BC Cannabis firms who claim illegal shops on reserves cost them millions lose lawsuit against province

Fourteen cannabis companies say the province isn't enforcing laws as the government said it would.

But a B.C. Supreme Court judge said the lawsuit doesn't have a chance of succeeding.

Cannabis companies in the B.C. Interior who say they lost $40 million to illegal pot retailers on Indigenous reserves have lost their fight against the provincial government.

The 14 licensed retailers said in their April 2022 claim that the number of illegal shops off-reserve was decreasing but the number of illegal shops on reserves was growing and that they were each losing $500,000 a year to the black market.

They alleged the government hasn’t responded to the “proliferation” of these sellers as they had promised to do when they announced the new Cannabis Control and Licensing Act and were therefore negligent and responsible for their losses.

But the province has discretion over where to enforce its pot laws and the fact it takes “reconciliation with Indigenous people into account is neither unusual or surprising,” wrote Justice Jasvinder S. (Bill) Basran of the B.C. Supreme Court in granting the province’s application to have the claim thrown out.

The cannabis businesses, identified only as numbered companies, said they relied on the representations of the minister of public safety and solicitor general when he announced the new community safety unit, responsible for enforcing pot laws after Canada legalized cannabis in October 2018.

They said the province made “representations that it would ensure a variable retail cannabis industry in B.C. by, among other things, ensuring that the CSU (community safety unit) would take enforcement action against unlicensed retailers on Indigenous reserves,” and the licensed retailers relied on that to set up their businesses.

But Basran wrote that he was “not persuaded that the minister intended to induce retailers to enter this potentially lucrative new market with promises of specific, ongoing and targeted use of its discretionary enforcement powers.”

He cited a 2012 Ontario court ruling in which a tobacco farmer competing with tobacco sellers on reserves made the same argument as the cannabis companies in a lawsuit against Ottawa.

The tobacco seller alleged the government abdicated its legal duty and “ignored flagrant violations of the law” to “appease the Aboriginal community.”

But he lost because the Ontario judge noted that if governments had a duty of care to protect the tobacco farm from illegal sellers, lawsuits against the government would be endless because most industries are regulated. He asked, “Where does it end?”

“The same analysis applies” to this case, wrote Basran.

He wrote that the licensed companies have “no reasonable prospect of success because the province does not owe a private law duty of care” to them.

In their claim, BC1178980 vs. B.C., the attorney general, public safety minister and the public safety, the businesses noted that as of July 2021 yearly total retail sales of cannabis in B.C. was almost $49 million, up from about $35 million the year before and about $6 million in July 2019.

They said growing revenue was attributable to several factors: the rising number of licensed stores (more than 400 in 2021); a drop in the number of unlicensed shops (by the end of 2021, more than 170 illegal shops had been closed by the CSU and $25 million in products removed from market); and the “release of new, high-quality cannabis products at prices that are competitive with the illicit market.”

But the claim said the enforcement actions against more than 70 cannabis companies and the issuance of 39 fines by the CSU had happened “almost entirely” on lands that are not on Indigenous reserves. It said B.C. has 300 reserves with 50,000 residents.

The claim also noted that Solicitor General Mike Farnworth in July 2020 acknowledged the “proliferation” of unlicensed retailers on reserves, estimating there were 50 to 100 such stores and promised to address it. And the plaintiffs said since then the number of stores has grown “significantly.”