Island ‘potpreneurs’ and their expensive marijuana bunkers

Past a barbed-wire fence and motion sensors, and under the gaze of 31 cameras, Shawn Galbraith opens the door to a two-storey, windowless concrete structure amid the lush Central Saanich farmland. It’s the region’s worst-kept secret: a medical marijuana facility on Lochside Drive, next to the family-owned Michell’s Farm.

The head of the operation, Galbraith, has been reluctant to offer media tours because his company, Evergreen Medicinal Supply Inc., is in the final stage of Health Canada’s approval process, a complicated 18-month journey that he doesn’t want to jeopardize.

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Other prospective medical-marijuana operations — CEN Biotech is the most high-profile case — have had their applications rejected for misleading investors to believe they were already licensed or on the verge of being licensed by Health Canada. So Galbraith, a 53-year-old former contractor, is being cautious.

In fact, cautious optimism has been his attitude the whole way. He acknowledges the risk of investing $1.5 million before getting the green light from Health Canada, but is well aware of the rewards that could come with getting in on the ground floor of this budding industry.

On a sunny day in March, Galbraith and his wife Denise, a registered herbal therapist and the company’s quality-assurance officer, walk through the cloning room, drying room, shipping and receiving areas — all of which require security cards for access.

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They finally reach the pièce de résistance, a walk-in bank-style vault, where the finished product will be stored behind six-inch-thick steel doors. It’s set far enough back from the outer wall to ensure that even if someone manages to drive a car through the concrete walls, they still wouldn’t pierce the vault. The building even has a panic button and a muster room.

“We found the land and sited the building with consideration to the criteria most important to Health Canada, which seemed to be security, security security,” Galbraith said.

The couple partnered with a local real estate agent to buy the land and have hired a retired Victoria-based RCMP officer with experience in drug enforcement to be one of the company’s directors.

Despite its meticulously planned layout and security features, this is just the prototype building. Galbraith has plans to talk to Central Saanich council about expanding the 5,500-square-foot facility.

“You can’t get serious in this business unless you’re producing in the tens of thousands of kilograms,” Galbraith said. “You just need to have the scale to offer the different types of strains that patients want and to drive the cost down.”

Pot potential everywhere: The potpreneurs

The types of prospective medical marijuana grow-ops across the south Island are as varied as strains of cannabis.

There are high-visibility facilities built by local businesspeople who prefer to stay out of the limelight.

There’s a massive pot factory in Nanaimo run by a private equity firm that is bullish about the industry and the opportunities for job creation.

And there are grey-market marijuana dispensaries flying under the radar until the courts decide whether they’re legal or not.

Municipal councils have to decide whether they want to welcome medical-marijuana facilities, giving them a stake in the green rush, or whether they close the gates and say: “Not in our backyard.”

One year after Health Canada changed the rules to encourage large-scale commercial production over small, home-based growing, only 23 producers have been issued licences.

Out of 1,224 applications, 320 are still in progress, 623 were incomplete, 223 were refused and 35 were withdrawn. Hundreds of prospective “potpreneurs” remain in regulatory limbo, many complaining that Health Canada’s approval process is slow, confusing and arbitrary.

Applicants must satisfy a list of strict conditions, which include tight security measures and equipment to control odours.

Health Canada does not recognize marijuana as an approved medicine (its involvement in providing medical marijuana has been forced by the courts) and its website features bold warnings about the drug’s harmful side-effects.

Proponents of pot therapy tout its positive results for patients suffering from ailments such as multiple sclerosis, glaucoma, epilepsy, Crohn’s disease, colitis and chronic pain. It has also been recommended to ease the side-effects of chemotherapy for cancer patients.

Almost half of Canada’s 37,000 licensed medical-marijuana patients live in B.C., and Health Canada predicts the number of patients seeking medical marijuana will sprout to 400,000 in the next decade.

Before the laws changed on April 1, 2014, medical-marijuana users licensed by Health Canada were able to get their pot by buying it directly from a Health Canada supplier at $5 a gram, growing it themselves or having it provided by a small-scale designated grower. Under the new scheme, Health Canada said patients have to order marijuana by mail from one of the approved commercial facilities.

