Understanding Canada's Coming Cannabis Regime by Looking South to U.S.

The Empire Club Presents

Lewis Koski, Shaleen Title, Will Stewart and Moderator Geoff Zochodne, with: Understanding Canada’s Coming Cannabis Regime by Looking South to The U.S.

Welcome Address, by Barbara Jesson, President of Jesson + Company Communications Inc. and President of the Empire Club of Canada

June 12, 2018

Good afternoon, ladies and gentlemen. From One King West Hotel in downtown Toronto, welcome, to the Empire Club of Canada. For those of you just joining us through either our webcast or our podcast, welcome, to the meeting.

Before our distinguished speakers are formally introduced, today, it gives me great pleasure to introduce our Head Table Guests. I would ask each Guest to rise for a brief moment and be seated as your name is called. I would ask the audience to refrain from applauding until all of our Head Table Guests have been introduced.

Head Table

Distinguished Guest Speakers:

Mr. Lewis Koski, Co-Founder and Senior Director, Freedman & Koski; Former Director, Colorado Marijuana Enforcement Division

Mr. Will Stewart, Vice President, Corporate Communications and Public Affairs, Hiku Brands

Ms. Shaleen Title, Commissioner, Massachusetts Cannabis Control Commission

Mr. Geoff Zochodne, Reporter, Financial Post

Guests:

Mr. Cam Battley, Chief Corporate Officer, Aurora Cannabis Enterprises Inc.

Mr. Len Glickman, Co-Chair, Cannabis Group, Cassels Brock & Blackwell LLP Ms. Megan Henderson, Executive Producer, The GrowthOp

Mr. Marc Lakmaaker, Director, Investor Relations and Corporate Development, Aurora Cannabis Enterprises Inc.

Mr. Andrew MacLeod, President and Chief Operating Officer, Postmedia Network Inc.

Dr. Gordon McIvor, Past President, Empire Club of Canada Mr. Mike Van Soelen, Managing Principal, Navigator Ltd.

My name is Barbara Jesson. I am the President of Jesson + Company Communications and the President of the Empire Club of Canada. Ladies and gentlemen, your Head Table Guests. It is now my pleasure to welcome our partner for today’s lunch, Megan Henderson, Executive Producer, the GrowthOp, to offer today’s welcome remarks.

Introduction, Megan Henderson, Executive Producer, The GrowthOp

Thank you, Barbara. Hello, everyone. On behalf of the GrowthOp and the National Post, welcome, and thank you for attending. We are thrilled to partner with the Empire Club of Canada to bring you a dynamic panel on one of today’s hottest topics: Cannabis legalization.

The GrowthOp was recently launched just last week to provide a premium destination for cannabis news and views. Our goal is to keep you informed and educated on the news, trends and innovations within the cannabis industry for both medical and recreational use. We want to drive the conversation around cannabis forward and work to normalize the topic for Canadians.

Both the National Post and the GrowthOp are proud members of the Postmedia family, which is one of the top-ranked networks in Canada for trusted news. Currently, our network reaches 18.7 million Canadians, which is about 64% of the country. It is really important to us that those people can reach our content at any time of day or anywhere they are located. That is why we continue to invest in the innovation of our digital products and platforms like the GrowthOp.

Again, I want to thank you for joining us, today, and I hope you enjoy the panel. With that, I will hand it back to Barbara. BJ: Thank you, Megan. It seems to me there is one question about the issue we are discussing, today, that has not had sufficient consideration: If we legalize everything, what are teenagers going to rebel against? Mood-altering drugs are not a new thing. The earliest known archaeological record for the use of opium poppy occurred from roughly the same time period that beer and wine first appeared, roughly five or six thousand years ago.

The proponents of legalization of cannabis for recreational consumption have laid out a number of strong arguments in support. Clearly, prohibition does not work. When marijuana use becomes problematic, it is a social, not criminal issue, and many people have been burdened with a criminal record for fairly innocuous infractions.

There is some evidence, from experience in Holland and Portugal, that legalization may actually help reduce consumption. Those opposed to legalization generally acknowledge the benefits of medical marijuana, but express concerns with some studies showing consumption to be dangerous, particularly, among adolescents who use marijuana heavily at ages 16 or 17, and over a period of years.

More generally, there is criticism that not enough is known about the long-term impacts on the brain, lungs and other critical organs, to make a call for legalization. Another key argument against legalization is related to regulating the drug among groups such as drivers and, perhaps, more surprisingly to me at least until I began to consider this, to the issues being raised by environmentalists.

To help sort through all these arguments and misinformation in order to better understand what recreational marijuana legalization will look like in Canada, we have convened our panel of experienced experts.

Lewis Koski is the Co-Founder and Senior Director at Freedman & Koski, Inc. and the former director at Colorado Marijuana Enforcement Division during the legalization of marijuana. Mr. Koski played a pivotal role building the first agency in the world to implement medical and retail marijuana policy.

