Canada edition / August 10, 2019
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This week on the podcast
Shaleen Title: Cannabis Justice
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2 HEALTH CANADA SAW, DIDN’T NOTICE ILLEGAL CANNTRUST PLANTS

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According to internal CannTrust correspondence, during a February inspection, Health Canada representatives entered unlicensed rooms in which the company was growing illegally, five weeks before Health Canada licensed the rooms.
Globe and Mail

  • Health Canada was responding to odour complaints from neighbours of the facilities.
  • CannTrust's quality-assurance official emailed then-CEO Peter Aceto and then-chair Eric Paul, "Inspectors went through all rooms, including the unlicensed ones, but did not comment on this."
  • Health Canada did not answer questions from the Globe about whether inspectors had entered or noticed unlicensed rooms, why the illegal practices weren't identified, and whether they've improved their inspections since.

On New Year's Eve, then-CEO Aceto warned then-chair Eric Paul in a letter that his authority as Chief Executive was being undermined by governance problems and an insubordinate board.
Globe and Mail

  • Aceto complained, "Management often receives conflicting instructions from board members. It is often unclear when and which board members need to be involved in decision-making, and when decisions are made, they are often second-guessed."
  • In his first comment since his firing, Aceto told the Globe, "I did act[…] The bottom line is this: I knew what needed to be done to fix this company, but the lack of governance and proper executive decision-making authority was extremely concerning to me."
  • Aceto's letter was not shared with CannTrust's board.
    Bloomberg

The Ontario Securities Commission is investigating the CannTrust matter as a "quasi-criminal" case, meaning if charges are laid, they could lead to prison time.
Bloomberg

  • Health Canada's independent investigation is playing out across "uncharted territory," lawyer Trina Fraser told the Financial Post. "The potential for people to go to jail certainly exists. The potential for significant fines to be levied certainly exists."
    Financial Post
  • There is no precedent for the CannTrust case, meaning an investigation might focus on laying charges against individuals, or against the company as a whole. Lawyer Jack Lloyd noted under the Cannabis Act, workers who tended the illicit plants could be charged with illegal cultivation, regardless of whether they knew it was illegal.
  • CannTrust shares fell again as independent auditor KPMG withdrew its reports on the company's year-end and Q1 results. The move followed CannTrust's warning the results "relied upon representations made by individuals who are no longer at the company."
    Bloomberg, MJ Biz Daily
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3 IS SOMETHING IN UNLICENSED CANNABIS CAUSING HYPEREMESIS?

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Prior to legalization, media fixated on the rising number of cases of cannabis hyperemesis syndrome sending Canadians to emergency rooms. The condition connects cannabis consumption with uncontrollable vomiting soothed only by hot showers and heating pads.However, some users report CHS goes away when they switch to legal REC.
CBC Calgary

  • Aleafia CMO Dr. Michael Verbora said the only difference between legal REC and legacy cannabis is "We know that there’s no heavy metals, pesticides, fungus."
  • Others have speculated CHS is caused by organic pesticide neem oil, whose consumption can cause similar side-effects.
    GrowthOp
  • CHS does not appear to be a problem in Jamaica or other areas with cannabis consumption traditions.
  • The development suggests CHS may not be caused by cannabis at all. However, the suggestion that legacy growers may have inadvertently caused CHS with additives does not sit will with growers' advocates, especially those worried prohibitionists use the situation against the unlicensed market.
    Twitter—Courtland Sandover Sly

Quick Hits

  1. A survey by MED-tracking app Strainprint of its users found 40% are using MED to replace pharmaceutical medication.
    GrowthOp

  2. The Canadian Health Food Association mounted a campaign to end the "monopoly" on CBD products by REC retailers, with some health-food and supplement retailers claiming their elderly clients are not comfortable entering REC stores. The group is asking all parties to promise, if elected, they will demand Health Canada give CBD products a Natural Health Product designation, ignoring the ongoing Health Canada consultations over a proposed new "Cannabis Health Product" designation, which remain open to public and online comment until September 3.
    CBC Ottawa, iPolitics, MJ Biz Daily

4 ALBERTA HITS 250 REC RETAILERS

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Since lifting its November moratorium on new REC retailers weeks ago, Alberta moved quickly from licensing five new stores weekly to licensing 20. This week, Alberta hit 254 retailers province-wide, including 57 in Calgary, with its population of 1.3M.

