Retail marijuana businesses are sprouting across Vancouver. And they’re not legal

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As a franchise lawyer in Vancouver, you wouldn't believe the number of calls I get from people who want to establish a chain of franchised retail marijuana outlets.

Retail medical marijuana "dispensaries" seem to sprouting like weeds all over Metro Vancouver, causing Vancouver Sun columnist Daphne Bramham to whimsically write that it's easier to buy a joint in the city than a loaf of bread. There are almost 90 retail marijuana stores in Vancouver alone, with more cropping up every week. If you're thinking about owning and operating a retail marijuana business, or leasing commercial space to a retail marijuana business whether in British Columbia or elsewhere in Canada, there are things that you should know.

First and foremost is that the possession and sale of marijuana is contrary to sections 4 and 5 of the Controlled Drug and Substances Act (CDSA). The only exception is so-called "medical marijuana" and it's only "medical marijuana" if it's distributed by mail through registered producers licensed under the Marihuana for Medical Purposes Regulations (MMPR) to persons with a physician's prescription who have registered under the MMPR. There are 18 fully authorized licensed producers and 7 licensed cultivators in Canada. A list of licensed producers is available on Health Canada's medical marijuana page here. The process for registering and obtaining your medical marijuana under the MMPR is here.

This is the only legal way that marijuana can be bought and sold in Canada. So if a retail marijuana outlet is receiving its inventory of marijuana from an authorized producer, then the producer is breaking the law by selling to the retailer, rather than to registered individuals with prescriptions through the mail. Additionally, the retailer is breaking the law because it's selling to consumers in a retail store environment when the sale should be directly between the authorized producer and the patient, again by mail.

In short, there shouldn't be a retailer at all, and there's no way a retailer can be operating a legal business without contravening section 4 or 5 of the CDSA. Period.

Certainly the growth of retail marijuana dispensaries in Vancouver stems from those who want to legitimize the sale and use of the drug, and from marijuana entrepreneurs who want to make money from its legalization. The retail marijuana outlets are normally called "dispensaries" (outraging the pharmacists) and marijuana proponents regularly give media interviews where the word "marijuana" is interchanged with the word "medicine" (imagine someone claiming that tobacco and alcohol were medicine?)

Although many of the retail outlets won't dispense marijuana without a "recommendation" from a doctor, I'm advised by those who know, that the dispensary will refer the "patient" to a nearby or in-house naturopath who will prescribe medical marijuana to treat anything from irritable bowel syndrome to stress.

But give credit where credit is due: The business model is a brilliant exercise in both civil disobedience and spin doctoring and should be a case study at the Harvard Business School.

Staff at the City of Vancouver have proposed to council a licensing regime under which retail medical marijuana outlets would be regulated. The regulations would prevent stores from establishing within 300 metres of a school, community centre, neighborhood house or other marijuana businesses. A licensing fee of $30,000 would be charged (ostensibly to recover costs the city would incur to enforce the new regulatory system). Proprietors would have to execute a "good neighbour agreement" with the city and a development permit process involving community involvement – analogous in some ways to community involvement in the establishment of bars and pubs – would be instigated. Finally, zoning restrictions would limit the location of retail marijuana outlets to commercial areas and there would be a comprehensive three-stage review process before license would be granted.

A public hearing regarding the City of Vancouver's proposed regulations for medical marijuana dispensaries will be held at City Hall on Wednesday, June 10 at 6 p.m.

Even though I may think that marijuana is safer than alcohol (which I do) and that it will be a cash cow for all levels of government if and when it's legalized (which it will), the city cannot regulate the retail sale of marijuana. It's 'Reefer Madness' on the part of city officials.

Why is the city trying to license an illegal business? It would seem city council would prefer marijuana users to obtain their supply from licensed outlets, which it can regulate, monitor, charge fees for (and, if necessary, close). From the city's perspective, it's better to have marijuana sold in a licensed and lawful manner than for the drug to be distributed underground in back alleys and schoolyards.

Mind you, how can it expect any legitimate business to comply with Vancouver's other bylaws if it's breaking federal criminal law? Because that's what's going on. Indeed, the City of Vancouver may find that the $30,000 it proposes to take as a licensing fee amounts to "proceeds of crime" under the Criminal Code and that the city is a conspirator in illegal drug trafficking. (Watch property taxes go up in Vancouver to cover the city's legal expenses if that happens!).

The Vancouver Police have taken the position that in terms of priorities, they are more concerned with violent drug traffickers and those who target youth and the marginalized – and of course, the usual gang violence that plagues the region. And frankly, there are bigger fish to fry than storefront marijuana operators pushing the envelope towards decriminalization and legitimacy.

Nevertheless, after a 15-year-old youth was hospitalized in April for apparently purchasing something akin to a hash brownie from a retail marijuana store, the Vancouver Police have been more vigilant, and briefly arrested the operators of the store that sold the boy the product. Charges have not yet been laid.

And in early June, Health Canada wrote a warning letter to Vancouver radio station CKNW to stop promoting a retail marijuana store on air, stating that the outlet was and illegal business and that advertising marijuana for any purpose is contrary to law.

So if you think you want to go into this business in Vancouver (or rent to someone who does), unless the federal law is changed, a retail marijuana outlet is a risky business with a precarious shelf life. The stores face closure if and when the law is enforced, and operators could face criminal prosecution. Individuals paying the proposed $30,000 licensing fee may see their investment literally go up in smoke.

Landlords who have rented commercial space to retail marijuana outlets will find themselves without a tenant if and when the shops are closed down. And insurance companies may well decline insurance for illegal businesses such as retail pot shops, and this may affect a landlord's ability to insure the entire building.

It gets worse. B.C.'s Civil Forfeiture Act may be triggered, whereby landlords could lose title to their property if they have rented premises to a person or entity involved in an unlawful activity on those premises. Radio and TV stations which advertise retail marijuana outlets on-air risk legal action and perhaps their broadcast licenses. Even lawyers should be careful because they should not be advising on the establishment of businesses that are illegal.

Needless to say, people shouldn't be franchising these businesses quite yet.

Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, he is an adjunct professor at Simon Fraser University (SFU), and he is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.

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