The Canadian Cannabis System Goes To Trial

Monday marked the first day of the much anticipated three week trial between Allard et al. v. Canada.

Background of the Medical Marijuana market in Canada

In 2001, Health Canada granted access to marijuana for medical purposes to Canadians who had a physician that believed cannabis was a viable option for their ailment. With the approval of a doctor, the patient would then be enrolled in the Marihuana (yes, that’s how they spell it) Medical Access Regulations (MMAR).

Patients in the program have 3 options to obtain their medicinal marijuana:

1. They can apply under the MMAR to access Health Canada’s supply of dried marihuana
2. They can apply for a personal-use production license
3. They can designate someone to cultivate on their behalf with a designated-person production license

After complaints from citizens saying that the program was subject to abuse, the government looked to change the program.

On June 19th 2013, the Canadian government introduced the Marihuana for Medical Purposes Regulations (MMPR).

This new program shifted the production from the government and licensed individuals to commercial licensed producers (LPs). These commercial grow operations would be responsible for the production and distribution of a patient’s medicine. There is no middle man dispensary in this new system. The best analogy would be Amazon where you click ‘buy’ and Amazon.com ships the product directly to your doorstep.

Up until March 31st 2014, patients would be allowed to continue to obtain their medicine using the MMAR framework. On April 1st 2014, the government repealed the MMAR and required that all medical marijuana patients must obtain their medicine from commercial licensed producers.

Injunction

On March 21st 2014, just days before the complete repeal of the MMAR, an injunction was granted that allowed patients under the MMAR to continue obtaining their medicine as they’ve been doing in the past. A Federal Court judge in Vancouver granted the injunction for the MMAR to continue until a trial is held to determine the constitutionality of the MMPR (the trial started today).

The injunction was demanded after patients claimed that prices were higher in the new system and they would be unable to afford their medicine.

MMAR vs. MMPR

MMPR:

• Pros
  • Production shifted to commercial licensed producers who are highly regulated
  • Packaging & labeling required
  • State of the art security systems and vaults to ensure safety
  • Record keeping is required
  • A prescription is submitted to the licensed producer versus the extensive Health Canada application in the MMAR
• Cons
  • Medicine is more expensive
  • Patients are unable to see the product before purchasing
  • Licensed Producers have been running out of product
  • Patients have been put on waiting lists to be a patient for a licensed producer

MMAR:

• Pros
  • Lower costs for patients
  • Health Canada subsidized some of the costs for patients
  • Patients could see their medicine before purchasing
  • Ability to grow your own medicine and tailor the strains that work best for your ailment
• Cons
  • No packaging & labeling
  • Lengthy application process to be enrolled in the MMAR
  • Potential safety & fire hazards
  • Product is not tested to ensure it is free of contaminates and consistent in THC/CBD ratios

Premise of the case

John Conroy, the lawyer representing 4 MMAR patients said he is not opposed to the MMPR, but he wants people to decide whether to grow their own medicine or get it through a licensed producer.

Conroy argues that patients are having a difficult time affording $6 to $12 a gram of when it would cost them $1 to $4 a gram to grow their own. “Conroy will argue that patients who can’t afford the medicine prices under the new program are being placed in a position where they have to choose between their liberty and their health.”

On the flip side, the lawyers representing the MMPR claim that over time the cost per gram will go down as the licensed producers build out their facility and more competition emerges. The attorney general of Canada also believes that there are significant dangers from in house grow operations ranging from fires to invasions. Not only do home grow operations pose safety risks but they are also extremely hard to regulate and ensure the quality of the medicine is up to standards.

Potential rulings

The government can rule in a few different ways.

1. They can decide that the MMAR should stand and the 40,000 patients in the system can continue to obtain medicine from their own supply or from another licensed residential grower. New medical marijuana patients would have to go through licensed producers to acquire their medicine. Many licensed producers have said in interviews that they can succeed with or without the conversion of these patients in the MMAR to the MMPR.
2. The court can rule that the MMPR is constitutional and that the MMAR is completely repealed. This would be a large victory to the Canadian MMPR licensed producers listed below. This would mean 40,000 patients would have to enroll in the MMPR and select one of the 25 licensed producers to provide them with their medical marijuana.
3. A middle ground can be reached, where a dispensary model is made to sell cannabis to patients. Residential and commercial licensed producers could try to sell their products wholesale to dispensaries and the dispensaries would decide which strains to carry in their inventory. This model would be a combination of the MMAR, MMPR, and the system used in various states in the United States with legalized medical marijuana. This idea hasn’t been proposed by anyone, but does solve many of the issues being argued. 

Publicly traded companies that are Canadian MMPR Licensed Producers

• Bedrocan (BNRDF)
• Tweed Marijuana (TWMJF)
• Aurora Cannabis (PSNTF)
• Organigram (OGRMF)

Summary

At the end of the day, would you take an Advil capsule that was made at home and packaged in a paper bag? If marijuana is truly a medicine it needs to be standardized and checked for quality to ensure patients are getting the same medicine when they fill their prescription. As the market gains more licensed producers, the price will drop significantly and people will be able to afford their medicine. To expedite the process it would be a major milestone if insurance picked up some of the cost. Overall, licensed producers provide investors with an excellent opportunity as there is expected to be 400,000 registered medical marijuana patients by 2022. If the MMAR is deemed illegal, it would be a major victory for the MMPR, but the real victory will be the growth in patients as people realize the medicinal benefits of cannabis.

http://www.hc-sc.gc.ca/dhp-mps/marihuana/about-apropos/index-eng.php

http://metronews.ca/news/vancouver/1294170/constitutional-challenge-of-canadas-medical-marijuana-laws-begins-in-vancouver/

http://www.hc-sc.gc.ca/dhp-mps/marihuana/info/list-eng.php

http://blog.liftcannabis.ca/2014/10/01/oct-1-recap/

http://www.cannabisculture.com/content/2014/04/11/After-Injunction-Catching-John-Conroy

http://www.cbc.ca/news/canada/british-columbia/medical-marijuana-users-can-grow-at-home-for-now-1.2581742

http://www.leafscience.com/2014/04/01/canada-medical-marijuana-mmpr-guide-25-questions-

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Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Technical420.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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