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Part of cannabis and small business and retail

Some illegal cannabis seed vendors are reporting big spikes in sales since recreational cannabis was legalized last month, driven by the lack of legal seed supply outside the medical marijuana system.

Among the legal changes that took place on Oct. 17, adults across Canada, with the exception of those in Manitoba and Quebec, are now permitted to grow up to four cannabis plants per household.

The sales jump during a normally sluggish season – when seedlings are not planted outdoors – comes as several provinces confirm seeds are not yet being offered for sale by licensed vendors. In the absence of legal supply, business has been booming for unlicensed producers mopping up some of that demand.

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Adam, the owner of Ontario-based vendor Dr. Seeds, said gross sales in October – typically among the slowest sales periods of the year – were over $12,000, double his monthly average for the year. He began the website operation as a hobby business nearly four years ago. He then ramped it up about a year and a half ago and now sells a variety of strains in packages of five seeds for $50, or 10 seeds for $80. He declined to use his full name for publication due to the illegal nature of the business.

Other vendors have also reported increased sales, including Vancouver Seed Bank owner, Rebecca Ambrose, who told the Vancouver Sun that October sales had at least tripled. Ms. Ambrose did not respond to inquiries from The Globe and Mail.

The delay in the supply of legal seed inventory was not expected by some provincial distributors, who said they had put in requests for seeds from licensed producers so they would have stock available for sale when cannabis became legal.

Others provinces decided to wait until there is greater clarity on inventories before moving. “We have not issued a purchase order for seeds at this time because there is currently not a source available,” said Beverley Ware, the communications adviser for the Nova Scotia Liquor Corp. (NSLC), in an e-mail. The NSLC handles cannabis sales in the province.

The BC Liquor Stores; the Alberta Gaming, Liquor and Cannabis agency; the Ontario Cannabis Store and the NSLC said they plan to add seeds to their store inventory as soon as they become available, but could not offer a timeline.

The lack of seed supply affects private retailers as well, as every province that allows such retailers – except Saskatchewan – controls the distribution. This means private retailers must buy from the provincial government distributor and cannot source directly from federally-licensed producers. (Retailers in Saskatchewan do not have to purchase from the province.)

Canopy Growth Corp., the world’s largest cannabis company by market capitalization and a key licensed supplier for provincial distributors, said its focus has been on supplying dried flower to provinces first. Just weeks after legalization, the legal cannabis market in Canada is already grappling with supply shortages.

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“It really is about launching seeds into the market at a time when people will be planting seeds,” said Jordan Sinclair, vice-president of communications at Canopy. “We are approaching winter in Canada. It just felt like it wasn’t the right time to put out something that people aren’t going to plant in their gardens. So for us, it will come closer to … late winter, early spring.”

For suppliers like Canopy, the seed market also makes up a very small segment of the business.

“If the medical market is any indication, we’re looking at a market that is less than 1 per cent. Probably less than one-tenth of 1 per cent of total sales,” said Mr. Sinclair. “There might be a nice opportunity for other businesses, but as we’ve observed it, at least in the medical market, it is quite a small segment.”

Spring is also the busiest season for illegal seed vendors, who are hoping the current brisk business trend will continue into next year’s planting season, but it remains to be seen how the potential availability of legal seeds early next year will affect their sales.

An accurate picture of the illegal seed market is difficult to assess, as operators remain secretive due to the illicit nature of their business. A search of archived pages of their websites show that some have taken down phone numbers or addresses from their websites in recent months, making them reachable only through online contact forms or generic customer support e-mails.

Dr. Seeds owner Adam hopes to eventually legitimize his business, but said the licence he would need is not available yet.

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In the meantime, buyers eager to take advantage of the new laws may be unaware that possessing seeds from unlicensed vendors is still illegal in Canada, as is everything derived from those seeds.

“In the Cannabis Act, seeds and seedlings are cannabis … so they are subject to all the restrictions on the sale, the propagation and the distribution of cannabis,” said Trina Fraser, a co-managing partner at Brazeau Seller Law, with a particular expertise in marijuana law.

It is unclear what level of enforcement the public will see given the potentially complicated effort of proving a product’s provenance, but Ms. Fraser advises clients to keep cannabis products in their original packaging and carry proof of purchase.

“If you grow plants [from illegally acquired sources] in your home, that’s still illegal, even if you’re doing no more than four plants,” said Fraser. “The mere fact that those seeds were not acquired from a legal source – you’re still committing an offence.”

Available now: Cannabis Professional, the authoritative e-mail newsletter tailored specifically for professionals in the rapidly evolving cannabis industry. Subscribe now.

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