Legal Showdowns Impact Legalization Rollouts In Canada and Germany

Marguerite Arnold

October 23rd, 2017


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As cannabis advocates are beginning to realize on the eve of the fourth anniversary of Colorado’s rec market, “legalization” even of the “medical only” kind brings its own complications. Right now, both medical and rec markets are on the verge of launching this conversation to the next level. And both kinds of markets – no matter where they are – are running into similar issues.

That these showdowns are also remarkably similar, from county cultivation and dispensary license to national bids if not international export, is as a result, also becoming the next apparent theme of this part of the legalization story.

Further, while imposition of regulatory structures in states like California and Nevada is certainly daunting, it is now sovereign mainstreaming of commercial cannabis markets outside the U.S. that has suddenly taken centre stage. And on both the medical and recreational fronts.

Attempts to create an orderly market structure – whatever that is – are running into significant issues on the legal front.

This is of course hardly surprising. Who gets in the door now if not establishes distribution, are playing for at minimum national stakes. They will also be the face of and shape a now exploding global market.

For that reason, authorities usually have very different priorities than the burgeoning industry, champing now at a taste of a truly unfettered, legal domestic and global market for medical cannabis. And at least domestic rec distribution.

As a result, in both Canada and Germany, attempts to move forward on selection of market structure and regulation if not companies allowed to take part in the same, have already prompted legal action. From the industry itself. The difference this time as opposed to state-level showdowns in the past in the U.S., is that those who are on the plaintiff side are now well-funded multi-million if not billion dollar enterprises. And while this still may not be enough to tilt the balance, finally, in favour of a relatively normalized market, it is absolutely the first step of it.

What Is At The Bottom Of All This Legal Mumbo Jumbo?

In sum, a lot of this is the expected regulatory and legal turmoil that happens at the start of any new market. While cannabis is absolutely at the front of this, there are other disruptive industries right now where the same problems are equally apparent (see all cybercurrency for example). Unlike crypto currency, of course, cannabis has already been banned. For decades.

How is this playing out in specifics?

In Germany right now, the public announcement of the winning bidders for the country’s domestic cultivation and medical cannabis appears to have been slowed down, although even that might still not be an entirely accurate description. Here is what is obvious. There is no announcement of the winning companies, no matter who they are, more than six weeks after it was supposed to happen. And nobody is talking.  Not the government. And certainly not the potential license winners.

The only public signs of this are two lawsuits (now settled against the plaintiffs) – arguing essentially that such entities were in fact qualified to be considered and that the process itself was unfair.  Even more significantly, such lawsuits were filed with the German bureau overseeing monopoly regulation and cartel litigation. And further, were filed in early August, when the initial decision was expected.

While nobody is willing to talk on the record, there is clearly concern within major cannabis companies about the implications if not timing of this. Rumours are swirling within the industry itself that the German bid might be in danger of being withdrawn and then reissued from scratch or the points system reassessed. That said, scheduling a redo seems awfully unlikely, especially given a target roll-out date for the first German crops as of 2019. A 2.0 revision however, might well be in the cards – especially given the current dire medical cannabis shortage across Germany.

Regardless, how such licenses are awarded now and in the future if not the eventual shape of the German and European cannabis market, is more than likely to be impacted by the final decisions of the still unfolding legal contretemps auf Deutsch. And that includes everything from GMP certification to ability to produce in bulk, and a consistent proven track record of doing so in an already federally licensed system.

Across the pond, things are moving in a similar way although it is not medical cannabis that is causing the furore – but recreational. Canada’s provinces have been told in no uncertain terms that the ruling government is not interested in further quibbles and delays. That means that come July 1, 2018, all provinces must be ready to roll. No matter how far many of them, clearly, still are from this goal.

In response, Ontario became the first out of the gate to propose a system which not only set up howls of protest but has also now, ended up in court. The easiest way to tackle the new market from the government’s perspective, is to create a tightly regulated storefront system – much like alcohol. This certainly makes tax collection more efficient.

However, if the Ontario system were adopted in every or most provinces – as is currently the fear in a certain part of the industry – this could effectively shut down entrepreneurial opportunities on the retail, storefront side in Canada. Nationally. In response, the legal challenge to this (before other provinces consider going in this direction) has been to allege that the current alcohol control board approach on the table constitutes a barrier to interprovincial trade. How real that fear really is in terms of creating a monolithic province policy, is unclear – especially as Alberta, which also recently unveiled its rec plans – intends to establish tight regs but allow a specialized cannabis distribution system to go forward. For national companies, obviously, a patch-work of provincial and province-controlled distribution regs is also a potential nightmare they want to avoid.

For that reason, the Ontario situation is being clearly watched by other provinces if not elsewhere. And in this case specifically, government regulations about creating the first real, street level market, are being challenged under anti-monopoly litigation by the industry. In this case it is also not just any old cannacompany, but rather a well-established litigant with a history of going to the Supreme Court over all things cannabis.

The Next Stage of Legalization

Cannabis might now be legal. The green genie is indisputably out of the bottle. However now that it is, the race is on to draw lines around a “legitimate” and “illegitimate” market. Domestically and globally. Everywhere.

From government perspectives, fairly universally, cannabis is still a “dangerous” drug that must be tightly controlled and efficiently taxed. It is not illegal anymore, but just one step removed.

How open the next level of legalization will be however, is still a question clearly both in formulation – and even more moving into a legal battle which is likely to continue – in many jurisdictions – for the foreseeable future.

That said, on the positive side, the needle is clearly moving forward. The question, in other words, is not how to ban cannabis, but how to create a market structure around the commodity as it is accepted as a drug with medical efficacy if not as a substance fit for broader consumer use. And that, for one, is an issue that nobody can answer in the present.

About Marguerite Arnold

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