But four patients fighting for the right to grow pot in their homes for medicinal purposes have launched a constitutional challenge that is now before the Federal Court in Vancouver. Patients who are low-income or on disability pensions have also raised concerns they won’t be able to afford the pot grown by licensed producers.

A judge imposed a temporary injunction that allows patients to continue growing their own marijuana until the court case is concluded.

“It’s certainly turbulent times,” said Kirk Tousaw, the Vancouver-based lawyer representing the patients. He’s bracing himself for a years-long battle as he expects that case to reach the Supreme Court of Canada.

It all leaves the medical marijuana industry fraught with uncertainty.

“I think it’s a period of significant legal and social upheaval in the area of access to medical cannabis,” Tousaw said.

Many commercial producers, including Galbraith, are betting on eventual legalization of marijuana to shift the profits away from shady drug dealers on the black market and into the pockets of legitimate businesses and governments that can tax pot like alcohol and tobacco. That could quickly transform a billion-dollar industry into a multibillion-dollar industry before the pot smoke settles.

South Island sprouting: Central Saanich’s field of controversy

The facility is built and money is invested, but Galbraith still doesn’t know when Evergreen Medicinal Supply Inc. will be open for business.

Evergreen’s application has crawled through the system over the last 18 months, with Galbraith still waiting for the final on-site inspection that would give him the green light to grow.

Last spring, Galbraith was under the impression an inspection was imminent, so he hired 10 employees — quality-control, growing staff and customer care — who were trained and ready to operate by June 1. As August rolled around without an inspection, Galbraith had to lay off the staff.

In November 2014, Galbraith was told the company had passed all its security clearances and now was in an additional review process, which didn’t exist before.

“We’ve been told a number of times we’re in this review stage,” he said.

The complicated regulatory process means prospective growers have to invest a lot of money upfront without knowing whether they’ll actually get a licence.

Galbraith and his partners have invested $1.5 million: $1.2 million to build the facility and $300,000 for staffing and other costs.

“We recognize the significant challenges faced by Health Canada in the implementation of this important new industry, and wish to acknowledge the professionals on our team who have remained committed and enthusiastic throughout this lengthy process,” Galbraith said.

“Although there have been many times we as a group have scratched our heads and endured, make no mistake that this is a chance to make real change in people’s lives and we are pleased to have an opportunity to play a role in this remarkable emerging industry.”

Its next-door neighbour, family-owned Michell’s Farm, is unhappy about the project. Vern Michell said the stark concrete facade is out of place in the agricultural landscape. “Everyone that is a neighbour here opposes how ugly it is,” Michell said. “This does not fit into the beautiful field across the valley.”

Michell is also concerned about possible odours wafting over to the farm, which includes a market and pumpkin patch for kids.

Galbraith said the facility has state-of-the-art air scrubbers, which will keep the pot smell from seeping out.

Central Saanich Mayor Ryan Windsor said if the facility meets building code and zoning requirements, “esthetics are a difficult thing to regulate.”

Because the facility is in the Agricultural Land Reserve, it did not require municipal approval.

“I wouldn’t say there’s either caution or enthusiasm from Central Saanich,” Windsor said. “I think we’re in a wait-and-see position more than anything.”

Juan de Fuca electoral area: Land, not water

Medijuana Products Ltd. has received the go-ahead to turn a warehouse into a medical grow-operation in an industrial business park at 6-7450 Butler Rd. Mike Hicks, director of Juan de Fuca Electoral Area, will have a front-row seat to watch the operations unfold, as the facility is located next door to the electoral area’s new headquarters in Otter Point.

Hicks said any future applicants have to go through a site-specific rezoning as a medical marijuana facility. “We would welcome the jobs if the immediate neighbours are OK with it, so we have a spot-zoning [process] for it,” Hicks said.

At one point, the electoral area was courted by a group that wanted to set up a 40,000-square-foot facility in the business park, which would have created 30 to 40 jobs in Otter Point. The plan was scrapped when the company determined there wasn’t an adequate water supply to tend to the crop.

“We have a lot of land, but what we don’t have a lot of out here is water,” Hicks said. “So Juan de Fuca isn’t the most ideal place in the world to have a grow-op.”