Commissioner Shaleen Title was jointly appointed Treasurer and Attorney General to the Cannabis Control Commission by the Massachusetts Governor in September 2017. She co-authored the Massachusetts marijuana legalization referendum and has consulted on state and local marijuana policy around the United States. She was a founding board member of the Minority Cannabis Business Association, and she was also a founding board member of Marijuana Majority.

Will Stewart is VP, Corporate Communications and Public Affairs, at Hiku Brands. He is a leading public affairs authority on cannabis legislation in Canada. He has developed significant expertise in Canada’s legal cannabis space working with a variety of large ACMPR licensed producers and other leading companies in the sector. Will also sits on the advisory board of Lift & Co.

Geoff Zochodne is a reporter, at the Financial Post and has covered the banking and cannabis sectors. He will chair our panel today. Prior to that, he covered Ontario politics as a journalist for Queen’s Park.

Ladies and gentlemen, please, join me in welcoming our panelists to the Empire Club podium.

Lewis Koski, Shaleen Title and Will Stewart with Chair Geoff Zochodne

GZ: Before we came out here, we had the really unique privilege, I guess, of signing the Empire Club’s book, and Barbara mentioned to me that Winston Churchill had been someone who had signed the book. I was thinking to myself, “Oh, how am I supposed to one-up Winston Churchill in writing in this book?” I thought to myself, “I will use the word ‘cannabis’, because I bet he did not use that—I would assume—so I might have that one on him.”

This came up the other day when we were having a conference call. I think it was Shaleen who said it, and it was that you do not get too many opportunities to be present at the birth of an entire industry. That is where Canada is at right now. It looks like, in the not-to-distant future, we are going to legalize recreational cannabis, in addition to our medicinal regime. That is putting pressure on a lot of people to make sure we are that we get it right. There are a lot of boxes that need to be checked and a lot of things that need to get done before we get there.

I think that this panel is going to be really good to sort of give us some perspective on what other countries and what other states have done, I should say. It will try and give us an idea of the corporate world, as well, in Canada, and give us a sense of where things have come from and where we are today. First, I think we had a bit of an introduction with the biographies and everything, so I think I will skip that part. Maybe I will just go to Lewis and just get us going right away. Can you sort of walk us through what Colorado’s legalized marijuana regime is?

LK: Sure. It is really both a combination of commercialized cannabis sales, distribution, cultivation, and it is also part patient-based where patients and caregivers can grow on their own. What we have found over the last few years is that regulated marketplace is really starting to capture a big part of the consumer’s attention, and a lot of the cannabis sales are occurring through the regulated marketplace.

GZ: Shaleen, where is Massachusetts at so far? I think you said that they had a target date similar to what we have in Canada of July 1st for the recreational side, but can you just walk us through where that is as well?

ST: Sure. In Massachusetts, we had the benefit of having several states—Colorado and Washington and other states— go before us and to be able to look and try and learn from that as Canada is trying to do now.

My agency was appointed from scratch to implement the legalization of marijuana last year. We have five people with five different areas of expertise: Public safety, public health, government regulation, business and my seat, which is social justice. Over the past year, we have tried to develop regulations that can make this a fair and just industry where people from all different communities, businesses of all sizes, are welcome. Retail sales are set to start this summer. I expect they will start at a small scale and then grow gradually.

GZ: Maybe we will get Will to give us the lowdown on Canada’s system so far.

WS: Yes, I think, in many ways, Canada is well ahead of the United States, even though we are not legal for recreational consumption now. In other ways, the United States are way ahead of us. We are, of course, legal for medical cannabis. That is a Supreme Court decision. That is not going away anytime soon, but we are actually on the verge of being the first G7 or even G20 country to legalize cannabis on the national level. That comes with a lot of distinct advantages that they just do not have in the United States—interprovincial trade is most notable. In the U.S., where you are selling cannabis, you have to grow it and process it within that state because transporting across state lines would be a federal offence. We can do that easily. Because it is legal on the federal level, so it makes research and development on the medical end and medical products, a lot easier. It also allows companies here to get significantly bigger in scale because they can access banks and capital markets a lot easier than the United States.

Finally, Canada will be a leader on the international stage, simply because we can move product from Canada to other countries and intellectual property to other countries rather than being landlocked on a state-by-state basis in the U.S.

GZ: Maybe we will go back to Lewis first, because I am interested in this piece. Colorado is really one of the first jurisdictions, I believe, to actually go ahead with legalization of recreational cannabis. When you are so far in front, who did you turn to for inspiration and advice, then?

LK: We started with basically a blank piece of paper. I recall when we were first starting to write down some of the regulations. We were, like, “Okay, we have all sorts of ideas” when we were going to start with writing regulations. We were left with Wow, where do we really start to try and get this new book written? in what ended up being a short period of time. What we did was essentially rely on other regulated industries that were pretty well substantiated. For example, with processing of licensing and doing background investigations, we looked to the casino gambling industry where they are renowned for very rigorous investigations and licensing processes, operational requirements, those types of things.

