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Some veterans’ groups have asked pot producers to share a cut of the sales or to pay a for referring patients.Dave Chan/The Globe and Mail

The recent explosion in the number of veterans being reimbursed for medical marijuana, flagged by the Auditor-General in a critical report, is being fuelled by groups in the Atlantic provinces connecting former soldiers suffering from post-traumatic stress disorder with licensed growers hungry for patients.

The practice has raised flags at Health Canada, where officials have looked into efforts by some veterans groups to leverage kickbacks from medical producers in exchange for providing them with patients.

Veterans are part of the only publicly funded plan in the country for medical marijuana. Groups that represent them offer a small but lucrative patient base for Canada's two dozen licensed producers, which are fighting for their share of a competitive market while facing pressure from an illegal dispensary sector rapidly spreading east from Vancouver.

Auditor-General Michael Ferguson, in a report last week, found the number of veterans with pot prescriptions has increased 11 times to more than 1,300 registered patients since Ottawa overhauled its previous home-growing regime just over two years ago.

These former soldiers are covered for up to 10 grams a day, three times more cannabis than the average Canadian patient is authorized to use, and Veterans Affairs Canada said it reimburses them for anywhere from $6 to $14 a gram. The average price paid by patients of the system is $8.14 a gram, according to official data from last December.

Veterans Affairs paid out $12.1-million for these prescriptions from April to December of last year and, by the end of this fiscal year, they could make up a third of all drug payouts for veterans. The department, which announced an ongoing review of the ballooning costs earlier this year, has accepted the Auditor-General's recommendations to create stricter controls on the program.

Buried in the Auditor-General's report was the fact that 53 per cent of the more than 1,300 veterans that got prescriptions last year did so from just four doctors. The report did not specify where those doctors practise. Veterans in Atlantic Canada represent about 15 per cent of all former soldiers, but nearly two-thirds of veterans using medical marijuana live in the Eastern provinces.

This trend has been fuelled in large part by groups such as New Brunswick-based Marijuana For Trauma (MFT), co-founded by veteran Fabian Henry. Mr. Henry said he has organized hundreds of former soldiers suffering from PTSD to get reimbursed for their medical pot, and has no problem asking licensed producers to share a cut of sales or a set fee for referring such patients.

His non-profit group will continue raising funds this way, he said, in order to offer its more than 500 members other holistic therapies not covered by the government, such as hyperbaric oxygen treatments, cannabis education, cooking classes, peer support and spousal programs.

"MFT has set up a program for healing the body, mind and soul, which has a huge success rate in recovery of the entire well-being," Mr. Henry said via e-mail. "Until there is a system to provide a … holistic healing option for treatment, we will continue as we are."

There are few guidelines that cover the relationship between patients, doctors, clinics specializing in pot prescriptions and growers, which, unlike traditional drug companies, sell their products directly to consumers.

Health Canada does not approve marijuana as a drug or medicine, but is compelled to regulate it by the courts, which have consistently ruled that Canadians must have reasonable access to medical marijuana.

After Mr. Henry told The Globe and Mail last June that his group routinely asks licensed producers to share a cut of sales or a set fee for referring patients, Health Canada said it was "actively looking into the issue" of whether such kickbacks present a conflict of interest for the growers.

The agency issued a bulletin to the producers warning them to "take care to avoid any situation that could compromise the health and safety of patients; for example, giving or offering inappropriate direct or indirect payments or inducements to any individual or organization."

Despite Mr. Henry's public comments, department spokesman Sean Upton said in a statement e-mailed last week that Health Canada "did not have any reason to find that any licensed producers were not in compliance with the regulations."

"If Health Canada became aware of a licensed producer engaged in the practice of paying for referrals, the department would investigate and take the appropriate compliance and enforcement action, if warranted," Mr. Upton wrote.

"We would be concerned particularly by situations that could compromise the health and safety of patients."

Mr. Henry and his group are embroiled in a legal battle with Moncton-based licensed producer Organigram, with whom he alleges he entered into a partnership in 2014 to expand Marijuana For Trauma's operations across the country through a new separate corporation. In a lawsuit filed last summer, Mr. Henry alleges that Organigram stole his group's confidential business plan and illegally ended their partnership to continue expanding this new company.

Organigram has filed a counterclaim denying this and alleging a company owned by Mr. Henry owes it $150,000 on an outstanding mortgage involving a Fredericton property that was once going to house a clinic for veterans.

None of these allegations has been proven in court.

Denis Arsenault, CEO of Organigram, said last week that his company has never done business with Marijuana For Trauma. His company has agreed to grow particular strains for a similar veterans group, something he sees no problem with.

"If those organizations are stopping veterans from stopping killing themselves, kudos to them," Mr. Aresenault said.

Hugo Alves, a Toronto-based lawyer who represents licensed growers and other legal cannabis businesses, said that, one way or another, all of Canada's 26 licensed commercial pot growers pay for their share of the country's 50,000 registered patients.

Every licensed producer has a "metric on cost-per-patient acquisition," whether they are a small grower that outsources outreach to their patients through groups like Mr. Henry's, or they have the money to pay for pharmaceutical reps to educate doctors or non-profit patient-advocacy groups on the benefits of their products, he said.

"They just have a different way of approaching it, so they [may not] enter into a services arrangement that says, 'If you send me a patient, then what I will give you is a service fee for providing the patient-outreach function for me,'" Mr. Alves said. "What they'll say is, 'Hey, I'll give you a research partnership or I'll do it some other way.'"