Victoria: Field of green dispensaries

Without an abundance of agricultural or industrial land, potential pot growers haven’t set their sights on Victoria just yet. But the capital is ground zero for dispensaries and compassion clubs, where medical-marijuana users can bring in a prescription or see an on-site physician and walk out with their meds.

While they’re technically illegal, dozens of dispensaries have sprouted up in Vancouver, and police there have turned a blind eye, saying it’s not an enforcement priority.

About 15 exist in Victoria, operating without a business licence which could net a $250-a-day fine. “The city has ticketed two businesses and is following up on complaints about a third,” said City of Victoria spokeswoman Katie Hamilton.

Kyle Cheyne runs Leaf Compassion Society, located on the ground floor of a professional building that houses doctors’ offices and medical services on Oak Bay Avenue. He has been up-front with his landlord, City of Victoria bylaw officers and Victoria police about the nature of his business since he opened in August.

“If this was wrong, the cops could have shut me down the first day I opened up. We’re very upfront and we’re not hiding anything,” Cheyne said. “We’re a resource centre. We’re here to help people.”

Cheyne has had a few complaints from neighbouring businesses about the skunky smell of marijuana wafting to other parts of the building, but he said he’s working hard to address that by installing new air scrubbing filters.

Cheyne, the son of a former undercover police officer, knows the risks of what he’s doing. “If the law doesn’t change, I can go to jail,” he said. “But we’re going to continue to grow and it’s amazing to be a part of it. It’s pioneering.”

Victoria police said they are aware of the dispensaries in town.

“We are working with our partners at the City of Victoria, Health Canada, and the Public Prosecution Service of Canada to determine a co-ordinated approach to this development,” said Victoria Police Deputy Chief Steve Ing.

He said the department is closely watching the outcome of the constitutional challenge around medical marijuana distribution.

Victoria Mayor Lisa Helps said the police have better things to do than raid dispensaries. “I would like to see this continue to be a regulatory medical issue rather than something our police need to find ways to work through.”

In December 2009, Victoria police raided the apartment of Owen Smith, who was baking pot cookies for the Victoria Cannabis Buyers Club. Smith was acquitted of drug-possession charges after a B.C. Supreme Court judge sided with Smith’s defence lawyer, who argued the federal regulations were unconstitutional because they do not allow patients to use cannabis extracts, restricting them to dried marijuana only.

The federal prosecutors appealed twice, taking the fight to access pot cookies to the Supreme Court of Canada. Legal arguments kicked off on March 20.

Saanich: In commerce circle, a new type of commerce

Nestled among a row of industrial buildings in Saanich’s Commerce Circle, you’ll find Thunderbird Biomedical Inc., a medical-marijuana plant that dubs itself “Vancouver Island’s first commercial facility.”

The company had to go through a re-zoning process with Saanich before it could turn an existing industrial building into a medical grow-op. The issue went to a public hearing and council endorsed the project. The zoning amendment is awaiting final reading.

A Thunderbird executive told councillors the company has stringent security measures that include dozens of surveillance cameras.

The company said it was in the middle of financing work and not ready to do media interviews.

Thunderbird ships all its marijuana by mail, and on-site sales are not allowed under Health Canada rules.

“We did put a covenant saying no retail sales on the facility to address neighbours’ concerns, because you never know what will happen at the federal level years down the road,” said Jarret Matanowitsch, a manager in the District of Saanich planning department

North Saanich: Stuff that in your pipe and smoke it . . . elsewhere

North Saanich has stated it loud and clear: Don’t build your medical-pot facilities here. But one applicant for a licensed grow-op snuck in before the new rules and is looking to set up operations on the site of a former mushroom farm on McTavish Road.

In February 2014, North Saanich council voted to prohibit any grow-ops in the near future. North Saanich Mayor Alice Finall said the prohibition was in response to complaints from citizens who cited security concerns and fire hazards.

“There was very strong community opposition to it,” Finall said. “There were too many uncertainties, too many possible downsides.” Finall believes the plans for the McTavish facility have been suspended.

Last summer, the B.C. government closed a tax loophole that would have allowed medical-marijuana producers to claim a large tax break designed for farmers. This was in response to warnings from B.C. mayors that commercial grow-ops could dodge 90 per cent of their property taxes if they were taxed as agricultural operations.

