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Vancouver, Canada’s Marijuana Capital, Struggles to Tame the Black Market

VANCOUVER — In the pot-friendly city of Vancouver, illegal marijuana dispensaries outnumber Starbucks outlets, and among the most popular is Weeds, Glass and Gifts. There, in a relaxed space reminiscent of the coffee chain, jovial “budtenders” sell coconut chocolate bars infused with marijuana and customers smoke powerful pot concentrates at a sleek dab bar.

When Canada legalized recreational marijuana, on Oct. 17, one of the central aims was to shut down the thousands of illegal dispensaries and black market growers dotting the country. But taming an illegal trade estimated at 5.3 billion Canadian dollars is proving to be daunting.

Many of the products sold at Weeds, Glass and Gifts are banned under the new law, which restricts licensed retailers to selling fresh or dried cannabis, seeds, plants and oil. Yet the retailer’s owner, Don Briere, an ebullient 67-year-old and self-styled pot crusader, has no intention of shutting down his four Vancouver stores or changing his product lineup.

He even has plans for expansion with a new line of outlawed canine marijuana treats, which purport to reduce pet anxiety.

“We’ll keep selling what we are selling,” said Mr. Briere, who in 2001 was sentenced to four years in prison for being one of British Columbia’s most prolific pot producers.

The Canadian government faces many challenges in stamping out the illegal marijuana industry. For one, there are too many black market shops like Mr. Briere’s for the government to keep track of.

And as sluggish provincial bureaucracies struggle to manage a new regulatory system, licenses to operate legally are hard to come by, giving illegal sellers added impetus to defy the law.

At the same time, the police and the public have little appetite for a national crackdown.

“The government taking over the cannabis trade is like asking a farmer to build airplanes,” Mr. Briere added.

Canadian policymakers say legalization is a giant national undertaking that will take years to be enforced. Mike Farnworth, British Columbia’s minister of public safety, argued that civic pressure and market forces would help gradually diminish the illegal trade.

“It’s a very Canadian way of doing things,” he said. “It won’t happen overnight.” There will, he added, be no mass raids, “guns and head-bashing.”

Nevertheless, he noted, newly created “community safety units” in British Columbia, staffed by 44 unarmed inspectors, have been given the power to raid dispensaries without a search warrant, seize illegal products and shut them down.

In the week since legalization took effect, there are signs of a chill, if a modest one.

In Toronto, police raided five illegal pot retailers, two days after the law went into effect. Dozens of others in Toronto, Vancouver and Ottawa have voluntarily closed their doors to avoid being shut out of the legal market.

Even Mr. Briere, who once owned 36 shops across Canada, is applying for government licenses for his stores, and has shuttered nine shops, including in Ottawa, Alberta and Saskatchewan. He is steering those customers to his illegal online shop instead.

Yet hundreds of black market pot outlets remain defiantly open, abetted by provincial governments slow to implement the new law.

On Oct. 17, only one legal government pot retailer opened in British Columbia, in the city of Kamloops, nearly a four-hour drive from Vancouver. That assured that Vancouver’s illicit trade would continue to thrive.

And that day, none of the roughly 100 illegal pot dispensaries in the city had the provincial licenses they needed to operate legally, even those that had applied for one.

In Ontario, where the government’s online Ontario Cannabis Store has been overwhelmed with soaring demand, some pot smokers unwilling to wait five days for delivery are reverting to their illegal dealers instead.

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“Definitely going to use my dealer from now on his business is going way up because of your crappy service,” one frustrated customer wrote on Twitter.

In Montreal, some underground dealers, who do home delivery, are challenging the new legal market by offering two-joints-for-the-price-of-one deals.

As cities across the country grapple with a new national experiment, Vancouver offers a striking cautionary tale about the challenges of policing the illegal trade.

In this picturesque multicultural port city less than a three-hour drive from Seattle, marijuana is as much a recreational drug as a state of mind. Young professionals toke before work, take pot-fueled hikes and chat about strains of vaunted “BC bud” — grown illegally near snow-covered mountains in the southeast of the province — as if discussing fine wine.

For decades, cannabis has been so deeply embedded in the social fabric of the city that illegal pot shops operated with impunity as so-called compassion clubs for those seeking medical marijuana, with the police largely turning a blind eye.