We also looked at alcohol because, in a lot of ways, in the U.S., people tried to—even though it is not really possible to do this for a lot of reasons—equate the point of sale of cannabis transaction with the same as being kind of a liquor transaction.

Everything leading up to that tends to conflict with one another, but we still borrowed quite a bit from liquor. In the absence of any other jurisdictions starting to license commercialized businesses, we relied on a lot of those other heavily regulated industries.

GZ: Before we move on, how has it been so far? Has it been a success? Has it met the goals that were set out at the beginning?

LK: Yes, we had a primary focus when I was in office, which was to protect public health and safety. In a lot of ways, we feel like we have been successful to the extent that you can be successful at that. Will said it really well when he was talking about the advantages and disadvantages of federal legalization. A lot of the issues that we were facing with edibles, manufacturing, those types of things, are problems that still continue to persist regardless of what your jurisdictional approvals are. We were able to really work through a lot of those through really strong public engagement processes, and we were able to leverage pretty much broad support from elected officials to really get off to a good start.

I would say, though, caution, it is far from perfect.We are not suggesting that Colorado is the model that everyone should follow. I would pay more attention to the mistakes that we made than some of the successes we had.

GZ: Shaleen, then, when Massachusetts had been going through its process, who did you turn to, and what are some of the goals that have been set out for the state as it heads towards legalization?

ST: We turned to Lewis. I actually worked on the Colorado campaign as well, so I think they did an excellent job, but they just did not have some of the data that we have now. In Massachusetts, as the law and regulations were being written, and we looked at the industry in Colorado, we were very concerned about making sure that access to the industry was available for everyone. I would say in Massachusetts, the three things that we have focused on are, first, making sure that we collect data in a way that is open and transparent and available to the other states and countries that want to follow. We have a research agenda. We have hired someone specifically to collect data. We are toying with the idea of an open data policy where not only would we make reports, but the public would be able to access it directly.

Secondly, we are focusing on equity by looking at the way that marijuana prohibition has been enforced against certain communities—not so much others in the United States—and I believe this is the case in other countries as well, making sure that those communities have access to the industry. Our equity program offers technical assistance, fee waivers, other ways to level the playing field.

The third thing we focused on is what I would call ‘modernizing the industry’ because we do not get this opportunity to start an industry from scratch very often. Our regulations include strict environmental efficiency standards, diversity plans—because it is 2018, we want to make sure that women, people of colour, veterans, and everyone is involved in the industry. All of our licensees will have to provide that as well, and we are just offering an opportunity for consumers to feel like they can be conscious, as they have enough information so they will all get test results of their products before they purchase them. And they will be able to learn which companies have gone above and beyond and have gotten leadership ratings in areas like environmental efficiencies, social justice.

Those are the main ways that we are trying to differentiate ourselves, but I would say, at the core, every country and every state is starting with, “Let us stop arresting and incarcerating people for this. Let us make sure that consumers can go into a store and buy a regulated product, pay tax revenue and lift it out of the illicit market.”

GZ: Will, on the corporate side, how has it been for you? Who have you been able to talk to, and how has it been so far? The legislation is not totally finished yet; some of the rules are still up in the air. How has that been for you and your company functioning in that sort of environment?

WS: Yes, it is a huge amount of uncertainty for us. Our company, Hiku Brands, will operate 20–30 cannabis dispensing stores by the end of this calendar year which, by today’s standards, makes us the largest cannabis dispensing chain in the world. That is only 30 stores. I say ‘by today’s standards’ because there are competitors of ours who are also opening stores, who are in the audience, and I am sure that they will be trying to be as big as we are. We are doing the same thing. We are looking south of the border to see what has worked and what has not.

I would say that we are envious that they are at the place where they have private sector retail stores operating in Colorado. We believe in a strong role for the private sector. Five of ten provinces in Canada believe in a strong private sector retail model for cannabis. Ontario is not one of them, of course, yet. We will see what we can do about that in talking to the new government.

In other ways, Canada developed the medical regime to such high standards and with such a great private sector licensed to produce the model that many countries from around the world are actually looking to us, primarily, European jurisdictions. Australia is another example, to see how Canada did it—how they have maintained high production standards, how they have avoided diversion to the black market, how they have ensured that the product is tested and safe for consumption, and managed that entire supply chain at scale. Cannabis is an easy plant to grow. It is a much more difficult plant to grow when you have got a 1-millionsquare-foot greenhouse and you cannot use pesticides and other tools that are readily at the disposal of other agricultural industries.

Other countries who are looking to explore medical or recreational cannabis, are actually looking to Canada in terms of how we have done it. That is a real opportunity for Canadian companies to be those leaders around the world, to have that intellectual property, not just from growing the plant, but lighting systems, control systems, security systems. These have all have been built to such a high standard here—ironically, under the Stephen Harper conservative government, which I do not think is on his résumé. It is rather ironic to think that way.

