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The Globe and Mail

Injunction rocks nascent marijuana industry

Health Canada’s plans would force those who buy medicinal marijuana to acquire it from government licensed growers.


Ottawa's introduction of a medical marijuana strategy last summer was supposed to relieve some anxiety. Patients facing debilitating diseases would have wider access to cannabis produced in safe, regulated environments. Enforcement officials wouldn't have to worry as much about pot going out the back door of grow-ops to criminal elements, and insurance companies wouldn't have to grapple with house fires brought on by inexperienced growers who place too much faith in their electricity outlets.

But a temporary federal injunction last month has rocked the cradle of a nascent industry, a dozen or so companies licensed to sell medical marijuana to about 38,000 patients who face debilitating issues as varied as spinal-cord injuries, Parkinson's disease and cancer. By April 1, around 24,000 marijuana growers were obliged to destroy around a total of 3.5 million plants, which in turn would have created a relatively huge base of customers who needed to buy marijuana elsewhere. The injunction, which Ottawa is appealing, put an end to that. Patients who have valid licences through September 30, 2013, can keep cultivating provided they keep no more than 150 grams of dried pot.

While some companies remain buoyant despite the ruling, other companies question the meaning of their own existence. There could be major revenue shortfalls, surplus marijuana and cut-throat competition.

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"The injunction has really thrown a monkey wrench in this industry," said Brent Zettl, the chief executive officer of Saskatoon-based CanniMed, the country's largest cannabis company. "There will be a cash-flow crunch in the short term. We always say that necessity is the mother of invention, but cash flow is the father."

With many cost-burdened companies vying for such a small market – many of which have separately laid down millions in sophisticated machinery and security – Mr. Zettl predicts short-term, predatory pricing, as well as oversupply. "I got an anonymous call [Monday] from B.C. – someone who said he heard we were in the business of buying who offered us 3,000 pounds of marijuana," he said, describing that amount as sufficient to fill a cube truck. "There is not supposed to be that kind of supply kicking around."

Companies typically won't say how much business they were expecting from the April 1 migration. Mr. Zettl estimates however that there initially would be 10,000 to 12,000 government-approved patients who would have wanted to buy immediately; the ruling could reduce that customer base to 3,000 to 5,000. Doctors' reluctance to prescribe the drug, whose efficacy is scientifically unproven, may also stymie industry growth. "The changes are confusing for doctors and patients. That's the real tragedy," Mr. Zettl said.

Mr. Zettl was uneasy about the enthusiasm among entrepreneurs at last week's conference for the Canadian Consortium for the Investigation of Cannabinoids, which was held in Toronto. "Everybody was giddy with excitement, but they weren't realizing what's going to happen."

In a closed-door meeting, Health Canada's director of market development, Todd Cain, used the phrase "significant capacity" to characterize the supply, which others construed as a way of stating that there was too much pot on the market.

Health Canada has estimated that within a decade, there could be as many as 400,000 patients fuelling a $1.3-billion industry. Before the injunction, The Globe and Mail estimated that the industry would generate $120-million to $200-million in its first year, not a huge pie for more than 12 companies with millions of dollars in sunken costs.

Though they won't say it, some entrepreneurs hope that Canada could turn into Colorado, the U.S. state that instituted a similar medical program and legalized cannabis this year. Such a scenario would leave them in a strong market position, as would one in which the medicinal merits of cannabis were clinically proven.

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For now, however, Canada remains conflicted, torn between arguments pitting access against safety. Ottawa believes that the safety of quality-controlled cannabis is a healthier alternative to homegrown pot, which can be fouled with mould or pesticides. The courts have been arguing from the position of access: Pot prices are too costly for many patients in the current marketplace, reasoned Justice Michael Manson in his March 21 ruling, and they wouldn't have as much control over marijuana strains.

"The injunction is an awesome victory for patients," said Adam Greenblatt, executive director of the Medical Cannabis Access Society, adding that the injunction could be profitable for companies, who could sell their seeds or clone plants to smaller growers. "Nobody is losing money in these injunctions but the taxpayer, because Health Canada keeps fighting them."

Bedrocan president Marc Wayne says that the injunction hasn't affected his Toronto-based company. His model, he said, was more conservative: Bedrocan imports medical marijuana legally through the Netherlands, so he doesn't worry about oversupply. If anything, the injunction gives his company time to create its own supply.

Michael Haines, CEO of Ontario-based Mettrum, said that the injunction hasn't affected his business, either. "There has been no drop-off since the injunction," he said, adding that they didn't build in a spike into their modelling.

Still, Mr. Haines said that the news of the injunction gave him fright. "It wasn't a lazy weekend of watching golf. A couple of us read the ruling from back to front and front to back again."

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