Police warn organized crime, including the Hells Angels, has infiltrated the medical marijuana market

Organized crime groups, including the Hells Angels, have managed to obtain legal personal production licences for medical marijuana, only to turn around and illegally sell the product across the country, CBC news has learned.

Several sources described to CBC how organized crime groups have obtained personal grow licences and are using them to try to hamper police attempts to shut down their operations.

CBC is not naming the sources, who fear reprisal from criminal groups or worry about interfering in criminal investigations. 

"We often don't have the the resources to chase down the true identities behind the licences," said one source.

He added there's mounting concern that some organized crime groups have been using the licences to produce a large supply of medical marijuana for some of the illicit dispensaries popping up in cities across Canada.

Health Canada forbids anyone issued personal grow licences from selling their product to others. 

Police concern began in 2013

An RCMP report obtained by CBC-Radio Canada through Access to Information suggests alarm bells began ringing about organized crime participation in the medical marijuana market back in 2013, as Health Canada started taking applications for licences to produce and sell medical marijuana to authorized patients.

"The RCMP's initial background checks of applicant ventures have turned up significant hits and raised significant alarm bells inside the federal policing program," states the document, which is a report to the Canadian Association of Chiefs of Police.

"There is no shortage of organized criminal groups who have applied to produce medical marijuana under Health Canada's new MMPR, including self-proclaimed Hells Angels and associates of transnational organized crime."

The MMPR, or Marijuana for Medical Purposes Regulations, came into effect in 2014 and was supposed to transform the industry, replacing more than 30,000 individuals who were allowed to grow their own product.

However, a Federal Court ruling found the system unconstitutional, and Health Canada has allowed individuals to continue to produce their own stock. 

The RCMP document emphasized that "... the security and Intelligence community should be aware that this is a going concern for our organization, not just the domestic vulnerabilities these new regulations have created, but the international ones as well."

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There is no evidence the criminal organizations described in the report actually managed to obtain one of the new production licences, which allow a few dozen producers to sell directly to patients through the mail.

But sources suggest crime groups have been using individual personal grow licences to evade police scrutiny while supplying illicit dispensaries.

Raf Souccar, a retired deputy commissioner of the RCMP and a member of the Trudeau government's cannabis task force, said he's not surprised to hear that organized crime is involved in the illicit dispensary market. 

"Because if you're able to supply that quantity of marijuana, you can't do it growing it in your basement," he said.

"Organized crime is behind most of these marijuana dispensaries," Souccar added. "After all, it's a $7-billion industry."

Souccar said he's only heard anecdotal evidence that crime organizations were somehow obtaining legal personal grow licences.

Health Canada had attempted to get out of the business of trying to manage the thousands of personal grow licences by bringing in the large licensed producers, he said, which are under a rigorous regime of inspections and regulations. 

However, the Federal Court decision forced the government to continue to accommodate the individual licence holders — though with more restrictions.

For instance, people tasked to grow for others can now only support two patients, he explained. And no one is supposed to sell their stock through the illegal dispensaries.

Dispensary links to organized crime

Marijuana dispensaries have been the focus of a recent rash of police raids in cities across Canada.

During a discussion about one raid in Ottawa, the city's police chief, Charles Bordeleau, raised concern about organized crime gangs when responding to a question about why officers wore black protective gear and balaclavas.

Bordeleau explained officers need to be adequately protected during those raids, in part because police have discovered links between some of the illegal dispensaries and organized crime.

Local law enforcement agencies across the country have been playing Whack-a-Mole trying to shut the dispensaries down.

In Ottawa, about a dozen stores popped up after the Federal Court ruling in February 2016, and despite several raids even as recently as last month, the number of stores is back up to a dozen today — with some of the operations reopening the day immediately following a raid. 

Those arrested during the raids are mostly storefront workers — some reporting to investigators they have never met the owner of the business, save for a few phone calls, and are paid in cash every other week.

"How does that happen?" asked one source. "How does the same store raided one day reopen the very next day, fully stocked with marijuana?"

He suggests law enforcement has only had glimpses of the opaque distribution system that feeds the dispensaries, which, in some cases, receive product delivered by mail or are restocked through large local grow-ops.

Criminalization to blame: pot advocate

Some dispensary operators have disputed the claim they're being stocked by organized crime.

Marc and Jodie Emery — the self-proclaimed "Prince and Princess of Pot" — will be back in court on April 21 to face a number of charges, including trafficking and possession for the purpose of trafficking, following a number of raids at their Cannabis Culture outlets in Toronto and Montreal.

Jodie ​Emery described the producers supplying their stores as being other pro-legalization activists.

"We believed that our stores would be opening with activists who believed in this mission alongside us," she said, adding that franchisees had to agree to peaceful civil disobedience and to using some of the money raised to help end "prohibition."

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The marijuana distribution chain that Emery said she is familiar with has been created through personal relationships with individual producers. "I've never encountered any violence or danger in the marijuana industry," she said, suggesting law enforcement is trying to create a culture of fear around the dispensaries to justify a war on cannabis.

But she admits she doesn't know all the details of her own supply chain, as she's not involved in that side of the business.

Emery said she's not surprised that organized crime may be taking advantage of the current illegal status of marijuana. 

"People who are opportunistic might get involved in that industry, given that it's worth a lot of money due to government policy," she said. "Organized crime will find any way to make money and the government's prohibition policy makes marijuana extremely valuable."

Are the black market's days numbered?

Bruce Linton, founder of Canopy Growth Corporation, currently the largest licensed marijuana producer in Canada, told CBC he doubts that the current black market — whether linked to organized crime or not — will survive legalization.

"Their business will be shut down," he said. "I bet it will take less than a week from the time the regulations are clear and operable before there are zero dispensaries."

Linton said he doubts organized crime has obtained one of the 42 large producer licences, as it is the most heavily regulated part of the current medical marijuana system — a model of regulation that he believes should continue in the recreational market. 

Once marijuana is legalized, Linton said, it may be hard for organized crime to compete.

"I actually have a lower cost of production than the criminals do, and it's because there are economies of scale," he said, adding organized crime may even see its production costs increase if police interrupt that supply chain from time to time.

But Linton also warns the elimination of the illicit market could come down to the tax rate on recreational pot. 

Rosalie Wyonch, a policy analyst with the C.D. Howe Institute, estimates if the current provincial and federal sales tax rates — varying from five to 15 per cent — apply to marijuana sales, 90 per cent of sales will remain with the regulated legal market. 

But if those taxes are increased to 20 per cent, Wyonch estimates the illicit market grows to close to 50 per cent of sales.

Public Safety Minister Ralph Goodale was not available for an interview. But his press secretary, Scott Bardsley, said in an emailed statement that the government is "committed to combating organized crime in all its forms."

"The RCMP works with Health Canada to ensure that companies cultivating medical marijuana are not linked to organized crime," the statement read. "It conducts law enforcement record checks of all applicants referred by Health Canada under the Marijuana for Medical Purposes Regulations."