Friday, April 24, 2015

Farmers, Dispensaries, and the MMPR (Part II)

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Read Part I here at Cannabis in Canada

 Despite the media headlines that the new Marihuana for Medical Purposes Regulations (MMPR) was a "free market" for medical cannabis, the older MMAR system was also market orientated. While the LPs can trade on the stock market, both systems rely on producing wealth through exchange. The unintended consequences from allowing so many Canadians to grow from 2001 to 2013 was to create a community of legal medical cannabis farmers and patients that traded strains and medication. And since Vancouver police took the policy of non-enforcement, this market necessarily led to the creation of retail space. This newer group of dispensary owners are a new class of entrepreneurs. Typically they are not registered with Health Canada and connect with MMAR farmers through word-of-mouth.

            The medical cannabis community in Canada, and particularly in British Columbia, produce value for each other through exchange. There are risks with cannabis cultivation, distribution, and sale. But this is risk one would expect in a brewery, or liquor store. One of the plaintiff’s witnesses in Allard was Scott Wilkins, an insurance broker who had no problem insuring medical cannabis gardens, shops or "grow rooms." Meanwhile Vancouver City Council has shown interest in regulating Vancouver's dispensaries.

            A typical harvest can yield $25,319 four times a year. But it won't stop there. The dispensaries will regularly buy these harvests from multiple farmers. But before they're capable of that they must first buy or rent some land, then hire construction crews and electricians, possibly even professional designers, to make the dispensary consumer-friendly. The dispensary owner has to hire and train employees, pay them (payroll taxes included), and then pay himself with all those taxes included. There is money going to government coffers before the dispensary owner is even out the door, spending money on people who produce value for him. And these are just the dispensaries. The actual farmers are continually investing in capital resources to maintain the high quality and quantity of output.

            In contrast, the MMPR is a regulatory scheme where wealth is destroyed before it can be produced. Before an LP can make a profit, they have to destroy the potential (and right now, very real) competition in cannabis cultivation. Once the government monopoly has made this market condition possible, the very same government will require extensive security prerequisites and other costly regulatory requirements before any actual cannabis can be grown. Once it is grown and harvested (and has worked its way through the gamma-irradiated approval process) the LP sets the price of the product based a variety of factors but mostly, supply and demand. As more LPs are brought into the fold, prices will fall and there will be freer market in medical cannabis then exists today. However, with Health Canada as a gatekeeper, this prospect remains to be seen. So far out of the thousands of applicants, only 17 Licensed Producers have been approved. One CEO became a multimillionaire through his investment in the LP scheme. Others have expressed concern about the level of red-tape and how much time, money and resources they've already spent. One denied LP applicant attempted to sue Health Canada.

            One rationale for banning the MMAR farmers was RCMP complaints of “monster plants” that medical patients will grow in their homes. According to the RCMP, a medical patient is producing excess cannabis if he is growing beyond the formula given to him by Health Canada based on his dosage. But patients and farmers disagree; Health Canada's formula was completely arbitrary. As Remo Colasanti, a grower and plaintiff for Allard, told the court, if someone was following Health Canada's guidelines, “he was probably a really bad grower.” Formulas didn't take into account the trial and error farmers would undergo until something worked. There is nothing in the regulations about some plants being in vegetative state, with others in flower. Different strains, for different pains? It didn't even address hydroponic systems or plants grown in soil. The formulas were pure arithmetic:

(a) “A” is the daily amount of dried marihuana, in grams, stated under paragraph 6(1)(c) or subparagraph 19(2)(d)(i), whichever applies;

(b) “C” is a constant equal to 1, representing the growth cycle of a marihuana plant from seeding to harvesting; and

(c) “D” is the maximum number of marihuana plants referred to in subsection 21(2) and paragraphs 29(2)(f) and 40(2)(g).

(2) The maximum number of marihuana plants referred to in paragraph (1)(c) is determined according to whichever of the following formulas applies:

(a) if the production area is entirely indoors,

D = [(A × 365) ÷ (B × 3C)] × 1.2

where B is 30 grams, being the expected yield of dried marihuana per plant,

            Health Canada's formulas demanded precision where reality was spontaneous and subjective. If we follow the above formula for a daily dosage of five grams, you'd expect 24 plants. But if 24 plants are producing a pound each, instead of the very low expected 30 grams, what is to do be done with the remaining hundreds if not thousands of grams? Share or sell the product to other patients unable to grow themselves? Prior to overhauling the MMAR, Health Canada did contract one commercial facility to provide cannabis to non-grower patients or patients without DGs. Prairie Plant Systems based out of Saskatchewan, produced one strain and Health Canada sold it for a flat-rate of $5-a-gram while paying shipping costs. By 2012 so many patients were indebted to Health Canada that shipments were suspended. Not licensed to grow, unable to find a personal designated grower, and blocked from accessing Health Canada's supply - where was a medical patient to go? On the street or into a dispensary?

            There were, and still are, MMAR farmers “overgrowing”. Some of this excess plant material makes it onto the Vancouver dispensary market. Is that the black market? Those businesses aren't run by gangs or organized crime. They pay their taxes. Police give them a very low priority. In retail storefront dispensaries and in compassion clubs, patients have more choice then they do under the MMPR's mail-order system. To buy from an LP, one must order from a website or by phone and then wait for a package in the mail.

            One of the key differences between the MMAR and the MMPR is how loosely regulated the former growers are. The MMAR farmers have the liberty to make mistakes, versus the bureaucratic hegemony the LPs are subjected to. Not subordinate to Health Canada in the same way, the MMAR farmers are free to experiment and innovate on growing techniques. They aren't bound by page after page of government regulation and costly security requirements. And yet, in the 12 years of the MMAR's existence, there was not a single claim of fire, theft or mould. That's because each grower - and each dispensary owner for that matter - will take subjective (and usually universally agreed upon) security precautions to prevent theft and damage to the property. What each individual will require in land, labour and capital goods will depend on his own subjective analysis of his private property. Success will be determined by a psychic or money profit. You can't profit if someone keeps breaking onto your property. In a similar vein, you can't profit if someone keeps micro-managing your actions.

            The unintended consequences of the MMAR became the Vancouver medical cannabis dispensary system. Far from being a threat to public health and safety, retail-outlets selling cannabis have kept the medicine off the street. It gives patients the opportunity to scrutinize the product: to smell it, touch it and actually see the product before purchasing it. It gives those same patients unable to grow or afford mail-order cannabis, access to their medication. And unlike the apparent boom the MMPR is to bring in some distance future, Vancouver's dispensaries are benefiting the local economy right now. If the federal government is successful in shutting down the MMAR gardens, the effect will ripple throughout the Canadian economy, and particularly in B.C. Along with losing Canada's 36,000 cannabis farmers (and all the knowledge, skills, investment and individualized strains and genetics that go with them), the repeal will affect capital suppliers like hydroponic equipment stores and of course, retail-outlets like dispensaries and compassion clubs. The bottom line is that a community of 36,000 small farmers are creating more wealth than 17 corporations with a regulatory framework that has extensive monetary and bureaucratic barriers to entry and success. The federal government and its cartel of LPs have the power of the state. Appealing Allard is an attempt to destroy the livelihood of 36,000 farmers. Meanwhile, Nanimo mayor Bill McKay boasts about an annual $3.2 million in direct wages from their local LP. This number is dwarfed by the annual $300 million dispensaries and MMAR farmers are producing for the Vancouver economy. Repealing the MMAR would be an economic disaster.

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