  • All 254 have received their licenses, though not all have opened.
  • At the time of the moratorium, Alberta had 104 REC stores—more than any other province. Calgary already had 29—meaning more stores were available in Calgary in November than the 24 open across the entire province of Ontario today.

Alberta micro cultivators, however, complain they're being shut out of the market and want to the right to offer farm-gate sales in order to compete with major LPs, who are required to sell their products to provincial wholesaler Alberta Gaming, Liquor and Cannabis.
Calgary Herald

  • Micro growers say getting licensed is too hard and they want the regulations balanced to allow them to compete.

Quick Hits

  1. Saskatoon may cut the fee to renew REC retail licenses from $10,000 to $500.
    Saskatoon Star-Phoenix

  2. Repeating that the CAQ government's goal is discouraging cannabis use, not the needs of businesses, a spokesperson for Quebec health minister Lionel Carmant dismissed industry demands that Quebec allow the same products that will be legal in the rest of Canada. "We need to protect the population, especially our children, from the repercussions of the legalization of cannabis," the spokesperson told the Leaf.
    The Leaf

5 ONTARIO’S LOTTERY PROCESS BEGINS

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Lawyer Chad Finkelstein said the next Ontario REC lottery would include "fewer applicants and double the stores."
Bloomberg

Last week I noted the one bank still willing to support Ontario REC lottery entrants had closed applications. This week, lawyer Trina Fraser rapped banks for delaying letters of support for the Alcohol and Gaming Commission of Ontario "only to pull the plug at the last minute, leaving their clients with no remaining opportunity to go elsewhere."

Quick Hit

  1. Lift & Co announced a strategic alliance with MJ Biz Daily to collaborate on US and Canadian cannabis trade shows. The upcoming MJBizConINTL in Toronto, September 4 through 6, will be the partners' first combined event. See you there.
    NewsWire

6 DISPENSARY RAIDS CONTINUE IN EARNEST

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Police and bylaw officers in municipalities across the country continued raiding unlicensed dispensaries and grow-sites.
CTV News, CBC Windsor

Quick Hit

  1. Last week, short-researchers Friendly Bear bet they could tank Hexo stock by announcing the company had advertised on Snapchat, potentially violating Health Canada advertising regs. This week, lawyers and compliance experts said the worst punishment a company could expect for social-media ads like those would be "a sternly worded letter."
    Bloomberg, Globe and Mail
 

7 SHORT INTEREST IN APHRIA DOWN, UP FOR CANNTRUST, CANOPY

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After Aphria crushed its Q4 filings last week with an 85% quarter-over-quarter improvement on its disastrous Q3, short-sellers naturally reduced their positions, and shifted focus to CannTrust, which received $400,000 in short interest in July.
Bloomberg

  • The greatest increase in short interest, however, was with Canopy, which added $70M short-interest last month after CEO Bruce Linton's sacking.
  • Last week the WeedWeek podcast interviewed Linton. You don't want to miss it.
  • Short sellers have had difficulty with cannabis stocks, losing $690M last year alone.

Quick Hits

  1. Aurora predicted it production will be higher than expected in the last quarter of this year.
    The Province

  2. Though Cronos's quarterly revenue beat expectations ($10.2M instead of $7.3M), the company also posted a larger than expected Q2 loss of $17.8M (rather than the expected $10M).
    Nasdaq, Globe and Mail

  3. Flagging Wayland Group, once MariCann, announced it is selling off its core assets to blockchain company Cryptologic, which has had liquidity troubles of its own.
    Equity Guru

8 TOKYO SMOKE CO-FOUNDER ANNOUNCES LOUNGE PROJECT

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Public Domain

Tokyo Smoke co-founder Lorne Gertner announced his company was planning an 8,000 square-foot cannabis consumption lounge called byMinistry in downtown Toronto to open before the end of the year.