But in 2015, City Hall officials, fed up with the proliferation of black market dispensaries, including some selling to minors, passed tough regulations stipulating, among other things, that shops must be about 1,000 feet from schools, community centers or other outlets.

After dozens of dispensaries brazenly flouted the new rules, the city in 2016 began fining transgressors, issuing 3,729 tickets amounting to more than $3 million in fines. But the dispensaries mostly ignored them; only $184,250 has been paid.

Then the city began trying to shut down illegal operators with injunctions.

In March of this year, 53 dispensaries banded together to file a constitutional challenge, saying closing the operators would breach Canada’s Charter of Rights and Freedoms by denying patients access to medical marijuana they purchased at the black market stores.

“The City is using legalization to try and impose Prohibition,” said Robert Laurie, the lawyer representing the dispensaries.

The case is before British Columbia’s Supreme Court.

Kerry Jang, a left-leaning councillor on the Vancouver City Council who is also a professor of psychiatry at the University of British Columbia, and who helped develop the 2015 rules, said the injunctions were necessary to root out “a wild West” of illegal dealers.

Today, those who want to operate legally must pass rigorous criminal background checks and apply for a $30,000 license from the city.

But Professor Jang conceded that the restrictiveness of the new federal cannabis law posed enforcement challenges. “If you make cannabis legal but restrict where you can use it, it will just go underground.”

The challenge of enforcement is all too visible on Vancouver’s gritty downtown east side, an epicenter of Canada’s opioid crisis. Hundreds of addicts sit sprawled on the pavement every day, shooting Fentanyl, a potent synthetic opioid that Professor Jang said killed, on average, seven people a week in Vancouver.

Traffic is periodically interrupted by the sound of sirens as police officers break up drug deals.

Chief Constable Del Manak, police chief of Victoria and president of the British Columbia Association of Chiefs of Police, noted that the police had to grapple with Fentanyl overdoses, violent crime and sex offenders, and must prioritize resources according to public safety.

Investigating whether British Columbia residents are violating the law by growing more than four pot plants per household is not a priority, he said.

The legalization of recreational marijuana in Colorado, Washington State and Uruguay, he added, has shown that “it is naïve to think that just because cannabis is legalized, the criminal will walk away from a highly lucrative industry.”

Nevertheless, as the government floods the market with legal cannabis, prices are falling, squeezing out illegal growers. Black market growers who were able to fetch more than $3,000 United States dollars for a pound of cannabis five years ago complain that today they can barely get $1,000.

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The new legal marijuana supply chain was in full force on a recent day outside of Vancouver at Pure Sunfarms, where immigrant workers in surgical masks were trimming buds from cannabis plants next to a sprawling greenhouse that once housed tomatoes.

Rob Hill, chief financial officer of Emerald Health Therapeutics, a licensed producer which owns part of Pure Sunfarms, predicted that it was only a matter of time before black market growers went out of business as consumers demanded the purity of government-approved pot, free of contaminants found in some street marijuana.

“We expect a new consumer market of women age 35-45 who will smoke pot instead of drinking chardonnay,” he said.

But Dana Larsen, owner of several illegal dispensaries in Vancouver, countered that underground cannabis cultivation remained deeply entrenched.

Legalization is doomed to fail, he added, because there is so little will to enforce it.

He said he had accumulated heavy unpaid fines from City Hall, had no intention of applying for a license, and was far more concerned about being able to provide cannabis to the elderly and ill customers who relied on him. “In Vancouver,” he said, “you have to make an effort to get busted.”

America’s marijuana growers are the best in the world, but federal laws are keeping them out of global markets

DENVER — In a large warehouse, LivWell Enlightened Health feeds its cloned cannabis plants a custom blend of nutrients, sprays them with filtered water and pumps extra carbon dioxide into the air, and releases three types of insects to clear1 unwanted pests without the use of toxic pesticides.

Every part of the growing process is meticulously documented and evaluated to refine the process.

After 20 years of experience, legal marijuana growers in the U.S. have the reputation of creating the best product in the world, scientifically grown and tightly regulated for quality and safety.

The crop would be in high demand internationally — perhaps the centerpiece of a new U.S. industry — if not for the regulatory conundrum in which growers operate.

Because marijuana is legal in many states but still illegal federally, marijuana growers are unable to ship their products to other countries or even other American states that have legalized the drug. So while U.S. cannabis firms have driven product innovation and mastered large-scale grow operations, they restlessly wait for the export curtain to lift.

