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B2| REPORTONBUSINESS O THEGLOBEANDMAIL| SATURDAY,OCTOBER19,2019
Coca-Cola Co.beat Wall Street
estimates for quarterly revenue
Friday as customers have taken
to smaller-sized cans of its pop,
including Coca-Cola Zero Sugar,
prompting the beverage maker
to give an upbeat forecast for
2019.
Faltering demand for sugary
beverages has forced the
world’s two largest beveragemakers, Coca-Cola and PepsiCo
Inc., to roll out low-sugar
drinks, while diversifying into
coffee, tea and bottled waters
to boost sales.
Coca-Cola has also been
rolling out new products, such
as Coca-Cola Plus Coffee – a
blend of its trademark soda
with coffee, in more than 20
markets, as well as drinks insmall, but high-margin packs
that are appealing to consum-
ers who are turning more
health conscious.
The beverage maker is
launching Coca-Cola Energy, its
first Coke-branded energy
drink, in the United States, and
has expanded its coffee busi-
ness with the multibillion-
dollar purchase of British-basedCosta Coffee last year.
Volume in sparkling soft
drinks rose 2 per cent in the
quarter, driven by double-digit
percentage growth in Coca-Cola
Zero Sugar and Sprite in North
America.
Strong growth was also seen
in its smaller package drinks,
led by double-digit growth in
7.5-ounce mini-cans.REUTERSSUGAR-FREEDRINKS,SMALLERCANSHELPDRIVECOCA-COLAREVENUEThe primary advocacy group for
Canadian investors is facing ex-
tinction after it has returned a $2-
million grant, unable to raise
matching funds.
The Canadian Foundation for
the Advancement of Investor
Rights, known as FAIR Canada,
has given back money provided in
2012 by Stephen Jarislowsky, the
founder of investment firm Jaris-
lowsky Fraser Ltd. Mr. Jarislowsky
provided the endowment fund-
ing on the condition that FAIR
found two-for-one matching
money within two years.
FAIR Canada received $2-mil-
lion from the Ontario Securities
Commission as part of the match,
but has fallen short since and re-
quired multiple extensions on the
Jarislowsky deadline.
On Friday, the sharp-tongued
Mr. Jarislowskyblamed govern-
ments and regulators, including
self-regulatory industry groups,
for failing to step up to what he
sees as their responsibility.
“They kept the organization
alive, but they have not provided
adequate support for it to actually
realize its potential or be oper-
ationally sustainable,” Mr. Jaris-
lowsky said in a statement provid-
ed by FAIR. “We do not feel that we
should lend out more to an orga-
nization to advance a mission
that is a governmental and regu-
lator responsibility, which gov-
ernments and regulators refuse to
fulfill,” he said.
FAIR Canada was started in
2008 to provide a voice for indi-vidual investors. FAIR Canada
said the multitrillion-dollar fi-
nancial, bank, investment and in-
surance industries have 16 or
more organized lobbying or advo-
cacy groups, all mobilized to in-
fluencegovernment and regula-
tors when laws and rules are craft-
ed. FAIR Canada argues ordinary
Canadians were virtually unrep-
resented before FAIR was created,
in part because retail investors
lack the resources to effectively
advance their own interests.
In the past year, FAIR Canada
has submitted comments or par-
ticipated in round tables on mu-
tual-fund sales practices, the cli-
ent-financial adviser relation-
ship, and a proposed code of con-
duct for banks selling products to
senior citizens.
Mr. Jarislowsky has resigned
from FAIR’s board of directors.
“I do not believe that I should
remain associated with an organi-
zation that the securities commis-
sion andgovernments will not
support ... [it] might be read bythe public as an endorsement of
the current unsustainable state of
FAIR Canada.”
FAIR Canada will return the
original $2-million plus about
$400,000 in investment earnings
that came from the Jarislowksy
grant. The group cut expenses
sharply in the fiscal year ended
June 30, from $772,228 to $545,143,
but posted a loss of $114,493, its fi-
nancial statements show. In the
year ended June 30, 2018, FAIR lost
$546,413.