GZ: Do you think that Canada is setting itself for success so far? You mentioned that we have had this medical system in place for a while now. Do you think that has put Canada on a solid enough footing so that when they flip the switch, eventually, on recreational cannabis that it will be in a good spot to carry that out?

WS: Yes, I think Canada should be proud—and, obviously, with the stigma around cannabis, we are not singing it from the rooftops. Most people are not singing it from the rooftops like they would, say, a BlackBerry or something like that, but Canada has set itself up well to be world leaders in this emerging sector. Let us be honest: Barriers to accessing medical cannabis or even recreational cannabis are falling around the world. Lots of countries are moving in this direction. It really is something where Canada can lead the way.

On the other hand, my American friends can speak more to this than I can, but the development of brands and consumer brands has been extremely strong in U.S.states where it is legal. Those brands have affinity here in Canada. Licensed producers here in Canada are trying to create brands by press release, whereas, in the United States, they are building brands and building community. That is something that we are behind on, even though we are leading on medical.

GZ: You said the B-word, so I am going to take that and then use it to launch into advertising. I am curious to hear what Colorado did with its advertising regulations around recreational cannabis when that market started up.

LK: Advertising is a really touchy issue, I think, anywhere, because both in the U.S. and in Canada, it is protected almost as free speech. Anytime you go to limit advertising, you are opening yourself up for lawsuits. The way that happens is the legislature says, “Hey, we think you should regulate advertising,” and then the agency that gets tasked with that gets sued almost immediately. We felt strongly, though, that for the industry to really come out of the chute and establish some credibility, that they had to join us in coming up with the right advertising restrictions. We did what we often did when we dealt with other difficult policy issues like testing, banking and production limits and those types of things. We did public engagement probably to a fault. Advertising was one of those. What we actually ended up landing on is the tobacco settlement that came out of the U.S., where basically if you had a certain percentage of readership or viewership that is below a certain age, you cannot advertise in that type of medium and it is your responsibility as the licensee to show that you did the due diligence to ensure that you are advertising in the right places.

That was it, in a nutshell. It does not mean it is the perfect structure. I do not know that there is such a thing with advertising being so protected. We still had challenges with things like adopt-a-highway; litter signs, so they could not advertise in certain venues. They would do an adopt-a-highway. We had some of our business toyed around with—the idea of sponsoring youth sports. As soon as we had those types of activities that were kind of percolating towards us as if that were really going to happen, we would reach out to the industry, again, and in kind of a more informal fashion and say, “Look, do you really feel this is going to benefit the industry at this point in your existence? Are you going to be able to establish credibility if you do that?” There was a lot of give and take. For example, when advertising at cannabis events that were specific for cannabis, we were a lot more permissive. And, on things that were not specific to cannabis and advertising, we dealt with those on a case-by-case basis.

GZ: What about in Massachusetts, Shaleen?

ST: I would love to speak to that as well because it is such a fascinating question. I think that when you are talking about advertising, there are very common sense items that I think most people would agree with; for example, you have to regulate that these products cannot make false, misleading claims, which is often an issue with herbal medicine. We want to have warning labels: “Think twice before you use this product if you are pregnant or breastfeeding,” for example.

Then, of course, the public health experts who had worked in alcohol and tobacco were very clear with our legislators and us, as regulators, that when adolescents are exposed to advertising, it can make the use more prevalent. Massachusetts decided to take a cue from Colorado and say if you are going to advertise, you should be able to show that you have done your homework. That for us, it is 85% of the audience is of age.

Then, we also have seen suggestions that, to me, are just we do not like you; we do not like marijuana; marijuana is bad; therefore, you cannot advertise. But there is something like adopting a sports sponsorship or adopting a highway, and why should not marijuana companies be able to do that if other companies can? It is legal. There is no reason for that restriction. That is kind of the approach that I took, and we tried to be as reasonable as possible and really make evidence-based decisions in our regulations.

GZ: Coming back to Canada, I know we just had the Bill come out of the Senate, and I think there was a provision inserted in there that is barring people from making cannabis swag that you can sell or have to promote your brand. Do you need to have that as part of it in Canada?

