Will cornfields and greenhouses that now grow tomatoes and cucumbers give way to marijuana crops on farmland in the Agricultural Land Reserve (ALR) in Delta?
Will entrepreneurs in B.C. be able to grow and sell artisanal marijuana brands, much like craft brewers sell beer, or will the B.C. government monopolize pot sales through government-controlled cannabis stores?
These are just some of the questions the B.C. government needs to answer by July 2018, when new federal legislation makes recreational marijuana use legal.
In an attempt to get some kind of public consensus on key regulatory issues, like taxation, distribution and retailing, the B.C. government is asking the public for input over the next few weeks.
An online consultation campaign was announced by B.C. Solicitor General Mike Farnworth at last week’s Union of BC Municipalities (UBCM) annual conference, where it was welcomed by municipal leaders who felt shut out and ignored by the federal government when it was drafting bills C-45 and C-46 for the legalization of marijuana.
“Collaboration is key to getting it right here in British Columbia,” Farnworth said.
Dan Sutton, founder and managing director for Tantalus Labs, a licensed medical marijuana grower, welcomes the government’s plans to consult the public. He thinks B.C. is uniquely positioned to turn cannabis into a major new industry.
“This will be one of the largest industries in B.C. – certainly one of the top five industries – if it’s executed effectively,” he said.
Growers like Tantalus, which is licensed to supply the medical marijuana market, are hoping they will also be able to capture the recreational marijuana space.
But there are new regulations and laws that need to be drafted and implemented at the provincial and municipal levels by July 2018, and there are still some major policy decisions yet to be made at the provincial level.
While the BC Liberal government dragged its feet on the issue, the BC NDP was at least thinking about how to regulate and tax a nascent recreational marijuana industry. Last year, Farnworth and Carole James, now finance minister, travelled to Oregon and Washington to study how those two states created a legal cannabis industry.
The biggest question might be whether the province should go with an Ontario-style distribution system – where cannabis sales will be through a government monopoly – leave it to the private sector or adopt a hybrid system similar to B.C.’s liquor sales.
Sutton said it would be a mistake if B.C. were to adopt a government monopoly model. He thinks there would be far more economic spinoffs if retail were left to the private sector.
“In an independent retail regulatory environment, those independent retailers, they need ancillary services,” Sutton said. “They need lawyers, they need accountants, they need designers, they need storefront operators.
“You’re going to see exponential economic spillover spanning over tens of industries instead of just centralizing revenues in the government’s coffers.”
Taxation will be another big issue. Municipal governments want a share of whatever tax revenue comes from the new industry to help them cope with what they say could be high policing costs, at least initially, while the industry evolves from a black to grey and, finally, legal market.
Farnworth tried to temper expectations about a sudden tax windfall from legalization. One of the lessons learned in Washington and Oregon is that the black market will continue to thrive if taxation is too high, because it puts the legal market at a disadvantage to black-market growers and dealers who pay no taxes.
“This is not about bringing on a whole revenue stream for the province,” Farnworth said. “If that’s how provinces approach it, they are making a big mistake.
“Yes, revenue will flow and you may get significant amounts of revenue. But the reality is that there are significant upfront costs that you have to put in place before you flip the switch.”
Farnworth added that he hopes to see provinces set “uniform” levels of taxation on marijuana sales so that provinces are not competing against each other.
Another question for the province will be whether marijuana growers should be allowed to use farmland in ALR or be relegated to industrial zones and warehouses.
“I really don’t want to be the pot capital of Canada,” Delta Mayor Lois Jackson said during a UBCM session on legalized marijuana.
She said 35 companies have already made inquiries about growing marijuana on Delta ALR land. That’s not surprising, given that ALR land is taxed at a much lower rate than industrial land.
“I think we’re going to have to address the question: Are we going to allow, or should we allow, all of our agricultural lands to be used for growing of marijuana – and our greenhouses – or are we going to grow our own vegetables?” Jackson said.
Sukhbir Manhas, a lawyer with Young Anderson, said the provincial government has already addressed that question with respect to medical marijuana: municipalities cannot prevent medical marijuana growers from setting up on ALR land.
It’s not clear whether municipalities like Delta would have the authority to prohibit ALR land from being used to grow marijuana for recreational use.
“Certainly, if we want to have some teeth vis-a-vis ALR land, we’re going to have to see that regulation amended,” Manhas said.
Sutton said it would make no sense to relegate marijuana growing to warehouses because the energy inputs for growing indoors are enormous.
“Cannabis is agriculture,” Sutton said. “It makes zero agricultural, economic or environmental sense to cultivate any flowering plant in a warehouse environment. It absolutely belongs in greenhouses on the ALR.”
While the federal government is responsible for regulating production, provincial governments are responsible for things like sales taxes, distribution and retail.
Municipal governments, meanwhile, are responsible for policing, zoning and business permitting. Trying to regulate a grey market for medical marijuana dispensaries has already proven to be a big headache for the City of Vancouver, where more than 120 pot shops have cropped up in just a few years, said Coun. Kerry Jang.
Under current federal law, medical marijuana must be acquired from federally licensed producers who can sell it only by mail, which means the medical marijuana dispensaries in B.C. that sell cannabis over the counter are breaking the law.
Rather than use municipal police to shut them down, Vancouver has used its zoning and business bylaws to try to at least regulate where and how they operate. Dispensaries pay $30,000 for business licences and are restricted from being close to schools.
Jang said about a dozen such businesses have complied with the new rules and gone through the process of becoming properly licensed.
“Of the 12 or so that do have a licence … they have been really good neighbours,” he said. “I have not heard a single complaint from the neighbours.”
Presumably, most, if not all, of the existing pot shops would have to shut down if the provincial government decides to go with an Ontario model of government-controlled distribution and retail.
But even if the province allows private-sector retail sales, many existing shops are expected to disappear because the cost of meeting a new set of federal and provincial regulations and taxes could be substantial.
Aside from production and retail, there may be a number of other business opportunities resulting from legalization.
For example, asked if he could envision Vancouver nightclubs creating cannabis smoking lounges once recreational use is legalized, Jang said he saw no reason why that couldn’t happen.
“I do envision that being a possibility,” he said. “It sort of reminds me of craft beer. It wasn’t long ago when it was a government monopoly on beer, and craft beer is legal. Now we see a huge market for craft beer. We see responsible usage, we see breweries, we see brew pubs that didn’t exist before. Why not with marijuana?”
Not all municipalities are as welcoming of a cannabis culture as Vancouver, however, and some municipal governments might try to prohibit marijuana shops from setting up in their communities.
In that case, Sutton said the government needs to ensure that the e-commerce options now available for medical marijuana will be available to recreational marijuana sales as well.
B.C. has long been known for its cannabis culture. Growers here developed skills that, although honed illegally, are transferable to a legal industry.
Jonathan Page, president and chief scientific officer for Anandia Labs, which provides clinical testing of medical marijuana, hopes to see the province try to capitalize on that knowledge base.
“The province needs to have a role in figuring out how that whole illicit industry is transitioned,” Page said. “I’m sort of concerned that by leaving it up solely to the federal government to decide how production is controlled, that B.C.’s unique position in the cannabis industry is not really taken into account.
“We hope that the provincial approach will acknowledge that B.C. has been a big producer of cannabis, and there’s a way to do that under a legal system as well.”
