On June 11, the Supreme Court of Canada struck down a provision in the country's medical marijuana law prohibiting the possession of marijuana extracts. The ruling potentially opened the door to the production of medical marijuana derivatives including tinctures, edibles, pills, and oils — and American investors took note.
Edibles alone make up 45 percent of legal marijuana sales in the US, and there's little reason to think Canada would ultimately be any different. It's just one reason why the Canadian court's decision made Canada an even more attractive destination for American investment in the marijuana industry. Four US states have legalized recreational marijuana, and 24 others permit some form of legal medical marijuana. But all of those states are potentially in conflict with federal law, which classifies marijuana as a Schedule I controlled substance, illegal for both medical and recreational uses. The resulting uncertainty clouds everything from patients' rights to growers' access to credit.
"Largely, we focus on ancillary investing [in the US]," says Morgan Paxhia, who, with his sister Emily, founded Poseidon Asset Management, a San Francisco-based hedge fund focusing solely on the cannabis industry. "One step away from actually touching the plant, so to speak."
These ancillary investments include the seed-to-sale inventory system Flowhub and the cannabis social network MassRoots. In other words, a hedge fund totally devoted to the cannabis industry doesn't invest in the most profitable parts of the industry — growing and selling — because of America's federal prohibition of marijuana.
"Canada does have federal legalization, at least for the medicinal market, to start," Paxhia says. "So it does allow the ability to participate in some of the higher-cash-flow investments that currently are afforded in cultivation and dispensing."
Changes to marijuana laws have come more slowly in Canada than in the US, but they've also come with less confusion. In Canada, there are no state laws conflicting with federal laws (or the laws of bordering states). Instead, laws apply everywhere, with none of the jurisdictional confusion and regulatory chaos seen south of the border.
There are currently no Canadian jurisdictions where recreational marijuana is legal, but medical marijuana has been legal at the federal level since 2001. In 2014, Health Canada, the government department that oversees Canada's single-payer health care system, instituted a new policy allowing private producers to apply for licenses to serve the medical marijuana market. This means that the 25 medical marijuana companies officially licensed by Health Canada can be certain they won't be raided by federal officials.
Medical marijuana companies in the United States don't have that assurance.
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Watch VICE News' exploration of the so-called green rush in 'The Grass Is Greener.'
Federal-level legalization also ensures medical marijuana (MMJ) producers have access to banking, credit, insurance services, and the stock market. Several MMJ companies are listed on the Toronto Stock Exchange, including Tweed, Bedrocan, Organigram, and Aphria. Only one marijuana-related business is traded on a major US stock exchange — and it isn't American. It's the British firm GW Pharmaceuticals, which is listed on Nasdaq.
Ontario-based greenhouse grower Aphria has has encountered financial restrictions to running and growing its business. But they haven't been the result of Canadian law. They've been the result of US law.
"Our bank set us up with credit cards," says Aphria co-chair and founder John Cervini. "We used them for about two months, and then we got a call one day that said, 'Your cards got cancelled.' I guess the underwriter was Wells Fargo in the US. We had to go to a different bank. And there's only one processor of credit cards that isn't associated with a US bank, so we didn't have a lot of choice [of payment-acceptance systems]."
The recent Supreme Court decision in Canada allows only medical marijuana patients to produce their own extracts, which means none of Canada's existing licenses permit producers to "squeeze oil," as Cole Cacciavillani of Aphria puts it. Health Canada started accepting applications last fall from producers to amend those licenses to allow the production of extracts, but the agency has not yet approved any applications, and has stayed mum on when it will.
With a federal election looming in October, the Conservative government of Canada has been campaigning on an anti-marijuana platform. Health Minister Rona Ambrose has been particularly vocal in blasting the Supreme Court decision, telling reporters she was "outraged."
But her press secretary, Michael Bolkenius, told the CBC that decisions to amend licenses will "be taken purely at the department level." And producers say that, generally, the politics surrounding medical marijuana have not influenced Health Canada's decisions. Bruce Linton, CEO of Tweed, the largest MMJ firm in Canada, expects to be granted permission to produce extracts "over the course of the next couple or few months," he told the CBC.
"I think the government has done a reasonably good job," Cervini tells VICE News. "We believe they're going to look to the licensed producers to be able to do the derivatives and deliver the product in a much more medically sound way."
Industry investors believe the demand for edibles will be huge, and hugely profitable. And they're preparing now to meet that future demand.
"The producer that we invested in up in Canada is actually totally perfect [for extracts]," says Emily Paxhia. "The volume they're going to have to produce to create the concentrates is going to require so much more yield than they ever had to produce before. What we're looking for is the ability to ramp up very quickly and cost effectively so they can meet that demand."
In order to do so, smaller Canadian firms will need to learn how to produce on a larger scale. And chances are, they will look for that know-how in the US.
"There's some advantage now, with this court ruling and pending regulation, to get our feet wet in derivatives and oils," Cacciavillani says. "When this thing comes out, if we can get some intellectual property or something from one of the guys in the US, we'd be in a real good position to move very quickly once the regulations are set."
Even though it's been legal for 14 years, medical marijuana still has its critics in Canada who argue that the scientific evidence for its efficacy doesn't meet the standard of other pharmaceuticals.
"Marijuana has never gone through the regulatory process of Health Canada," Health Minister Rona Ambrose said in a June 11 press conference. "Which, of course, requires a rigorous safety review and clinical trials with scientific evidence."
Dr. M-J Milloy, a professor at the University of British Columbia and a researcher at the British Columbia Centre for Excellence in HIV/AIDS, says Ambrose "sort of has a point, but sort of really doesn't. What we do need is more clinical trials to confirm the effectiveness of cannabis-based pharmaceuticals."
Milloy published a study in Drug and Alcohol Review in March that found that HIV-positive patients in Vancouver who used marijuana daily had lower levels of HIV in their blood than patients who did not.
"Obviously, this is what we call an observational study," he says. "We didn't experimentally expose people to marijuana, which you would do in a randomized trial…. But we're at a point where we can justify clinical trials in humans…. We're not suggesting that anyone living with HIV throw away their existing medications and think that they can control the HIV disease using marijuana. But what we have here is almost a proof of concept."
Milloy recently received a $811,000 gift from National Green BioMed, a British Columbia-based firm still pursuing its official license, to conduct clinical trials into marijuana and HIV. Cacciavillani adds that Canada's less severe classification of marijuana, as a Schedule II substance rather than America's more serious Schedule I prohibition, makes Canada much more friendly to marijuana research.
"That's why nothing's been done in the US," he says.
The chance of a Liberal Party or New Democratic Party victory at the polls in October raises the possibility of federal-level legalization of marijuana for adult use. Liberal leader Justin Trudeau favors a legalized, regulate-and-tax approach, while the NDP officially backs decriminalization and further study. The latest polls show both parties roughly tied with the Conservatives.
"It could be very interesting in the next year or two because Canada could just outright legalize, like Colorado or Washington," Morgan Paxhia says. "If they do that, the growth rates in Canada are going to be far beyond what they're considering right now."
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