The organization can go to the
end of 2020 with the current four-
person staff by using the OSC
grant money to fund operations,
says executive director Ermanno
Pascutto, the group’s founding
CEO who returned in an interim
role earlier this year. The group’s
board must decide, though,
whether it should “hope that
something comes out of the blue- or do we cut further?”
Predecessors of the Investment
Industry Regulatory Organiza-
tion of Canada (IIROC) provided
the initial funding for FAIR Cana-
da, $3.75-million in 2008.
All told, the self-regulatory II-
ROC and its predecessors have
given FAIR Canada a total of $4.9-
million over the years. In the fall
of 2018, it gave a $250,000 grant
from its restricted fund that
comes from fines and settle-
ments.
That fund has roughly $15-mil-
lion in it, said Mr. Jarislowsky, who
argues there’s enough for greater
support of FAIR.
IIROC spokesman Paul Howard
said the primary purpose of II-
ROC’s fine and settlement money
is to fund the operation of its dis-
ciplinary hearings. It has provided
more than $6-million to organiza-
tions that support investor pro-
tection and education and finan-
cial literacy. “IIROC’s restricted
fund was not established and was
never intended to be used for the
exclusive benefit of any single or-
ganization, no matter how lauda-
ble its objectives,” Mr. Howard
said.InvestorJarislowskyresignsfromFAIRboard
Advocacygroupreturns
$2-milliongiftfrom
2012,withmagnate
blaminggovernments,
regulatorsforitsfailure
toraisematchingfunds
DAVIDMILSTEAD
INSTITUTIONALINVESTMENT
REPORTER
At every link in the newly built
cannabis supply chain, there is a
common feeling among growers,
processors, wholesalers, retailers
and even delivery drivers that
governments at all levels are
messing up the legalization proc-
ess. Many feel their sector is stuck
between two worlds: They are
both law-abiding and shunned.
Cannabis companies must com-
ply with a thicket of new regula-
tions, including severe restric-
tions on advertising, sponsorship
and other brand-building activ-
ities, but many still cannot access
basic financial services or tax
credits, employment incentives
and othergovernment help made
available to other sectors.
A number of industry partici-
pants say the federal government
brought in the Cannabis Act with
great fanfare a year ago, but then
stepped away from the file, leav-
ing most of the work to Health
Canada, whose primary interest,
naturally, is in enforcing Ottawa’s
rule book rather than seeing the
industry develop as an economic
force.
In the meantime, cannabis
producers have struggled to offer
low-cost, high-quality products
capable of enticing consumers
away from illicit alternatives.
Thousands of independent farm-
ers who have been refining the art
of cannabis growing through the
medical-marijuana system for
decades are still looking at the
recreational sector from the out-
side, unable to get in.
Over the course of three weeks,
The Globe and Mail’s Cannabis
Professional news service trav-
elled more than 7,000 kilometres
across Canada, visiting 14 com-
munities in 10 provinces to learn
what those on the front lines of
the industry say about the fight to
make legalization a success, and
to make inroads in a market dom-
inated by established criminal en-
terprise.
“My hope for whichever party
gets into power [in the Oct. 21 fed-
eral election] is that they serious-
ly rethink the entire cannabis sys-
tem,” said Rudi Schiebel, chief ex-
ecutive of Habitat Craft Cannabis
Ltd., a licensed microcultivator in
Chase, B.C., that uses aquaponics
to farm both cannabis and salm-
on. “The barriers to entry make it
incredibly hard for the expertise
that exists today to enter the mar-
ket [and] instead of empowering
our competitive advantage in
Canada, thegovernment has sys-
tematically treated both the
growers and the users looking for
quality cannabis as a nuisance.”
Mark Spear spent two years
working for industry giant Cano-
py Growth Corp., when it was still
known as Tweed Marijuana. He is
now the CEO of a cannabis startup
that guides existing farmers who
want to apply their generations’
worth of cultivation expertise to
cannabis.
He says with his company,
Wildfire Collective, filling a void
of assistance to farmers, it’s an-
other symptom of Ottawa’s “non-
chalant” attitude toward legal
cannabis that is allowing a Pro-
hibition-era mentality to remain
part of mainstream society.
“While cannabis was legalized
federally, you wouldn’t know it in
many cases,” Mr. Spear said.
