Canada's legal marijuana rollout has been plagued with out-of-control lines and distribution issues - and people are turning to the black market

Jeremy Berke

Oct 31, 2018, 21:30 IST

Canada's legal marijuana rollout has been plagued with out-of-control lines and distribution issues - and people are turning to the black market

Ian Willms/Getty Images

Cannabis users congregate at Trinity Bellwoods Park for a 'smoke out' on October 17, 2018 in Toronto, Canada. Canada became the second country in the world after Uruguay and the first G7 nation to legalize cannabis use on Wednesday.

Canada officially legalized marijuana, but people across the country have had a tough time accessing the product legally.
Canadians are turning to the black market to pick up where provincially-run retailers have dropped the ball.
In Toronto, Canada's most populous city, the black market has seen "new life breathed into it."

TORONTO, ONTARIO - Canada officially legalized marijuana on October 17, but Canadians across the country have had a tough time getting their hands on the product - legally, that is.

Patrick and Michael, 26-year-old roommates in downtown Toronto, have had a somewhat typical post-legalization experience (last names withheld because they purchased illegal marijuana).

The pair, who work at a tech startup and in commercial banking respectively, recently ordered $75 worth of marijuana from the Ontario Cannabis Store's website. The OCS - the provincially-run body that supplies Ontario residents with legal marijuana - sent the roommates a confirmation email that their order would be processed and delivered to their condo in one to three days. It would be just in time for Friday night festivities.

Friday came and went, and they heard nothing from the OCS.

"It's brutal," Patrick said. "No confirmation or updates or anything." That delay in communication forced the pair to hit up an illegal marijuana dealer.

The supplier met them at a restaurant on trendy Ossington Street within 40 minutes of sending a text. Patrick and Michael bought $40 worth of a potent strain, and the dealer threw in a free joint.

Business, the dealer told Patrick, was "booming" after legalization.

It's a strange conundrum. Selling the marijuana to Pat and Mike was illegal, but once in their possession, the pair could legally consume the product.

In the grand scheme of things, Patrick and Mike said waiting a few extra days to get their marijuana wasn't really a big deal. But for medical patients who need their marijuana daily - and the global financial community eagerly watching how this all plays out in Canada - it's not good a look.

The OCS finally delivered Patrick and Mike's legal marijuana on Tuesday morning, days after it was supposed to arrive.

REUTERS/Christinne Muschi

A man shows off his cannabis purchase outside the Quebec Cannabis Society (SQDC) store, on the day Canada legalizes recreational marijuana, in Montreal, Quebec, Canada

The rollout of legal marijuana in Canada has been bumpy

The rollout of legal marijuana in Ontario has been bumpy, to say the least. The former provincial government, under Liberal Premier Kathleen Wynne, set up a plan to open a number of brick-and-mortar OCS outlets throughout the city of Toronto and across the province - Canada's most populous - on October 17.

When now-Premier Doug Ford took over the provincial government at the end of June, his Conservative party scrapped the Liberal plan entirely.

The party settled on a strategy to run marijuana sales online-only on October 17, the day legalization went into effect, with a plan to allow private retailers to open pot shops in April 2019.

Under provincial law, the OCS is the only vendor allowed to sell marijuana until retail licenses are processed and issued next year.

The OCS has also created strict packaging rules around the marijuana products they sell.

Prior to legalization, there were a number of "medical" marijuana dispensaries operating in the city of Toronto where people could purchase marijuana, albeit under a murky legal framework. These ranged from sketchy to surprisingly upscale, with deep product inventory and knowledgeable sales reps.

To send a message, the Toronto Police Service raided five of them earlier in October, forcing many to close down to avoid jeopardizing their chances of getting a coveted retail license.

And while regulators figured Ontarians could make do with online-only sales until April, there were some unforeseen variables - as with any massive social policy shift.

AP Photo/Ted S. Warren

Devin Melnyk, a long-time marijuana grower and a consultant with Pure Sunfarms, holds trimmed marijuana as it comes out of a high-volume cannabis trimming machine at a massive tomato greenhouse being renovated to grow pot in Delta, British Columbia.

