PROVINCIAL BARRIERS EFFECT ON CANNABIS INDUSTRY

Many people believe that Canada operates as one country with borders blocking trade--allowing people and goods to flow freely across its provincial borders.  This not true. As John Zang, lawyer with JZ Law explains, “each province has barriers as to the entry of goods from other provinces.”  Most notorious is alcohol.  All alcohol is delivered to each province separately and to be sold must be registered with that province.  This law is so severe such that technically you as an individual cannot attend the wine district of British Columbia and bring a couple of bottles of wine into Alberta.  Some can argue why the barriers are in place, as Mr. Zang states “many believe that the true purpose is to allow the provincial governments the opportunity to levy its tax on the provincially imported product.” Alcohol in each province faces large tariffs or taxes imposed by the provincial governments before it hits the store shelves.

Cannabis is no different than alcohol. Each province has strict restrictions on what cannabis becomes available to the consumer.  For cannabis, John Zang advises that, like alcohol, cannabis is taxed heavily by both the federal and provincial governments. First, it must be borne in mind to grow, process, and sell cannabis a company must first be  licensed by the federal government pursuant to the Cannabis Act.  The Cannabis Act and the regulations thereunder impose strict requirements which are difficult to get compliance with. As John Zang states “JZ Law has been approached by many people looking to get a cannabis license, often when the process is explained to them and the up front cost that will be incurred with no assurance that a Health Canada license will be delivered, the cannabis entrepreneur decides not to proceed. This hurdle from the federal government, in Zang’s view inhibits entry into the cannabis industry—nationwide.

“Once the cannabis entrepreneur gets beyond the hurdles put in place by the federal Liberal government, the cannabis company must now meet the provincial barriers. These barriers include strict rules relating to where cannabis facilities can be built and strict rules as to who can sell in the province. To sell cannabis in Alberta the cannabis company must, first, have a Health Canada license, second, have a distribution permit from the Alberta government. This provincial permit makes the applicant proceed through another security and compliance check—in addition the one conducted by Health Canada.  Zang states that he has seen a cannabis company approved to cultivate, process, and sell by Health Canada and approved by other provinces but not approved by Alberta.   Zang goes on to state that this results in the federal licensed cannabis company, which has permits in other provinces, not able to sell its cannabis products in Alberta. Zang stated that “talking with my client Burton Growers Ltd., an Alberta company, they see the barriers put in place by Alberta as a huge competitive advantage to them.”  JZ Law, through John Zang,, helps the cannabis entrepreneur not only getting its license from Health Canada, but the required permits in the provinces the cannabis company which to distribute its product.

The other hidden hurdle for distribution in Alberta is unlike all other provinces, the retail sales of cannabis in Alberta are managed by independently owned retail stores. Other provinces maintain provincially owned retail stores. Through this the cannabis company has only one buyer to convince to take their product.   That is, the province stocks the cannabis on the retail  shelves. Mr. Zang states that “I have seen many cannabis company not having a true marketing program to get its product into stores-they simply to go to the province to convince it to sell their product.”

In Alberta, as a result of its individually owned retail stores, the cannabis company must market to each store owner to get its product on its shelves.  This is not unlike what occurs in Alberta’s retail alcohol sector (where Alberta allows alcohol sales by independently owned stores). In the Alberta alcohol sector we see many companies’ set-up just to market to Alberta stores the alcohol (mostly British Columbia and Ontario wine) from other provinces and alcohol from other countries.  A relatively small winery in B.C. does not have the marketing staff to market into Alberta stores.

The same is true for cannabis. Most cannabis companies do not have the marketing team to market to Alberta stores and most do not bother to even get a permit to sell their cannabis in Alberta.  John Zang reports based his review of government of Alberta and Health Canada information the 3 largest cannabis producing provinces of Alberta have less than 15% of their cannabis companies distribute into Alberta. British Columbia has 236 licensed cannabis companies. Only 31 of them have a permit to distribute into Alberta. That is 13%. Ontario has  278 licensed cannabis companies. Only 33 of them have a permit to distribute into Alberta. That is 12%.   Quebec has 199 licensed cannabis companies. Only 11 of them have a permit to distribute into Alberta. That is 6%. Mr. Zang advised that when his client Burton Growers saw this, it saw a huge opportunity to joint venture with the BC, Ontario, and Quebec companies. Through its Standard Health Canada license Burton Growers can bring the out of province growers’ cannabis into Alberta. It can then use the Alberta permit to get that “out-province” cannabis into Alberta stores. Burton Growers being located in Alberta holds a competitive advantage as it has industry contacts—including owners of retail stores. As John Zang advised “when Burton Growers came to me to set-up the joint ventures with out of province cannabis companies, they advised that had a huge up-take from those companies. Zang advised that the agreements such that there is little risk for Burton Growers.  They are largely commission based. Through this strategy Burton Growers see’s very little downside risk. Burton Growers advises that in talking to other Alberta cannabis companies they did not want to allow others “piggy-back” on their Alberta permit as that would be cannibalize their market.  For Burton Growers it is in a different position as its business focus is not cultivating cannabis. Rather, its focus is distributing cannabis by breaking down the provincial barriers and by international export.  John Zang of JZ Law believes that through this structure with Burton Growers they have found a low risk cash flow opportunity.

HAPPY GROWS.

JZ LAW.

The within is not legal advice. for legal advice you should be JZ Law or other legal counsel. The legal field is highly specialized. Just as one would consult JZ Law for complex cannabis regulations, other situations require lawyers with a very specific focus. For example, in the unfortunate event of a water-related incident, you can learn more about Drowning Accident Lawyers who focus exclusively on that area of personal injury law.