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What Buffalo Niagara can learn from Canada's cannabis industry experiment

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A worker inspects marijuana plants at Tweed Farms in Niagara-on-the-Lake, Ont.

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As New York State gets ready to kick off the legal pot industry, cannabis industry professionals from Ontario have a few suggestions to bear in mind.

Put simply, they said: Learn from our mistakes.

It’s been three years since the Cannabis Act of 2018 legalized the growth and sale of marijuana in Canada, and the city of Hamilton has seen both the positives and the negatives from the law and the regulatory framework that was put in place.

The city went from about 80 illicit pot businesses to more than 100 legal retail stores.

There’s been a huge growth in capital investment in greenhouses and production facilities – both from new construction and repurposing abandoned buildings. And there are job opportunities for hundreds of workers.

"When in our lives do we have a chance to join a brand new industry? It’s a fabulous occasion for people to learn new careers, because there aren’t that many people that have experience," said Karine Cousineau, director of government relations and sustainability for the Green Organic Dutchman, a publicly traded cannabis company that was started in Hamilton but is now based in Mississauga.

But there have also been missed opportunities and shortsightedness, a lack of planning, and a failure to think bigger and more broadly about certain impacts, they said.

And they urge New York to be more thoughtful and deliberate.

"The cannabis industry is not for the faint at heart," said George Smitherman, president and CEO of the Cannabis Council of Canada, and former minister of health and deputy premier of Ontario. "So it’s great to see Buffalo Niagara’s focus on this early on."

The Buffalo Niagara Partnership's CEO, Dottie Gallagher, said the Buffalo Niagara region needs to take those lessons to heart.

"As New York and our region moves forward in this new cannabis economy, we have a lot to learn from Hamilton’s experience," Gallagher said as the group hosted an online discussion last week.

Here's six takeaways.

Don't forget the economics

Canada had three central socially oriented priorities when it put together its legalization and regulation plan: keeping marijuana away from its youth, ensuring public health and safety, and replacing the illegal marketplace.

Ensuring companies could succeed was not one of them.

"That was a huge mistake," Cousineau said. "The government has been much busier trying to spend the money from the revenues than trying to help us create more revenue, which is sad."

Instead, Canada overregulated, Cousineau said, believing that it would be easier to loosen later than tighten. So the industry is lobbying for changes as the three-year mandatory review comes up in October.

"It’s an uphill battle," Cousineau said. "We were created by the government with legalization, but sometimes we feel like the cousin that nobody wants to see at the Christmas party. You’re part of the family, but we don’t want to hear too much from you and please don’t make noise."

Meanwhile, despite the social focus, Canada still didn't deal as much with expunging past criminal records and fixing the inequities of the past. And concerns about youth marijuana usage may be overblown in the end.

"We think about cannabis so often with this idea of getting high," Smitherman said. "But if we’ve seen growth in consumption, it’s among seniors. They’re not looking to party with their teenagers."

Watch for business opportunities

It's more than just the direct sales. The area around Hamilton is about 70% agricultural, offering opportunity for growing and production on open farmland. But there are also industrial areas with old buildings that have sat neglected for years, so new cannabis operations create potential for new uses – much like Buffalo.

There are also missed opportunities on the part of Canada's big banks, which have largely shied away from the cannabis industry, despite the billions of dollars involved. So that country's smaller savings and loans and other institutions have stepped into the void.

In the United States, by contrast, the banking industry is already heavily decentralized into regional and community banks, despite a handful of giant institutions. So those smaller banks could build their own business here, in ways that strengthen the communities they serve, Smitherman suggested.

"It’s become a huge part of our economy and there’s no going back from this," said Keanin Loomis, the Central New York native who is president and CEO of the Hamilton Chamber of Commerce. "Once you get the taste of the revenue rolling in, it will become an established part of your community."

Deal with the black market

Illegal operators have been in business for a long time, providing marijuana under the table – literally – for anyone who would pay. And it won't go away with a signature on a bill.

Current estimates in Canada project that the legal marketplace now accounts for about half of the overall cannabis business, but there are some experts who still think there's more illegal activity. And that's despite more than three years and $20 billion of investment in legal production and distribution capacity.

"If there's one thing that runs the risk of being underestimated, it's the entrenched existence of the illegal market," Smitherman said.

The black market is still attractive because it doesn't pay taxes and doesn't comply with regulations.

But it was also ignored, rather than addressed. The industry and government in Canada focused more on building a new infrastructure instead of converting all the smaller illegal growers and dealers into legitimate operations.

It only later created a micro-cultivator or micro-processor license aimed at legacy businesses.

Don't hamstring companies

Overregulation is a big risk.

About 80% of Canada's consumables market still consists of dried flower, because of limits on what can be offered. Edibles can contain no more than 10 milligrams of cannabis apiece, where there's no such limit for the same product on the black market.

Alcoholic beverages are becoming a popular area of focus. Constellation Brands of Rochester invested in one of Canada's largest cannabis firms, Canopy Growth. Molson Coors and Labatt are both active in the space. And Boston brewer Samuel Adams is investing in research in Ontario to create a cannabis-based drink. But they can't call it a "beer" and can't use their brand names because of the rules.

Canadian rules also make it hard for cannabis and noncannabis companies to collaborate for branding, licensing, marketing and manufacturing. You could create a joint venture or partnership, but you have to invest in separate machinery, production lines and even buildings – which is costly. There are even limits on celebrity endorsements.

And that could backfire on Canada, especially with its proximity to Western New York.

"That’s where the big potential is for Buffalo Niagara," Cousineau said. "If Canada is going to be so stringent, there’s a big economic opportunity for you."

Don't overbuild

When Canada unleashed the cannabis industry, it was "like the government gives you a license to print money," Smitherman said. Companies invested heavily in new facilities and infrastructure, including greenhouses.

Now "a lot of these greenhouses are for sale, because we overshot," Smitherman said.

Part of the problem, he said, is that the Canadian regulatory agency, Health Canada, didn't try to evaluate or characterize the potential size of the market, but just allowed free enterprise to run freely.

But that meant they didn't know how big the industry could reasonably grow without diluting the individual companies. And they didn't take strong enough action to weaken or strip away the illegal players.

"We built all the capacity that we could need, and then some," Smitherman said. "Our national government never established any limits on the amount of cannabis that could be grown."

So New York should make sure the industry is right-sized for its market. "You can improve even on the work that we’ve done in Canada," Smitherman said.

Take time to figure it out

There are a lot of complicated issues to understand and questions to work out, so research is important, Loomis said. Survey other communities with prior experience, look for best practices and understand the positives and negatives.

"I wish that I had been able to tap into some expertise from people who went through this just before we did," Loomis said.

Changes are inevitable as the industry evolves. "We are basically building a plane and flying it at the same time, and we don’t have the flight plan because it changes," said Cousineau.

Still, not everyone will agree or support cannabis legalization, and political fights are expected. Cousineau’s company had planned a much bigger operation in Hamilton but moved a lot of its capacity to another province because the city at first “didn’t want to have anything to do with legal cannabis."

It took heavy lobbying by the chamber to change just enough votes to stop Hamilton from opting out. But Mississauga still opted out.

"It’s really a matter of prudishness vs. prudence," Loomis said. "This is endemic everywhere, but especially in government."

A survey last week found that 80% of the Canadian population approved of legalized pot.

"If you’re a kid and your grandparents are talking about taking it, it’s boring," Cousineau said. "The only people still obsessed with cannabis are politicians."

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