Instead Canada has emerged as the dominant exporter in the burgeoning global marijuana trade, which ArcView Market Research and BDS Analytics estimated at $14.9 billion in sales for 2019. Companies are raising capital and building international trade ties despite Canada’s unlikely climate to be an agricultural pot haven.

“Canada has a huge advantage, because they can fill a gap,” said Rezwan Khan, vice president of global corporate development for cannabis seed supplier DNA Genetics.

California’s growers have been developing legal marijuana products since 1996, longer than everywhere but Amsterdam. Khan describes the state as “the epicenter of cannabis culture.”

California’s cannabis seeds have been distributed all over the world, and many foreign firms are trying to reproduce the quality of West Coast marijuana.

The genetics and sophistication underlying the U.S. cannabis industry lead to better-quality and higher-potency flowers for those who smoke marijuana and innovations in oils, tinctures and edibles.

“The world wants that technology,” said Michael Sassano, CEO of Solaris Farms, the largest cannabis hybrid greenhouse in Nevada. “The Netherlands had a big jump; they could have done anything. But the U.S. is the one that turned the industry into what it is today, with all the products we make, not Canada.”

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The other draw of American-grown cannabis, according to Denver-based cannabis law expert Bob Hoban, is that foreign customers value the regulatory oversight that ensures the product is safe and unadulterated.

“It’s being regulated by a government agency, which is not necessarily what’s happening around the rest of the world,” Hoban said.

But because federal law prohibits the sale and use of marijuana, growers have not had easy access to the banking system. LivWell had to pay cash for its HVAC system. And with sales limited to in-state retailers, it hasn’t been cost-effective to invest in automation for its production line. Most of its processing and packaging is done by hand.

The patchwork of legalization means cannabis isn’t always grown where it’s easiest to grow, in warm climates with limited rainfall. It’s grown where it’s legal. California, Oregon and Colorado grow most of the country’s authorized marijuana as legally isolated islands.

That leaves cold Canada as a somewhat odd choice to be the world’s leader in marijuana exports.

When Canada legalized marijuana in 2018, its firms could be listed on the New York Stock Exchange and NASDAQ. So Canadian companies represent a back door for U.S. firms to access capital and export markets, and for smaller firms, a potential exit strategy. Many U.S. marijuana growers are positioning themselves as attractive acquisition targets for Canadian firms eyeing the U.S. market.

Canadian firms are using their head start to sign trade deals and secure licenses to sell marijuana internationally. While the market remains limited, at least 30 countries – including Mexico, Germany and Italy – have legalized medical marijuana. And the numbers are growing as scientific studies have demonstrated its utility for pain control, nausea and glaucoma.

“There’s more than enough time for American companies to catch up,” said Kris Krane, president of 4Front Ventures, which grows and sells marijuana in nine states. “But the longer that we wait, the longer we continue to maintain this unsustainable prohibition, the more difficult it’s going to be for American companies to catch up.”

Changing public sentiments about marijuana in the U.S. have many American cannabis firms readying for the day they can legally sell their products elsewhere.

“If the state borders do break open, we’re preparing for that,” said Sassano, who also is board chairman at Soma Pharma, a holding company based in Dublin that distributes medical cannabis products to pharmacies across Europe.

That means an industry that began mainly as small mom-and-pop growers and retailers must now consider its corporate hygiene and whether it’s meeting legal requirements to sell in these new markets.

LivWell is building large-scale indoor cannabis growing rooms in Colorado and Oregon designed to scale up production for interstate or international commerce. The new rooms have 30- to 40-foot-high ceilings and state-of-the-art LED lighting cool enough to sit close to the plants.

“Then you farm vertically,” said Dean Heizer, LivWell’s chief legal strategist. “We learned that from the microgreens that people are farming in old cities and in old skyscrapers. If you can cultivate in cubic meters, you can scale. If you’re cultivating in square feet, you can’t.”

With 11 states plus Washington, D.C., approving recreational use and 33 states legalizing medical marijuana, industry insiders believe marijuana may be legalized nationally in the near future, greatly expanding their market.

In November, the House Judiciary Committee passed a bill with more than 50 co-sponsors that would effectively make marijuana legal in the U.S. Though unlikely to pass Congress immediately, it is seen as a sign of hope for the future.

“It’s just a matter of time,” Krane said. “How much time is very much a question of debate.”