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Being a pot dealer is not what it used to be

Sunday Big Read: the business of selling marijuana in B.C. is a slow bureaucratic slog
Cannabis retail store rezoning application (Cole Schisler photo)

After 10 years, Dana Larsen’s high-profile dispensary on East Hastings Street in Vancouver was forced to end all sales of cannabis or be held in contempt of court.

It was one of several illicit dispensaries operating in the city ordered to close by the B.C. Supreme Court. A similar fate is expected for many similar B.C. operations that fail to obtain a provincial license.

Larsen’s other dispensary on Thurlow Street in downtown Vancouver does have a development permit and continues to serve customers.

“Now we have huge lineups there, as all of our customers from the downtown eastside have to truck over there to buy their cannabis, which to me, is kind of absurd,” Larsen said.

Larsen is one of Vancouver’s most prominent cannabis advocates.

He is the co-founder of the Vancouver seed bank, an organization that gave growers access to cannabis seeds. He also helped organize the first ever 4/20 celebrations in Vancouver, and has published several books about cannabis. He has spent most of his life advocating for legal cannabis in Canada.

But now that legalization has happened, Larsen is left feeling disappointed.

“In your imagination you think there’s going to be a day where they announce they were wrong and you were right, and prohibition was a racist, bigoted, ignorant bunch of nonsense that never should have started, but that day is probably still a long way away. This kind of corporatized, punitive, and restrictive cannabis, if you look historically, I suppose it’s not surprising,” Larsen said.

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Since legalization, many Canadians have taken to social media to express concerns around cannabis regulations ranging from quality, to fair access, and lack of retail locations.

As it stands now, only licensed retailers are permitted to sell cannabis, and that cannabis must come from a licensed producer. Retailers must also navigate a complex approval process that relies heavily on municipal governments. These regulations have led the B.C. government to adjust their estimated cannabis revenues from $200 million to $68 million.

Many dispensaries have remained open in spite of the regulations.

One of those retailers is Trees, a dispensary chain based on Vancouver Island. Trees operates eight locations — five in Victoria, two in Nanaimo, and one in Vancouver’s downtown eastside.

It began with three cannabis compassion clubs in 2014: the Vancouver Island Health Advocacy Centre in Nanaimo, Shiva Compassion Society in Victoria, and the Dank Bank which was also in Victoria.

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The owners ran into financial trouble when they were audited by the Canadian Revenue Agency. But an investor from Vancouver saw that Trees would be a potentially successful business model, and moved to buy the compassion clubs in January 2015.

Shortly after the investment, Alex Robb, a PhD student from the University of Victoria was hired at Trees. He worked his way through the company to become the CEO, and has guided Trees through the process of licensing all their locations.

According to Robb the system is fairly complex.

Dispensaries must make an application to the Liquor and Cannabis Regulation Branch, (LCRB) to open a retail store. The LCRB returns the completed application to the local government, and the location must be approved for rezoning.

If rezoning is approved, the application goes back to the LCRB for the business to be deemed “fit and proper.”

The dispensary must then notify all residents and businesses within 50 metres about the opening of a store. Public feedback is brought to the municipal government which gives the final note of approval to the province. If the municipal government approves a location, the LRCB then approves or rejects the license.

Once the license is approved, municipalities can issue a business license and dispensaries can operate with their license to order cannabis from the Liquor Distribution Branch, (BCLDB). Orders have been plagued by supply shortages and have left some dispensaries unable to meet demand.

The process may vary throughout B.C. as different municipalities have different regulations and bylaws.

“This was one of the reasons for B.C.’s delays,” Robb said. “The B.C. government decided they wanted to create a system where the local governments had a lot of say in the land use, zoning, and the rules by which a cannabis retail store would be run.”

“Then there were the municipal elections in September. So, a lot of cities, not only did they not have a chance to get the rules in place that would determine how they would choose zoning, or land use for cannabis, but there was also a whole new slate of city councillors elected that had to be educated on the issue, and what their powers as local government are.”

Trees is currently at the stage of financial background checks with the province, and has provided all business records spanning their four year history.

“They want to know that you’re financially able and the money doesn’t come from organized crime,” Robb said. “Trees has been in operation since 2015, so we have four and a half years of business history. We had to go back and find the loans, from a grower actually, that launched the business in the first place.”

To date, Trees has spent hundreds of thousands of dollars to get its eight locations licensed. Robb broke down the licensing costs for one location in Victoria to give an example.

“The application for the license provincially was $7,500. The application for the rezoning was $7,500. Once you’re rezoned, you have to schedule a public hearing, which is an additional $2,000. Then there’s an additional $1,500 licence fee after they’ve approved you in principle,” he said.

“So it’s $15,000 to apply, then if you get past a certain step it’s an additional $5,000. The applications alone are $20,000. Then you have to pay architect’s fees, legal fees, so you’re looking at about $8,000 in professional fees. I’d say it’s about $30,000 just to get the application together.”

After the approval process, Robb said businesses would want $60,000 to $100,000 to purchase inventory for the BCLDB. Altogether, one store could cost a minimum of $200,000.

RELATED: Little change seen in Victoria a month after cannabis legalization

These costs create a higher barrier for investors and entrepreneurs looking to enter the industry, however they are comparable to opening a private liquor store.