WS: Yes, I think we do. If this is a hockey game between Canada and the U.S., score one for the U.S. for actually having a good sense of branding and advertising. Our company, Hiku, has been developing three main recreational brands for about three years. Tokyo Smoke, which won brand of the year at the Cannabis Awards in Canada—yes, there is such thing as Canadian Cannabis Awards. We have five existing storefronts in Toronto where you can buy really nice coffee and really nice paraphernalia, but no cannabis. We have a female-centred brand called Van der Pop, which was started by a 40-year-old mother of two who did not think that anything in the cannabis sector spoke to her. We have a west coast health and wellness company called DOJA that grows cannabis in the beautiful Okanagan Valley. We have been building those brands for two to three years each, because we knew that in a legal, recreational world, branding is going to be significantly constrained. I think the government really needs to ask themselves the question If the intention of a legislation is actually to reduce the black market, then why do we have so many restrictions on the ability for us to use the same tools and tactics that the black market is currently using? We have plain packaging. There is no debate about that. In our stores, we cannot even put cannabis on the store floor. You have to buy it and then run to the back, get it and bring it back out. We are not allowed to advertise, by and large. We may not be able to print the same t-shirts that you pull out of your Bud Light cases, never mind flashing red lights when important goals are scored. We cannot do any of that. Yet, we are tasked with getting rid of the black market.

I think, you mentioned the Senate amendment, the swag amendment, as we say, according to which you may only be able to put cannabis branding on cannabis and accessories. We do sell Tokyo Smoke hoodies. They are beautiful. Everyone should have one. If I sew a smell-proof pouch into the front of my cannabis hoodie, is it now a cannabis accessory and I can now brand it? I think you are going to find the companies in this space trying to figure out a way to build their brands over time as recreation takes hold.

GZ: Before we get too far, I want to go back and talk about the medicinal side of things, because as we have this rush towards recreational legalization, we already had the medical market there. We have a lot of LPs that are doing that. Let me start with Shaleen first. How is Massachusetts protecting its medical users as it gets ready for recreational legalization?

ST: The primary concerns that we heard from patients were that they were worried the adult use market would sort of absorb the medical market, that they would not be able to access their preferred products anymore that worked for their particular condition.

They were concerned about supply, that if there is a supply shortage, that there would be long lines of people over 21, and patients would not be able to access their product. We took that into account. We were the first state to protect patients’ supplies. If a company wants to be both a medical and an adult-use company, they have to put aside 35% of their product, at least initially, for their patients to ensure that there is still enough supply for them. Also, patients do not have to pay taxes on their product, because it is a medicine for them, and they have access to larger amounts of the product as well. We are trying to make sure that as we merge the markets in some ways, that patients are still being respected.

GZ: Lewis?

LK: In Colorado—and we are seeing this model play out in a number of places across the U.S.—the patients can still grow for themselves. As Shaleen was saying, some of the biggest concerns we heard was access. A lot of that had to do with the fact that a lot of the rural cities and counties within the State of Colorado said no to commercialized cannabis. They were really concerned that if it went to only a commercialized model, that the patients would not get access.

The other concern that I think they have is it is not necessarily an easy plant to grow. It is pretty costly. If patients have the same experience trying to brew beer, they are going to want to find a store to go buy cannabis. I think there is this interest that patients have in continuing to expand our retail market because, in a lot of ways, the commercialized market, even though it is a separate doctrine between medical and retail use are pretty ubiquitous between the two of them. The more commercialized it gets, the more likely they will have the access they want from the commercialized market, but then there is still the concern over price.

We have noticed from data in Colorado that retail cannabis, if it is just considered to be adult use, is much higher in price than cannabis that is being sold to patients. I think patients really get concerned that—especially, if they are legitimately using it for ailments where it is really helping them—if the commercialized market gets too strong, then the price will go up, and they will lose access that way.

GZ: Can you touch a bit more on, you mentioned the home-growing side of things. What did Colorado do on that front?

LK: That was an evolution of policy because, in a lot of ways, the original policy from the early 2000s ended up becoming a commercialized market. When we decided that we were going to license this commercialized market, there was still this policy that existed through a constitutional amendment, and, in a lot of ways, that continued to allow that area or that segment of the industry to still prosper. What ended up happening, we think, is since the commercialized market took a foothold and a lot of buying patterns changed, what was kind of an unregulated grey market turned into an illicit market for moving bulk cannabis outside of the state. The evolution part was we went from no limits on how much a patient could grow for themselves or they could grow for another five patients, as a caregiver, to limiting it to 99 plants per patient, which is still a ton of cannabis, not literally, but it is still a lot of cannabis to have. Then, we reduced it all the way down to now where it is you are allowed to only grow 12 plants in a residence. As soon as you go north of 12 plants, then you have to become a commercialized business.

GZ: What about in Massachusetts? What is the plan there for home growing?

ST: Home-growing is absolutely allowed for everyone over 21 in Massachusetts. I think that should be non-negotiable in any law.

GZ: Has there been any pushback from communities? I know in Canada there is some concern among the provinces and municipalities there in home-growing, or has it been a pretty unanimous support for that?

ST: There was some during the legalization campaign but, really, nobody can point to any evidence that home-growing has caused any kind of problems.

GZ: I want to go back to something you said before we move on, and that was on the equity side of things. I think one part of the rationale for the legalization has concerned the disproportionate impact that drug laws have had on certain communities, so can you just go a bit deeper into what it is Massachusetts is doing to ensure that when the system rolls out, it is fair?