  • At first, the lounge will only sell non-cannabis fare, "using the language of cannabis, so infusions and terpenes and all that," but founders expect laws will change over the next two years to allow indoor cannabis consumption sites.
  • Gertner has been involved legal cannabis since the late 1990s, when he bought into Canada's first LP, Prairie Plant Systems (located in a decommissioned mine in Flin Flon, Manitoba). It later became CanniMed Therapeutics and was sold to Aurora for $1.1B.
  • Lounge advocates worried the major company might "gentrify" lounges, which High Values PR founder Erin Gratton said would mean squeezing out "existing cannabis lounges which have been serving medical patients on fixed budgets." Twitter


Quick Hits

  1. Health Canada released a policy statement clarifying the ban on products that "appeal to young people." Things Health Canada believes make cannabis appealing to young people include: references to people, animals, and characters; edible shapes that evoke brand names, toys and games, sports equipment, or candies; colours/lettering/design that "evokes a food product associated with young persons"; scents or flavours that evoke soft drinks or energy drinks, and vape devices with multicoloured lights. The full details are here.

  2. Namaste Technologies doesn't have a license to produce chocolate edibles, and neither does its subsidiary, Calgary's Choklat. But together they're set to increase Choklat's production by 1,100%.
    Globe and Mail
 

9 CANNABIS NB LOSES MILLIONS—AGAIN

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New Brunswick Crown monopoly corporation Cannabis NB reported a $2.2M Q1 loss—on top of a previous loss of $11.7M reported in April, at the end of the first six months of legalization.

  • When news broke of the $11.7M loss, Progressive Conservative premier Blaine Higgs said he was open to major changes, including privatizing REC retail, scaling Cannabis NB down, or bringing in outside experts to run the organization.
    CTV News
  • This time, government officials did not say what they might do. Finance Minister Ernie Steeves said there would be no final decision until next year.
  • A Cannabis NB spokesperson blamed the loss on competition from "up to 40" illicit dispensaries, which they called " the biggest risk and threat to a safe, legal cannabis retail industry."
    CTV News

Quick Hit

  1. Recently, Health Canada issued licenses to its 200th licensee—but in Quebec, there remain only 14 LPs. Part of the reason is that Quebec venture capital comes from government-backed institutional investors, who until recently flatly refused to support cannabis projects.
    Ici Radio Canada—In French

10 YOU’RE NOT A BETTER DRIVER STONED

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The relationship between cannabis and driving isn't clear-cut, said a University of Calgary psychology PhD student Sarah Simmons, but signs point to cannabis worsening driving.
CBC Calgary

  • Simmons said many believe drivers aware they're high will slow down and increase the distance between themselves and the car in front of them. This disregards many other factors on the road that cannabis may worsen, including detection and response to hazards, ability to keep the vehicle straight in its lane, and control in general.
  • Crash-risk doubles with cannabis in one's system, Simmons said, but she noted the relationship was only an association, not a determination of cause and effect.
  • As well, neither legal nor medical experts have agreed upon a single definition of "cannabis impairment."
  • Calgary has laid only one charge of cannabis-impaired driving since legalization.
    CBC Calgary

Quick Hits

  1. AdWeek celebrated the Government of Ontario's "Barely High is Still Too High to Drive" PSAs for being charming and nonjudgmental. They're actually really sweet: click through and have a look.
    AdWeek

  2. Botaniq profiled ace-cannabis reviewer Brad "PancakeNap" Martin. In a ballsy move, Martin used the recognition to encourage Twitter fans to follow his favourite Canadian cannabis reviewers.
    Botaniq, Twitter—PancakeNap