EDITOR: | May 24th, 2018 | 13 Comments

Cannabis Will Not Decriminalize in 2018

| May 24, 2018 | 13 Comments
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Cannabis will not be decriminalized in calendar 2018. No amount of wishing is going to make it happen.

The timing of decrim is extremely important for the impact on valuations, reputations, cash burn, equity raises, staffing decisions, compensation schemes and M&A activity. The longer it takes for decrim to actually take place, the more risk exists for investors, including new risks brought by the pending federal election.

“Decrim” means the first day a retail consumer can walk into a retail store and legally purchase a cannabis product. That means none of the following qualify as decrim:

  • when the Senate sends Bill C-45 (the Cannabis Act) back to the House of Commons for Third Reading (expected to be on or about June 7/18)
  • when the Liberal-majority House of Commons gives Bil C-45 that Third Reading and quickly sends it back to the Senate for its own Third Reading;
  • when Royal Asset is given by the Governor-General to Bill C-45; or
  • if Canada deals with the international treaties it signed policing the sale of narcotics, which by definition includes cannabis.

Those events will take time to play out, but are mere milestones on the path to decrim. There are other major impediments that will push the first retail date into 2019, and possibly into 2020.

On that list of impediments is that Parliament must deal with Bill C-46 (the Drugged Driving Act). Our prior analysis of that problem is here. That problem alone pushed back the effective date of decrim to at least December of 2018.

Law enforcement agencies across Canada are calling for further delays in decrim so they can obtain the necessary equipment and training to deal with drivers impaired by cannabis. It’s not as simple as dealing with a driver impaired by alcohol. Habitual users or persons who’ve inhaled second-hand smoke can have THC in their systems for weeks, and there is as yet no science or consensus behind how much THC is too much for a driver.

If there are no reliable roadside devices that don’t report false negatives or positives, then the Drugged Driving Act if passed risks being found unconstitutional as constituting an unreasonable search under the Charter of Rights and Freedoms. It is vital that Parliament get this right to avoid having the law struck down.

This isn’t new news. Back in 2017, the Canadian Press reported on this issue and said, “Canada’s police services say there is zero chance they will be ready to enforce new laws for legalized pot by [summer, 2018].”

The situation hasn’t gotten better. As the National Post reported two weeks ago, “…officials with the justice and public safety departments say it’s still unknown when roadside screening devices to test for drug impairment will be approved for use.”

The Post article reports on other infrastructure delays related to roadside testing and police training. Police forces must wait for the Attorney General to sign an order before they can order roadside testing units, assuming any exist which are reliable. For the Attorney General to sign that order, Bills C-45 and 46 must be passed by the House and the Senate, and then a 30-day public consultation period must run. Public Safety then would require time to prepare training and certification for officers on approved devices, and then those officers must be trained.

None of that can start until Bill C-45 and its associated regulations are brought into legal status. Those two processes cannot run in parallel.

Another major delay involves Canada’s First Nations. Section 35(1) of Canada’s Constitution Act, 1982 states, “The existing aboriginal and treaty rights of the aboriginal peoples of Canada are hereby recognized and affirmed.” That has been interpreted by the courts to impose an obligation on the Crown to meaningfully consult with First Nations when such aboriginal and treaty rights could be impacted by legislation.

On May 1 of this year, the Senate Committee on Aboriginal Peoples recommended in writing the Liberals delay legalizing cannabis for up to a year to address the legislation’s potential for harmful effects in Indigenous communities. The committee said in its report on Bill C-45 that the government did not adequately consult with First Nations, Inuit and Métis communities before pushing ahead with its plan to legalize the drug. If the Liberals don’t heed the Senate’s report, this failure to consult could ultimately render the Cannabis Act invalid as a constitutional breach.

Imagine Bay Street’s reaction if that were to happen. Billions of dollars of shareholder value would be erased seconds after the court decision were rendered.

Odds are that won’t happen, but the Crown’s obligation to consult with First Nations on decrim will bring a delay.

Then comes The Big Risk. The next federal election in Canada is set for October, 2019. Parliament will be dissolved sometime during the summer of 2019 to allow for the election campaign. If decriminalization is delayed a year, as requested by law enforcement and recommended by the Senate Committee, Bill C-45 and Bill C-46 may not make it into law before Parliament is dissolved. They would then die on the House floor.

Then there would be a delay for the election itself, and then there would be a further delay as the new government takes power, and then further delays as new legislation and regulations would have to be written. Then there would be the same delays as laid out above related to First Nations and general public consultation. That would push the effective date of decriminalization to at least the summer of 2020.

Those delays bring the risk the federal Conservatives would win the 2019 election. That party has a much stronger anti-cannabis stance than does the Liberal Party. If Trudeau Mania 3.0 doesn’t play out and the Liberals don’t win a majority, expect the next version of decriminalization to be more severe, creating a smaller recreational market. That would negatively impact the cannabis companies.

Counter-balancing that federal election grief is provincial election hope in Ontario, Canada’s most populous province. Roughly 36% of Canadians live there. Under the current provincial plan, assuming decrim happens, the current ruling party advocates for a single-source model, where the only source for recreational cannabis would be from government-operated stores. Basic supply chain issues would limit the size of the market, and therefore negatively impact valuations of the cannabis producers. But there is a provincial election underway, and it doesn’t look good for the incumbent. The provincial Conservatives, currently polling in first place, have said they would implement a hybrid distribution model with both government and private stores. This would have the effect of eliminating some supply chain bottlenecks and increasing revenue for the cannabis companies.

Decrim will happen. When is an open question. Make your own decision and vote with your investment dollars.