Canada Post goes on strike, and customers are left in the dust

As the OCS contended with a flood of over 150,000 marijuana orders during the first week of legalization, Canada's postal service decided to begin rotating strikes. There was no one to deliver packages to Ontario residents who had ordered marijuana legally as a result.

On top of that, some of the licensed producers in Canada had earlier warned that there would be supply chain issues providing the amount of marijuana the provinces requested, according to The Financial Post. And a quick scan through the OCS store on Saturday showed that to be the case. Most products were either sold out entirely or had a limited supply left.

I visited one dispensary - decked out in psychedelic colors - that had a few guys in their mid-20s sitting behind a counter. "We have nothing to sell you, bro," they told Business Insider, unprompted. "We're all out in the back. We're hoping to get a license so we can reopen next year."

A dispensary on Queen Street East, one of Toronto's major thoroughfares, had the feeling of an illicit drug market. To get in, you buzzed a door while you were evaluated on a security camera. Once through, you had to hold up your ID against a small window of bulletproof glass.

Then another door was unlocked, and you entered a small interior room, where two young employees - behind another set of bulletproof glass - presided over jars of marijuana labeled with names like "Alien O.G." and "Bubble Kush." This was not a legal operation. Nor was it an operation that would bring any new customers into the fold.

Customers are irate - and so are analysts

All this has led some customers to file formal complaints with the Ontario government. Others are speaking out on social media platforms about how OCS dropped the ball on their orders.

"Canada Post was never the issue here though... This is all just bullsh-t they keep feeding us using them as an excuse," one Twitter user said on Sunday.

The OCS released a statement on Sunday that said there was "adequate product supply," and pinned some of the blame on the "mail and package backlog" at Canada Post.

"Efficiencies and ways to further expand capacity at the OCS distribution facility continue to be made to help meet the massive demand. Our staff continues to work around the clock to fulfill customer orders and respond to customer inquiries and calls," the OCS said.

The story is the same in other provinces. In British Columbia, the only legal dispensary open for recreational consumers on legalization day was not in Vancouver, by far the province's most populous city, but in Kamloops, a small town of about 90,000 people in the center of the province.

REUTERS/Carlos Osorio

Small marijuana plants grow in a lab at the new Commercial Cannabis Production Program at Niagara College in Niagara-on-the-Lake, Ontario, Canada, October 9, 2018

In Quebec, the province's provincial retailer said on Friday it would close all 12 of its stores between Monday and Wednesday until the supply chain issues were ironed out. The Canadian Press reported Quebec residents waited hours in line, only to enter a store with no products on its shelves.

GMP Securities, a Toronto-based investment firm, blamed the rocky rollout and distribution issues for the recent selloff in Canadian pot stocks.

"The extremely limited distribution network in many provinces, fulfillment challenges in Ontario, inventory shortage in Quebec and LPs coping with limited availability of excise stamps may take several months to be resolved," GMP Securities analyst Martin Landry said in a Monday note to clients.

"It becomes increasingly clear that recreational cannabis sales in 2018 will be much lower than previously expected," Landry said.

Canada's still working out the kinks

The whole point of marijuana legalization in Canada was to eradicate the black market and make it more difficult for kids under age of 18 to access the drug.

"The grey market is getting a little bit of new life breathed into it," Emma Baron, the founder of the Toronto-based cannabis accessories brand Milkweed, told Business Insider. The grey market refers to the dispensaries and dealers who are capitalizing on the murky area between legal sales and illicit sales.

"The province has set the bar as low as it possibly can," Baron said. "To be fair, they also haven't been in the marijuana-dealing business before. They're working out the practicalities."

But still, it's given savvy dealers a leg-up, Baron said. "Your go-to guy from way back is powering up his cell phone again," she said.

According to Jay Rosenthal, who runs Business of Cannab, a business-to-business news and policy platform for Canada's cannabis industry, the rocky rollout was to be expected.

"This is a transformational social policy shift," Rosenthal told Business Insider. "These are such early days. How could you not work out the kinks?"