In typical retail businesses like a cafe or restaurant, the fees are much lower, and businesses often open quickly after their application is approved. With cannabis retailers, the costs are far greater, and the approval process could leave businesses waiting a year or longer. An added challenge is that most banks will not give loans to entrepreneurs wanting to open cannabis stores.

The delays associated with licensing a cannabis store are part of the reason why Trees has remained open, despite technically being an illicit retailer.

“We’ve continued to operate because we had been operating for four years. We’ve been proceeding through the application process, we are anticipating being licensed in a matter of weeks,” Robb said. “The reason we decided not to close down was we saw the process was going to take several months. And we saw that the election cycle was coming for municipal governments.”

“We employ 170 people. We’re a significant hub of south Vancouver Island’s economic activity in terms of the ongoing cannabis economy. We have nine different leases that we have to pay, so to close down without knowing we would be able to open in two months, or six months, or nine months — it turned out the first store to be licensed in Victoria was six months — we’re hoping we can be licensed nine months after legalization.”

Trees’ decision to remain open likely won’t impact their application, as the municipalities where their stores operate have allowed them to do so.

All products sold at Trees are sourced from a network of unlicensed growers on Vancouver Island. This means that all cannabis products currently sold at Trees are illegal under the federal Cannabis Act and the Cannabis Control Licensing Act of B.C. Once they become licensed they will only sell BCLDB products.

The Ministry of Public safety said in a statement that all legal non-medical cannabis has an excise stamp attached to its packaging, and products without the stamp are not legal for sale in B.C. This could leave customers liable for a $575 fine for purchasing illicit cannabis from a dispensary, with a potential maximum fine of $10,000 and up to 6 months in prison, or both.

Robb says that’s a risk most consumers are aware of and willing to take.

“I absolutely am certain they are aware. We train all of our staff to explain we are in the process of being licensed, we’re still open because we’ve been open for years serving the community in this area, and we’re continuing to do so while our license is in process. We make no claim to be a licensed store, and I think that everybody probably knows that we’re not,” Robb said.

Despite operating illegally for four and a half years, Trees has consistently paid all relevant taxes. They have paid GST for their entire period of operation, as well as corporate income taxes and payroll remittance. Since legalization on October 17, they have paid a little over $1 million in PST. The government would not accept PST from cannabis sales prior to legalization.

RELATED: B.C. pot shop owner says cannabis licensing process wasn’t easy

While Trees is likely to be approved by the provincial government, not all legacy cannabis stores are so hopeful.

Richard Scott is the owner of The Globe in Nanaimo, a heritage hotel steps away from the Nanaimo courthouse that has at times been a hotel, public house, strip club, and cannabis compassion club.

The Globe has been a “cannabis friendly” establishment since 2015 when it opened as an illicit dispensary and compassion club. It was raided by the RCMP in December 2015, although no charges were brought and the Globe reopened one day after the raid occurred.

Scott says he isn’t holding his breath when it comes to the Globe’s pending dispensary license. The operation has been approved by Nanaimo’s municipal government, but Scott suspects the province will ultimately deny his application.

In the meantime, he has ceased selling cannabis and operates the Globe as a cannabis-friendly hotel with an auxiliary restaurant and lounge. Municipal bylaws do not allow for smoking inside restaurants, a bylaw that many have said will prevent B.C. from opening cannabis cafes and compassion lounges. Scott says the key to avoiding trouble with the bylaw is by being neighbourly.

“It’s been quite smooth. We tend to be neighbourly. We’re right next door to the courthouse, so if we were going to get any complaints it’d be from them.”

“I try to keep the smell down until after five, and I tell everybody that comes in that we don’t smoke flower until after five. If the cannabis smoke was to go wafting through the courthouse, the judge would shut us down in a day,” he said.

Scott believes that there needs to be more compassion clubs like the Globe to give cannabis users a safe space where they can consume cannabis. It is common for landlords and property managers to restrict cannabis use. Some municipalities have banned the consumption of cannabis in public spaces, while others have ruled that cannabis can be smoked anywhere cigarettes can be smoked. Nanaimo is one of the municipalities that allows cannabis to be smoked in public.

“Do we really want to have more people smoking on the streets? Do we want people sitting in the park with their bongs smoking dabs out in plain view for the kids to see? If we want to hide it from the kids, which is the idea of legalization, then where do people go? Well there has to be pubs, public houses for safe consumption,” Scott said.

As unlicensed dispensaries wait for approval from municipal and provincial governments, Community Safety Unit (CSU) officers have begun visiting unlicensed retailers to raise awareness about cannabis laws, and the consequences for violating them. The Ministry of Public Safety expects many unlicensed locations will close voluntarily as more licensed retailers appear in the province.

CSU officers did visit Larsen’s Vancouver dispensary before it was closed.

“I think most people like dispensaries and if they were just to come and raid everybody, especially in Vancouver, there’d be a lot of pushback. I think that’s why they’ve created this system where they have allowed more places to operate with development permits, even though they’re selling ‘illicit’ cannabis,” Larsen said.

For Larsen, the current state of legalized cannabis is just another step toward improved access for all Canadians.

“I hope that we get a government that will acknowledge that cannabis was good and prohibition was wrong,” he said. “Even though we’re seeing a lot of dispensaries shutting down, and things evolving, if you look back a couple years ago there were 100 dispensaries in Vancouver. If you look back a few years earlier than that, there were three. Now there’s 25 in the process, and six that are government regulated.

“Even though there’s a lot of flaws there, to me that still looks like we’re winning.”