Peter Clausi

Editor:

Mr. Clausi is an experienced investment banker, executive and director. A graduate of Osgoode Hall Law School called to Ontario's bar in 1990, Mr. Clausi ... <Read more about Peter Clausi>


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Comments

  • Andre

    They had more than enough time to deal with it. Now just at the last minute they realize that there is actual work to do, everyone else must wait. Sorry, just do your job and respect the deadline.

    May 24, 2018 - 5:41 PM

  • Tracy Weslosky

    Morning Peter. Brilliant job on the legal challenge coverage of the cannabis sector in Canada. Your debate at the 7th Annual InvestorIntel Summit this month was also insightful – thank you.

    Just heading down to participate in the Investing in Cannabis: Canada’s Landscape and New Markets at the LIFT conference —

    CONFIRMED MODERATOR: Fiona Brown, Partner, Aird Berlis
    CONFIRMED: Chuck Rifici, CEO, Cannabis Wheaton Income
    CONFIRMED: James Lyle, Associate, Cassels Brock
    CONFIRMED: Tracy Weslosky, CEO, InvestorIntel Corp, and VP Business Development, Bellotti Capital Partners
    CONFIRMED: Barrington Miller, Director, Listed Company Services, Canadian Securities Exchange

    You wrote in March: “As we’ve said before, this is a trader’s market, not an investor’s market. We’re on the record as having only two longterm picks to thrive in the inevitable carnage: Canopy Growth Corporation (WEED:T) and Aurora Cannabis Inc (ACB:T). Aphria Inc. (APH:T) is a distant third. Everyone else is a different flavour of fourth..” — do you still stand behind this or are there any additional companies you have added to your corral? For instance the biotech or services relating to the cannabis sector?

    I think we need another story on the First Nations and the C45 Bill….the impact of politics on this sector and market are something that no one can forecast.

    May 26, 2018 - 6:39 AM

  • Peter Clausi

    The Globe and Mail reports in its Tuesday edition that the Senate’s legal and constitutional affairs committee recently approved amendments designed to water down a proposed law that would allow police to intercept drivers and screen them for alcohol, even if there are no obvious grounds to believe they are impaired. The Globe says Bill C-46 places an unreasonable limit on Canadians’ freedoms. The proposed law, which effectively does away with the requirement of probable cause, is intended to insulate a government that is legalizing weed from the perception it is soft on crime and on impaired driving. Advocacy groups have long agitated for greater police leeway. Not everyone who is drunk, or stoned, drives erratically enough to clear the reasonable-grounds bar, they argue. Apparently Ottawa agrees. The problem with that reasoning is that it reduces random police checks to the level of minor inconveniences and elides the fact they tend to disproportionately target people of colour. Police need adequate tools to address impaired driving, but that should not include the unfettered discretion to stop anyone they like. The Canadian Civil Liberties’ Association says the expanded powers are unconstitutional.

    May 29, 2018 - 10:19 AM

  • John

    That’s a big NO! A lot of misinformation here. Retail stores will be open in 2018 if 3rd bill passes. A lot of spin on this one.

    June 7, 2018 - 12:25 PM

  • xasxwxwx@gmail.com

    wrong!

    June 8, 2018 - 1:34 PM

  • Peter Clausi (author)

    Retail stores will not legally open in Ontario in 2018. BillC46 makes that impossible. Did any of you take the time to read BillC46 or any of the commentary on it? Did you look up Hansard? Didn’t think so. Wishing for decrim to be implemented isn’t going to make it happen. I look forward to your apologies on Jan 1/19.

    June 8, 2018 - 1:52 PM

  • Peter Clausi (author)

    When the market does open in 2019, the Conservative win in Ontario will make for a more open and larger market. The Tories have advocated for a hybrid distribution model, while the Liberals and NDP wanted a govt owned constrained model.

    June 8, 2018 - 1:55 PM

  • Peter Clausi (author)

    Re-read the article. Royal Assent to the Cannabis Act isn’t decriminalization. The House and Senate still have to deal with Bill C46 (Drugged Driving Act). Cannabis Act won’t be implemented until Billl C46 is passed. Provinces and municipalities have massive infrastructure challenges. Come Cec 31/18, you will not be able to legally buy cannabis from a retail store in Ontario.

    June 22, 2018 - 10:12 AM

  • Peter (author)

    Yes it has, so next up is the mandatory minimum 30-day public consultation period . Public Safety then would require time to prepare training and certification for officers on approved devices, and then those officers must be trained. My definition is when you can walk into a retail store in Ontario and legally buy cannabis off the shelf. That won’t happen until 2019 at the latest.

    June 25, 2018 - 10:29 AM

  • Peter (author)

    Did you notice the curve ball from Doug Ford in Ontario? He campaigned on a promise of a hybrid distribution model, with the LCBO and private outlets sharing the market. Now he’s talking about an exclusive LCBO model, which would trap more tax revenue in the government’s hands and reduce the number of jobs.

    June 25, 2018 - 10:30 AM

  • Peter Clausi (author)
    August 14, 2018 - 1:08 PM

    • Tracy Weslosky

      You have been one of the MOST exceptional writers on covering the cannabis sector in the world Peter, thank you. This industry has attracted everything to it, and I do mean everything: all racing to make fast money. For the record, I am delighted by all of my associates that have made money in this sector. This said, I loved the new business deal that was dropped into my lap yesterday of a California company that has a competitive pharmaceutical to cannabis, or so they claim – that is not cannabis. Again, some cautious optimism and good analysis is always a blessing for smart investors. I read you because I like the fact that your not a groupie to really — anything. I keep telling people that I am an epileptic, but I do not use cannabis for my seizures…yet. The market that many of the media teams in this sector are deploying, paints a world where we suck back cannabis colas at dawn to make it through our day….;-)

      August 17, 2018 - 6:44 AM

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