What’s up in weed: $10 per gram in Ontario?

10/13/2017

I am pleased to bring you this instalment of What’s Up in Weed, rounding up what’s currently happening in the cannabis industry in Canada and abroad.

Ontario cannabis: $10/gram?

  • Weeks after announcing that recreational cannabis will be sold through a Cannabis Control Board that is a subsidiary of the LCBO, the Government of Ontario has floated a cannabis price point: $10 per gram.
  • No word on whether that price would include federal and provincial taxes, how much those taxes would be, or whether pricing variations would be made based on product potency or popularity (the way most LPs set their prices).
  • Although special tax treatment for recreational cannabis has been expected for a while, this is the first we’ve heard about a government actually setting a retail price for cannabis.  In considering the issue of price controls, the Task Force on Cannabis Legalization warned that “too low a price can inadvertently boost demand, while too high a price could shift consumers to seek lower-cost product in the illicit market.”  Mechanisms such as a minimum price, the Task Force suggested, “should be used to prevent predatory pricing, if necessary.”
  • It doesn’t seem like predatory pricing would be an issue with a chain of government-monopoly stores. …So why is the government getting involved in pricing cannabis at all?
  • “The intent is to have some uniformity with these prices across Canada,” said Ontario Finance Minister Charles Sousa.
  • Uniformity could be a good idea: as we’ve previously discussed on this blog, one of the goals of the provinces in implementing an interprovincial trade agreement was to attempt to ensure that the cannabis industry doesn’t turn out like the alcohol industry, for which pricing and the regulatory environment can vary widely by province.
  • Price uniformity could also be a good idea because provinces may not be able to restrict the flow of goods over their borders if the Supreme Court of Canada upholds the trial decision in R. v. Comeau this winter.
  • If the Supreme Court of Canada agrees with the trial judge in Comeau that it is unconstitutional for a province to restrict transportation of goods over interprovincial borders, then each province may face the risk of its residents buying cannabis from another province at a lower price and transporting it in.  Estimates of potential cannabis sales range from $1.6 to $2.3 billion in Ontario; if even a fraction of those sales went to another province because cannabis was significantly cheaper there, that could be bad for business for the CCBO.
  • New Brunswick, which has famously embraced the cannabis industry and recently signed supply contracts with Organigram and Canopy Growth Corporation for nine million grams of cannabis, is the same province from which the Comeau case originated, and whose appeal of the decision to the Supreme Court of Canada could result in the opening of all provincial borders to all goods, including cannabis.
  • Here’s a thought: what if provincial border restrictions were struck down, and New Brunswick lowballed their cannabis prices?  Would everyone buy NB Bud?
  • Chasing price uniformity arguably should not be done at the expense of common sense, however.  Thus far, licensed producers have done just fine pricing their own products, which mostly start around $8 per gram.  According to www.priceofweed.com, that’s a common price for “high quality” street cannabis in Ontario, too.  Will the CCBO be able to compete effectively with the black market at a price point of $10/gram, likely with extra taxes on top?  How much is legal weed worth to you?

Rehash: quick links to interesting points

  • $274 million: the amount earmarked by the federal government to support policing and border efforts associated with the legalization of recreational weed.  $unknown, the amount the Province of Ontario will come up with to backstop its promise to “work with and support law enforcement to shut down” illegal dispensaries, as it promised when originally announcing the CCBO.
  • $165 million: the amount of money raised by Canadian cannabis companies via debt instruments this year so far, including $40 million by SkyLaw client Cronos Group alone.  Taking on debt, rather than selling equity, is often a sign that a company is maturing.  Debt doesn’t dilute existing shareholders and is therefore often a preferable means for a company to raise money, but lenders are usually wary of would-be borrowers if they have an unproven track record or operate in an unpredictable industry.  Offering significant debt facilities on reasonable terms generally signifies that a lender is confident in the company’s ability to pay it back.
  • 47.2%: the proportion of cannabis users who take cannabis to help them sleep, according to a recent study of about 1,200 Denver-area consumers.  The same proportion of study participants used cannabis to treat chronic or recurring pain, followed by 45.7% who use it to help with depression or anxiety.  Only 28.5% of respondents said they used cannabis to have a good time with friends and family.
  • Shana Tova!  Just in time for Rosh Hashanah, Quebec-based licensed producer Hydropothecary has begun offering kosher cannabis.  The certification covers Hydropothecary’s ready-to-consume marijuana powder product line, cannabis peppermint oil, and milled products.
  • Harvard summarizes some facts about medical cannabis.
  • A black cannabis grower is suing the State of Florida over a provision of its medical cannabis law which specifies that one marijuana licence out of an additional 10 to be issued by October must go to a black farmer – so long as he was part of a particular agricultural association.
What’s Up in Weed is not legal or financial advice. It is a blog which is made available by SkyLaw for informational purposes and should not be used as a substitute for professional advice from a lawyer. This blog is subject to copyright and may not be reproduced without our permission.

If you have any questions or would like further information, please contact us at 416-759-5299 or online through SkyLaw.ca. We would be delighted to speak with you.

© Copyright SkyLaw 2017. All rights reserved. SkyLaw is a registered trademark of SkyLaw Professional Corporation.

Andrea Hill is a corporate and securities lawyer with SkyLaw Professional Corporation in Toronto. Recognized as one of Canada’s leading legal experts in corporate cannabis law, Andrea writes for the Globe and Mail about cannabis laws, and works with a broad variety of clients in the cannabis space, including publicly-listed licensed producers of marijuana, licence applicants, and ancillary businesses such as tech companies focused on the cannabis industry. For more information about Andrea, visit the SkyLaw website here.

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