Duncan: A regulatory nightmare

Duncan’s Eric Nash has been licensed by Health Canada to grow medical marijuana in his home under the old regime since 2002.

His resumé lists plenty of marijuana expertise. He has twice provided information about medical marijuana to the United Nations, collaborated with the Canadian Police Research Centre, served on the national cannabis steering committee for the Canadian AIDS Society, taught a course at Vancouver Island University, written a book and on several occasions met with Health Canada officials to provide input on policy reform to the medical-marijuana framework.

But it seems those policy reforms have worked against him.

A list of Nash’s qualifications forms part of his affidavit to the Federal Court in the patients’ constitutional challenge, in which he details the confusing, convoluted and ever-changing process involved in becoming a licensed grower under Health Canada’s new medical-marijuana regime.

Nash, a former City of Victoria employee in the horticulture department, said Health Canada keeps changing the goal posts, asking for increased security measures that weren’t a requirement when he started his application to set up a 1,700-square-foot marijuana grow-op on industrial land in Duncan.

“As a small Canadian company business entering the MMPR [Marijuana for Medical Purposes Regulations] program as a licensed producer applicant, I have found the application process onerous, problematic and illusory, with the regulatory requirements constantly changing without notice and very poor communication from Health Canada with us as an applicant,” Nash says in the affidavit. “From my experience, it seems as though Health Canada is deliberately attempting to stall and obfuscate the MMPR application process, creating very significant barriers to entry.”

Like many other applicants, Nash received a “ready to build” letter early last year, stating that if he builds the facility as set out in the application, it will be approved by Health Canada.

But more than a year later, Nash is still waiting for an on-site inspection. In June 2014, Nash received a letter from Health Canada saying he needs to upgrade to a Level 7 security requirement — which would mean installing a larger vault and other security upgrades at a cost of tens of thousands of dollars — even though the amount of marijuana the facility would hold only required Level 5 security.

“It’s a bit of a mess right now, the [medical marijuana] industry in Canada,” Nash said. “It really is a regulatory nightmare.”

North Cowichan: Smooth sailing

Broken Coast Cannabis got in the game early, receiving its licence from Health Canada in March 2014 and quickly settling into an industrial building in North Cowichan. John Moeller, the company’s operations manager, said when he and his partners were looking for a place to set up shop, they looked for a municipality that was open to medical-marijuana grow-ops.

“They’re business-minded in North Cowichan ... and this is an opportunity for them to get a new legal industry in their area, so they were very progressive in getting their regulations figured out quicker than other jurisdictions did,” Moeller said. “You’re gambling when you’re going into a jurisdiction that has nothing [written in the bylaws].”

The 12,000-square-foot facility employs 18 people and has the capacity to produce up to 720 kilograms of marijuana per year. Moeller, who formerly worked in the construction industry, said the company has just under 300 clients, mostly from Ontario.

Because federal regulations limit companies’ ability to advertise, the company relies on word-of-mouth or by being listed on the Health Canada website.

Nanaimo: The grand daddy

Call it the papa roach of medical-marijuana facilities. At 60,000 square feet and employing about 120 people, Tilray is the biggest medical-marijuana facility on Vancouver Island and one of the biggest in Canada. Located in Nanaimo’s Duke Point, Tilray ships medical marijuana to 3,500 patients in every province and two territories at a cost of $6 to $15 per gram. So far, patient demand has far outstripped what the facility is able to produce, said Greg Engel, the company’s new CEO, a pharmaceutical executive with 20 years’ experience in that industry.

The facility was long operating at just 20 per cent capacity because of Health Canada restrictions, but it’s now producing at almost full capacity.

“We’re comfortable by April or May, that 90 per cent capacity will allow us to supply our demand,” Engel said.

Tilray is looking to invest another $75 million to build a second plant three to four times the size of the current facility. That would create another 275 jobs.

Tilray is the production arm of Lafitte Ventures, the Canadian subsidiary of Seattle private equity firm Privateer Holdings, so it has the money behind it to fuel the demands of the green rush.

A report this month by the Nanaimo Economic Development Commission said Tilray has generated $48.1 million in ecoomic output in B.C., the equivalent of 357 full-time jobs and $8.5 million in tax revenue across three levels of government.

kderosa@timescolonist.com

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