ST: Absolutely. First of all, I think it was really important that our program had to be fair from the start; otherwise, if you put an equity program, it is akin to just a cosmetic diversity plan that does not really do anything. When we started, we did not put any caps on licenses because, in my experience throughout the U.S., when the states that have said we are going to start with 30 licenses, then there is a fight for them, and that has been really bad for equity and that has been really unfair. So, no caps and licenses at the state level, no particular capital requirements, so that people just have to show that they are able to run a business, but they do not have to have $500,000 as it has been in previous states. Our application fees are very low. We have seen application fees as high as $30,000 on a nonrefundable basis. Our application fees are $500. We are starting there.

Then, we go further. People who have had either drug convictions or their parent or their spouse has had a drug conviction or people who are from communities that we have determined through data studies have had disproportionate rates of arrest and incarceration are going to have technical assistance, fee waivers, and, then, most importantly, certain types of licenses, social consumption and delivery licenses that can be started with a lower amount of capital. They are going to have first crack at those types. We just want to make sure that as we get this opportunity, that people of all sizes, businesses of all sizes, have access, and we are not trying to penalize any big businesses, but we are trying to make sure there is room for everyone.

GZ: On the corporate front, is there a responsibility for companies in Canada to respect the cannabis culture and to ensure that there is fairness to people coming up?

WS: Yes. I mean, I hope there is. I think we owe a huge debt of gratitude as people who are now involved in the cannabis sector. We owe a huge debt of gratitude to the early civil disobedience movement of the medical movement and Jonathan is here now with Aurora, probably one of the leading advocates for medical marijuana in the country, so, please, say hello to him. I hope there is an ability for other people to be involved in this.

The challenge is America has life, liberty and the pursuit of happiness. I think you heard that through unlimited license, low access fees, 99 plants. In Canada, the equivalent is peace, order and good government. We love government, and we love regulations. Our equivalents are four plants, and even that is controversial. And there are permit fees for storefronts—I have seen $10,000–$15,000 per store just to qualify. If you want to grow this stuff, and my friends from Aurora can tell you this—$10 million to get a facility going, at least, depending on the size and scope, just to meet all the Health Canada and government regulations that are imposed on us. I am not complaining about it. Cannabis is a controversial product. It is something that we are reintroducing into society after 100 years of prohibition. We need to be able to do it right and, as an industry, we need to earn the trust of the population. By the same token, we are treating this plant a lot harsher than we have treated almost anything else coming to market, including things that are already in market, including alcohol, as a perfect example.

GZ: Lewis, how did Colorado ensure that its rec market was equitable?

LK: I think that is probably one of the biggest things we missed. To Shaleen’s point, if you want to address that issue, now is the best time when you are at the onset of developing and implementing the policy. I think in Colorado, we missed really thinking through how communities were impacted prior to legalization, and we were so focused on that blank sheet of paper that we had in front of us that, to a large extent, we just missed on that.

To our credit, though, I think there has been some change there, especially, with respect to previous convictions for crimes that are no longer illegal in the State of Colorado. There has been a lot of deference paid to people with those types of criminal histories and being able to get them into the marketplace.

What we are seeing though, nationwide—it is kind of exciting, especially in terms of the social justice issues— is Massachusetts or Oakland, California, and a number of other jurisdictions are really moving this issue to the forefront, which is, I think, where it really needs to be. We really need to start thinking at the onset how minority communities, poor-income neighbourhoods that have really been the target of the “drug war” can be engaged in the industry. To the extent that they want to be engaged in the industry, what are the best methods for doing that? Is it to have programs for them to have some form of ownership in the company? Is there some criminal justice reform that needs to occur where they can help to be at least employees within the industry? Are there educational and social programs? In cannabis, there is a lot of high-paying, high-aptitude positions— scientists and horticulturalists and businesspeople, and how do we get the right training for minority communities or members of the minority communities, so that they can participate in some of those positions as well?

GZ: I think on that, we have a few minutes, so I think we can go to the floor for some questions, if people have them.

Questions & Answers

Q: I am wondering if the panelists from Colorado and Massachusetts can speak to banking and how financing the industry is going because in terms of banking in the States, you would have some that would be provincial, which is different than Canada, although, we have a little of that as well, but not with banks, per se?

ST: I can speak to that. That is a great question. Banking is absolutely a challenge, probably our biggest challenge now in Massachusetts. Because cannabis is federally illegal, most banks, or perhaps all banks, do not want to work with cannabis businesses. As much as we, as regulators, have tried to work with them and paid attention to this, we cannot force private businesses to do anything. If you look at it from a commonsense perspective, regardless of how you feel about marijuana legalization, if there are going to be marijuana businesses, they should not be working with cash. Law enforcement agrees; neighbours agree; everybody agrees on that. We do have some federal bills to address this that I hope will do well as this issue progresses and the stigma is reduced. I will let Lewis speak to Colorado, but one thing I have noticed is that as time goes on, I think that banks tend to change their risk analysis.

