannabis sales in the province” in the fiscal year 2019-20, ended March 31, 2020. So why are millions of Canadians still breaking the law? And what’s the point of having a legal cannabis system if we don’t sell product consumers want?
“Anybody with experience – hell, anyone with any [drug] tolerance at all – will find the legal market doesn’t work,” said Adam MacGillivray, the owner of Madd Hatter, an illegal edible maker in Delta, B.C.
When the pandemic began, he said his business shot up by 800 per cent. Even though cannabis was declared an essential service last March, his customers didn’t want to put on a mask for a less potent, more expensive product. “Out here in B.C., people hate the fact that the legal stuff comes in a giant plastic package, not to mention that when I bought from the legal market, the flower turned to powder in my hands because it was so dry.”
Like my neighbour, Mr. MacGillivray is focusing on the wholesale business. Mr. MacGillivray can purchase a pound of Triple A pot from his pick of unlicensed B.C. growers and, for around $700, produce something like 1,000 edibles that sell, on average, for $10. And, while a legal edible is capped at 10 mg of THC, Madd Hatter, at roughly the same cost, sells a product that contains 100 mg of THC. The Madd Hatter products aren’t tested by Health Canada, but Mr. MacGillivray maintains they’re rigorously examined.
There’s risk involved. But when he was raided by the police in November – he believes a rival on the illicit market set him up – his business was back up and running the next day. “COVID reminded everyone,” said Mr. MacGillivray, “how much the legal cannabis system sucks.”
Mike Gorenstein, a former mergers and acquisition lawyer, is one of the best operators in the legal cannabis system. Cronos Group, the company he founded, was the first cannabis stock publicly traded on the U.S. stock exchange. Mr. Gorenstein, 35, is also one of the few original executives in the space still employed; while most of the Canadian founders like Bruce Linton at Canopy, Terry Booth at Aurora, Alison Gordon at 48North, John Fowler at Supreme, Adam Miron at Hexo and Vic Neufeld at Aphria are now gone, Mr. Gorenstein has remained at the helm of Cronos Group and its $3.99-billion market cap.
“Canada,” he said, “is not going very well.”
One key problem, in his view, is that cannabis companies aren’t legally allowed to brand their products – no Drake endorsements, no television ads. The illegal market doesn’t have those restrictions. My trendsetting neighbour has thousands of followers on social media and a cool brand. Madd Hatter makes products that contain 2,000 mg of THC, which is 200 times more potent than the legal limit. The illicit market offers differentiation, personality and exclusivity, while in the legal market, government cannabis products are interchangeable. Every legal retail location sells the same thing. Every product looks the same. By law, every brand is generic.
“In states that have legalized and allow branding, you can track how the legal market takes more market share,” said Mr. Gorenstein, who believes it’s “very possible” the United States will federally legalize cannabis this year. Late last month, New York State legislators reached a deal to legalize recreational cannabis, as well as cannabis consumption sites, which are also legal in Nevada, Colorado and California.
In Canada, onsite consumption – a popular stigma-reducing means for how liquor is consumed – is against the law. At Cronos, the prevailing thinking is that the legal cannabis industry is akin to the cellphone market before the iPhone: It’s a category that’s one brilliant product away from taking off.
“The job that we have as licensed producers is to find a way to make consumers happy,” Mr. Gorenstein said, adding that he spent $20-million in the past fiscal year on research and development, including work at Cronos Fermentation in Winnipeg. For instance, he tells me, the brand is breeding a cannabis strain that will suppress, instead of promote, the munchies.
“Develop the Coke of cannabis,” he said, “and consumers will switch.”
And if the carrot doesn’t work, there’s always the stick. In Ontario, that stick is wielded by Jim Walker, deputy director of the province’s organized crime enforcement bureau. He said that if you plan on consuming illegal cannabis on 4/20, you may be abetting serious crime. At a bust in the Niagara region last August dubbed Project Woolwich, his team seized $2.5-million, two shotguns, an AR-15 assault rifle, a 9-mm Glock, and two ounces of cocaine. Before legalization, he focused on closing the illegal dispensaries. Today, he’s focused on illegal grows.
“The illegal cannabis production sites we’re seeing are not hippies making edibles,” he said. “The cannabis goes south into the United States and comes back into Canada in other forms, be it firearms or other drugs like meth, coke or fentanyl.”
Mr. Walker said he’s not after the mom and pop growers, emphasizing that the cannabis he seized at Project Woolwich had an estimated street value of more than $40-million. So if the small-time pot dealers think that Mr. Walker’s not targeting them, they’re right. Mr. Walker said it might not be the Hell’s Angels, Mexican cartel or mafia that is trafficking heavy quantities of illicit marijuana, but scores of independent operators may use illegal migrant workers to produce as many as 100,000 illegal plants grown indoors and outdoors on 10-acre farms.
“They don’t need a patch or a name to be criminal enterprises. We’re busting transnational networks smuggling into the United States,” Mr. Walker said. “People think buying illegal cannabis is harmless, but they’re fuelling organized crime.”
There’s another reason why people buy illegal cannabis, and it’s race. A Black man in his mid-30s, whom I met through Cannabis Amnesty, a Canadian non-profit dedicated to expunging criminal convictions of non-violent cannabis offenses, buys illegal pot as a matter of principle – and pride.
Before legalization, he was arrested in the Parkdale neighbourhood of Toronto with less than two grams of pot. He believes he was pulled over and searched because he is Black.
“The cops searched the car and I’m summoned to court and told I have to plead guilty,” said this man, whom The Globe and Mail has agreed not to name.
Eventually, he had his two charges thrown out, but he maintains that the legal industry was built by arresting Black and Indigenous people and then creating government-licensed cannabis companies run by white men. And he’s not mistaken. Of our list of departed Canadian cannabis founders – Mr. Linton at Canopy, Mr. Booth at Aurora, Ms. Gordon at 48North, Mr. Fowler at Supreme, Mr. Miron at Hexo and Mr. Neufeld at Aphria – all but Mr. Fowler are white and all but Ms. Gordon are men. And little has changed in recent months.
“Why am I buying from you guys? You’ve done very little to help the people in impoverished communities who have been jailed the most and now you want to play reggae at your store?” asked this man. “You were arresting Black people for dimes.”
Dimes, $10 worth of a drug, are being sold in both our legal and illegal markets and it’s clear, despite our progressive federal cannabis policy, bootleg weed continues to thrive. However, change may come. In October, when the Cannabis Act turns three years old, the government intends to re-examine the law.
Will it ease marketing restrictions, potency limits and allow for onsite sampling, much like is enjoyed by producers of wine, spirits and beer? COVID-19, meanwhile, has accelerated cannabis consumer demand. How will the black market end? Whether it’s 4/20 or the day after the next federal election, users just want affordable products that make them feel good, purchased from someone they trust.
“I’ve bought weed before from the government,” an acquaintance told me. “I prefer to buy from my friends.”
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