“From provincial and municipal
fear-mongering on the risks of re-
tail or cultivation, to suspended
bank and social-media accounts
... the federalgovernment in par-
ticular should be working closely
with other levelsof government
to ease misguided anxiety.”
Some saygovernment ambiva-
lence begins at Health Canada. No
other sector of the economy is
managed by a single federal agen-
cy with no economic mandate.
“They have let one department
[Health Canada] manage the
whole file and if they want to
grow the sector, they can do more
from a multidepartmental base
within thegovernment to really
support the sector in a more pro-
active and open way,” Jeff Purcell,
senior vice-president of oper-
ational services at Organigram
Holdings Inc., said during a tour
of the company’s massive cultiva-
tion facility in Moncton. The op-
eration employs 750 people and is
expected to surpass 1,000 in the
near future.
“They really could stand to put
more resources toward under-
standing the sector a bit better,”
Mr. Purcell said.
Several industry insiders also
pointed at provincial and munici-
pal governments as part of the
reason for the legal industry’s
slow start. Mr. Spear’s company,
for example, had to abandon one
site where it had been planning to
build an indoor cultivation facil-
ity after the local township ex-
pressed concern and threatened
to change its bylaws. Several
months later, after Wildfire had
invested time and money finding
a new site, the township invited
Mr. Spear to return, having since
realized his business would be
overseen mostly by the province.
Omar Yar Khan, a political
strategist and vice-president of
communications firm Hill +
Knowlton, said that if Ottawa re-
ally wants the industry to suc-ceed, it should consider the cre-
ation of a cannabis-sector strate-
gy.
“The federalgovernment has a
life-sciences sector strategy and
they will have an advanced man-
ufacturing sector strategy and a
machine-learning sector strategy,
but there is no cannabis-sector
strategy that I am aware of at the
federal level,” said Mr. Khan, who
works with clients in the cannabis
business.
Other federal departments
should play a larger role, he said;
this would allow the sector target-
ed grants, financing for new
equipment and tax credits for in-
vestments in R&D, among other
programs.
Anne McLellan, the former
federal Liberal health and justice
minister, who chaired the 2016
cannabis legalization task force,
said industry watchers are using a
timeline to judge the success of le-
galization that is too short.
“We still have black-market to-
bacco and black-market alcohol,”
Ms. McLellan said this week at a
cannabis anniversary event in To-
ronto. “So I just implore people to
be reasonable about the expecta-
tions. Yes, one of the animating
reasons why the Government of
Canada wanted to legalize was to
deal with the black market. But
nobody in the Government of
Canada suggested that that was
going to happen within a year or
two years. Let’s look a decade
from now. Once you’ve learned
what’s going on out there, you can
always change something like a
marketing restriction, and you
can loosen them; but it’s awfully
hard to take back what’s given.
That’s one of the first lessons any-
one in government learns.”There is no shortage of ideas
available forhow governments
can better support the cannabis
sector without losing focus on
public health and safety.
One might be to loosen their
grip on wholesale distribution,
which in most of Canada is run by
provincialgovernments.
In Saskatchewan, the province
encouraged competition by al-lowing private cannabis whole-
salers to operate under strict gov-
ernment supervision. Every other
province plays middleman be-
tween producers and retailers
and, as a consequence, retail can-
nabis prices in Saskatchewan are
as much as $3 a gram lower than
in other provinces, said Isaac Wat-
son, vice-president of product de-
velopment for Edmonton-based
retailer Fire & Flower.
“We can negotiate better cost-
ing than most of the provinces,”
Mr. Watson said during a tour of
Open Fields, the company’s
6,000-square-foot wholesale
warehouse near Saskatoon. “That
means cannabis in Saskatchewan
generally is less expensive than
elsewhere in Canada.”
Among the most common crit-
icisms of existing federal policy is
the lack of pathways into the legal
regime for anyone who worked in
illicit cannabis during prohib-
ition. Many are looking for a way
into the legal regime, but lack the
resources required to go legit.
Joël Lacelle, who lives in the
Northern Ontario logging town of
Hearst, about 500 kilometres
northeast of Thunder Bay, was
fortunate enough to have a rental
property in the Ottawa area that
he and his wife were able to sell.