LK: Yes, that is exactly right. The more mature the regulatory framework, the more likely you are to have ample banking services. We estimate, in Colorado, about 80% or so of the cannabis businesses in the state are banked. Interestingly enough, though, I think we talked a little bit about the advantages Canada has versus the advantages U.S. has. Recently, we were doing some research for a white paper that we wrote, and we talked to a number of money services companies. One thing we were told is that money services—so electronic payment for cannabis—are going to continue to be a challenge for quite some time, in the U.S. Even though we might have typical banking services, and you will likely have that with certainty here, in Canada, there still might be a challenge within the entirety of North America whether or not there can be a lot of electronic transactions that happen. The banking issue might transcend into Canada for that reason as well.

WS: I will just say, briefly, we have a number of advantages here, but the large mainstream banks that are all around us here on Bay St. have been late to the party on this. They are very apprehensive about getting involved in the sector. We are starting to see that now, primarily with BMO. The flipside is the credit unions have really had a whole new business line developed that the banks are not even in. The credit unions are really running the programs in terms of accounts, especially, accounts, right now. We have seen a lot of smaller boutique investment houses that have grown quite large, some cannabis-specific. That, again, is transferring over into some of the banks. I think that that is just part of the evolution of cannabis from illegal to legal and moving from the fringes of society to a something that looks and acts like a more traditional Canadian business.

Q: Hi, Shaleen, I just had a question. You touched on the environmental aspect, and I do not think a lot of jurisdictions are doing that. I know we are not, in Canada, for sure. I am not sure about Colorado, but could you elaborate a bit more on what legislation you have in place for that?

ST: Sure. Massachusetts is considered a leader in the United States on environmental efficiencies, so there was a lot of pressure on us to ensure that the cannabis industry did not jeopardize that. We also have a Global Warming Solutions Act, which requires the state to cut back dramatically on its energy usage. Within that framework and also for the fact that it was the right thing to do, we required cannabis companies to basically use LED lighting at a certain wattage standard, depending on their size of 36 or 50 per square foot. From what I have seen so far, it is really encouraging innovation in lighting, and I hope that other states will follow suit. I will add that we are very open to the idea that this was not exactly the right standard. We have a working group in place that is taking public feedback. We are going to revisit it later this year.

LK: I would just add that one thing we have noticed, and this is fairly anecdotal, but the higher the cost of energy, the more likely a jurisdiction is to really focus on some of the environmental impacts. In Colorado where the cost of energy is considerably less than what it is in Massachusetts and California, there was less attention paid to the environmental aspects, whereas in California and Massachusetts, you see much more attention been given in that direction.

WS: I will just say very briefly, I think that movement is starting in Canada now. I know one of our facilities in the Okanagan Valley, DOJA, is moving to things like LED lights and is very concerned about our packaging and biodegradability of that. I think it is happening. I know folks like Pollution Probe have been asking around about what more can be done in terms of limiting people’s footprint on facilities. The irony is the most expensive electricity in Canada is in Ontario, and most of the licensed producers are in Ontario, because they are in old manufacturing facilities that sat vacant, because the manufacturers could not afford the electricity prices and moved to other places. I think by its very nature, it will come, because it is good business and good for profitability, not just because of a CSR initiative or a mandated policy.

Q: And, of course, advocates like Bill Maher immediately jumped on it and said that is low-hanging fruit and everybody would be great fans of his that are not traditionally in his base. In Canada, we have had the impression that demographics of people that use marijuana or choose to use marijuana and who do not use marijuana, and will not use marijuana, will not change dramatically after legalization. Was that your experience in the United States or were there surprise demographics that emerged of new users that you were not expecting at all?

LK: I can start on that. I promised my business partner I would not mention President Trump in this crowd, so I am so happy that I get a chance to do this, today, to spite him. I would just say that across the board in almost every jurisdiction, we see spikes in use at the onset of sales, and then everything kind of levels off. The most recent data in Colorado would suggest that men still consume cannabis at far greater rates than women, but they have not changed that much since legalization.

On an encouraging note, some of the most recent data on youth use would suggest that there is a statistical decrease in youth use in Colorado. I would say that it is going to stay about the same. There is that 80/20 rule where 20% of consumers consume about 80% of the product. We have seen that with cannabis and alcohol and cigarettes, those types of things. It is going to stay the same. Your demand is what your demand is, and it might grow over time.

ST: I agree with Lewis. I would just add that I have seen some very interesting data that shows that the method of use can change. Some people would be using, for example, joints or smoking flower in the illicit market and then once products like tinctures or edibles are available to them, then they tend to change their usage.

WS: Very quickly, I think we had raw flower legalized in medics in first, so 100% of patients would consume raw flower. As soon as oil was made legal, we saw, almost immediately, that the market was split. Now, oils are taking up more of the capacity for medical patients. I think we will see the same thing in recreational use, over time, especially once the government legalizes concentrates, vape pens, and edibles in 12 months’ time from the legalization.

GZ: On that note, we are going to wrap it up, I think.

BJ: Thank you. I did tell Lewis, at lunch, that despite his president, we did let him cross the border this morning. I do not think Shaleen really needed permission because she has family here. I think it would be remiss if we did not welcome them, so thank you so much for joining us, today. It has been a pleasure having you here.

I am pleased to welcome Andrea Paine from Aurora Cannabis Enterprises, to thank the panelists.

Note of Appreciation, by Andrea Paine, Director of Government Relations, Aurora Cannabis Enterprises

Thanks, everyone, for being here today, and thanks to the Empire Club for hosting a really enlightened and educational forum. I think it is really important that we get more information and education out, and hosting discussions like this will bring cannabis to the forefront and have people understand and governments understand the industry a little more.

Thank you to our panelists for attending, today. It was Aurora’s pleasure, as well, to sponsor the luncheon. I would be remiss if I did not introduce some of my colleagues who are here, today. If you could stand up, Savior, who is our Senior Vice President of Marketing and Promotion; and Shaka, who is with us here as well, who works with Savior; and Jonathan, who is sitting at my table. I believe there is an additional person here. Is there? There is Paula. Paula, if you would stand up. She works with our promotional team and David. Welcome, David. He is new to the Aurora family. One thing we can say about people in the cannabis industry is there is a lot of passion. The passion—I think Will kind of mentioned it— comes from some of the people that have been in the industry for a long time. They have come from the grey markets; they have come from places where it was illegal on both fronts to be involved in the cannabis industry, but they bring with them a passion that has been joined kind of in a hybrid way in our industry by people like many of us who have joined the industry with our expertise and ability to move companies and the cannabis producers ahead. I do not know how many of you, today, are with the cannabis industries, maybe you could do a show of hands? Who here is with…? I think we can all agree that there is a passion there that you do not often see in many other industries today. Congratulations, to all of you. We really are an emerging industry. Just before we sat down for lunch—the way things are going so fast—Québec just passed their cannabis law. It will become legal in Québec to consume. It has been a little bit of a trial in Québec but, nonetheless, it has passed. I think there just remains one province and two territories to pass their legislation, and then the federal legislation, which is now back in the House of Commons.

It is an exciting time for the cannabis industry. Legalizing cannabis for consumer use and putting rules around that and trying to push back a vast and sophisticated black market with a legal, regulated and safer one is really important for Canada. It is an important moment for Canada, it is a good moment for public policy, and it is a good moment for global leadership. Canada is leading the cannabis industry. Just today, Aurora announced that we signed a deal with Anandia. We are really, really incredibly proud of that, because they are considered the industry leader in science, genetics and independent cannabis product testing. Led by Dr. Page, he was the first scientist to sequence the cannabis genome and provide deep insights into the interplay between cannabinoids and terpenes. Anandia intends to expand its R&D product testing and product development facilities to meet the domestic and international demand. This is exciting news for Aurora. It is an acquisition that expands our science capabilities and brings deep science into Aurora. This is just one example. Aurora and other cannabis producers are inventing a new global industry, but more than that, we are leading the way and legalizing cannabis for progress at a global level. Along the way, we are driving important investment, economic development and employment in Canada and in the world. World leaders, today, in other countries are coming to us for our expertise. There is a practical idealism and sense of mission at Aurora and to everyone we bring into the company fold. It is an exciting moment. It is one that changes and grows and diversifies every day. It is one we are super excited to be involved in, and I just wanted to thank you very much for attending today and for your interest. I hope you continue to follow our great story. Feel free to speak to any of my colleagues that are here with me today if you have any questions.

Thank you very much.

Concluding Remarks, by Barbara Jesson

Thank you, Andrea. The Empire Club prides itself of bringing issues to the public forum to share thoughts and experiences. We would not be able to do it without our sponsors. We are so grateful to them. First of all, our event sponsor, Aurora Cannabis Enterprises, thank you so much. To our VIP sponsor, Cassels Brock, and, of course, to our event sponsor, the National Post, thank you all so very, very much. Without sponsors like these great companies, the Empire Club lunches would not be possible, so we are extremely grateful for your generous support.

I would also like to thank mediaevents.ca, Canada’s online event space for webcasting today’s event for thousands of viewers around the world. Thank you to our sponsors and to mediaevents.ca.

Although our club has been around since 1903, we have moved into the 21st century, and we are active on social media. Please, follow us on Twitter at @Empire_Club, and visit us online at www.empireclub.org. You can also follow us on Facebook, LinkedIn and on Instagram.

Finally, please, join us again for our next event on June 18th, featuring the Ontario Post Election Political Landscape Panel, taking place at the Albany Club, here, in Toronto.

Thank you so much for your attendance, today.

This meeting is now adjourned.