That raised much of the $400,000
he needed to build what is today
Hearst Organic Cannabis Prod-
ucts, one of the first companies in
Canada to win a licence for canna-
bis microcultivation. That licence
allows him to have less elaborate
security than a standard cultiva-
tion facility, but limits his cultiva-
tion space to 200 square metres.
His friend who runs another
grow-op on the other side of town
has not been as lucky. “He is re-
liant on the income he makes
from the illegal market,” Mr. La-
celle said. “He’s pissed off. He’s go-
ing to get [a licence] eventually –
it is just that people have been
growing for so many years and
then somebody comes in and tells
you to stop growing and to apply
for a licence that you might not
even get. That is really hard.”
Price is often pointed to as the
biggest continued driver of illegal
sales, with the latest Statistics
Canada data showing legal canna-
bis prices averaged $10.23 a gram
during the third quarter of 2019,
compared with an average price-
per-gram of $5.59 for illicit pot.
However, quality and strength
have also been regularly cited rea-
sons why some regular consum-
ers of marijuana remain tethered
to local black-market dealers sup-
plied by experienced grey-market
growers. There are a handful of
private companies that have built
their models around converting
grey-market operators into legal-
ly compliant businesses, but they
are under no illusions about what
can be accomplished without
government support. Many of
these businesses were growing
cannabis legally for medical cli-
ents, but were also selling product
to recreational users illegally on
the side.
“Our entire model is to do what
the government failed to do, whatthey didn’t even try, which is
bringing in these small growers to
the new system,” said Jamie Shaw,
chief culture officer of Pasha
Brands. The Vancouver-based
company is trying to amass a net-
work of small-scale growers, with
Pasha either helping cultivators
navigate the licensing processes
for their own facilities, or having
their grey-market partners’
branded products produced and
sold by Medcann Health Prod-
ucts, a licenced cultivator wholly
owned by Pasha.
The company also offers proc-
essing, packaging, distribution
and marketing services to inde-
pendent growers such as Mr. La-
celle in Hearst and others unwill-
ing or unable to do those things
on their own.
“We will at most be able to con-
vert our own little piece of [the
grey market], but that is just one
small piece,” Ms. Shaw said. “The
federal government keeps saying
they want to transition the illegal
market, but there has been zero
effort to actually do that .”
In Vaudreuil, Que., a logistical
hub outside Montreal, Jon Morri-
son is attempting something sim-
ilar. The president of C3 Farm (C3
stands for Cannabis Compliance
and Commercialization) has a 39-
year lease for the sprawling,
three-million-square-foot cam-
pus that was once the North
American headquarters of Swiss
pharma giant Hoffmann-La
Roche and is using it as a cannabis
accelerator.
The facility – consisting of a 12-
storey mixed-use office tower, a
food-grade production facility
and an industrial-scale manufac-
turing centre – has not been fully
occupied since the European
company moved out in the 1980s.
Mr. Morrison has signed deals
with 12 cannabis startups, some of
which had previously been oper-
ating in the grey market, as well as
the McGill University cannabis re-
search centre to base their oper-
ations out of C3.
“This project, if it was address-
ing anything else, would be so
heavily funded by government,”
Mr. Morrison said, noting the ac-
celerator is creating employment
and intellectual property, facili-
tating research and development,
and building facilities that have
long-term production horizons
and long-term economic value.
“These are all things where
normally you would have the
BDC [Business Development
Bank of Canada] finance equip-
ment, you normally have the fed-
eral government give you a cer-
tain amount of R&D tax credits,
you normally have the federal
government help you with em-
ployment incentives, [but] we
have none of those things,” Mr.
Morrison said.
“You normally would have all
of these incentives,” he said, “and
our industry right now, being at
its infancy and with a need to
evolve quickly, we need those in-
centives even more.”WithareportfromMarkRendell
inToronto.Cannabis:IndustryparticipantssayOttawaleftmostoftheworktoHealthCanada
FROMB1JeffPurcell,seniorvice-presidentofoperationalservicesatOrganigram,
toursthecannabiscompany’splantinMoncton,N.B.,onOct.12.
Mr.PurcellsaysOttawa‘couldstandtoputmoreresourcestoward
understandingthesectorabitbetter.’JOHNMORRIS/THEGLOBEANDMAIL