CoinGeek article authored by Ed Drake

Antigua & Barbuda passes Digital Assets Business Bill 2020 into Law

Antigua and Barbuda has entered a new era for digital asset businesses, after its pioneering Digital Assets Business Bill 2020 came into law earlier this month.

The law was formally added to the statute books on June 18, introducing a new and comprehensive regulatory framework for digital asset businesses, clients and customers.

The Act has been welcomed by businesses in the sector, with Antigua fast emerging as a global hub for Bitcoin BSV and other digital assets tokenized on top of the massively scaling original Bitcoin protocol.

Among those supporting the law is The Bayesian Group, which worked with government to advise on the legislation. A spokesperson for the group said the laws would bring more trust and credibility to the sector.

“The Bayesian Group was one of the entities asked to advise on the Digital Assets Business Act, 2020 due to our extensive regulatory knowledge with respect to digital assets and traditional finance. We believe public-private partnerships for the creation of legislation are fundamental to bringing trust and credibility to emerging and innovative industries,” Johnny Jaswal, General Counsel of The Bayesian Group, told CoinGeek. “We were honoured to participate in this historic bill, which will strengthen Antigua’s reputation as an economic innovator.”

He added, “We believe that the legislative framework hits the right balance of regulation and industry flexibility so companies can operate effectively. Governments will use Antigua’s forward-thinking legislation as a benchmark for bringing safe, credible and regulated digital asset businesses together to foster economic innovation. At The Bayesian Group, we are always looking to find that balance so we can bring confidence to economies, institutional investors and our clients.”

Bitcoin Association, the global industry organization that supports Bitcoin SV, was also involved in advising on the legislation. Founding President Jimmy Nguyen commented:  “I am pleased to see Antigua and Barbuda establish a comprehensive framework to govern businesses involved with a broad range of digital assets. It is especially helpful that the law defines various types of digital assets beyond currency equivalents, but also covers things such as assets representing debt or equity. The numerous cryptocurrencies we see today are mostly unnecessary, and the future will instead be driven by real assets tokenized on the Bitcoin SV blockchain. The Antigua and Barbuda law lays the foundation for responsible businesses to grow and support a true tokenized world.”

Calvin Ayre, founder of Ayre Group and CoinGeek, said the law would help create a new industry around the scaling ability of the original Bitcoin.

“This Bill legitimizes Antigua as a serious player in the new Digital Asset industry as it will all license holders. I intend to get one of the licenses myself,” said Ayre, who is also the Economic Envoy for Technology Development for Antigua and Barbuda.

Great turnout at our first business management session at BMW.

Please email Johnny Jaswal if you would like to attend any of the following sessions:

• Sunday, December 2, 2018 (10:00 am – 2:00 pm): RBC Dominion Securities, 181 Bay Street, Suite 2200, Toronto, ON
• Friday, February 8, 2019 (6:00 pm – 9:00 pm): Sinclair Dental, 90 Skyway Drive, Mississauga, ON

About the Jaswal Institute:

The Jaswal Institute is a Toronto-based business law firm that provides exceptional legal services, government relations services and a full range of related investment banking advisory services to small- and mid-market companies.

Through our expertise with respect to legal frameworks, regulations, capital markets and business issues, the Jaswal Institute provides its clients a unique outlook on the business environment, offering crucial insight into difficult but important business matters.

Our role is to provide advice and solutions to complex legal, financial and strategic issues, thus enabling our clients to maximize value and realize corporate and personal goals. For further information about the Jaswal Institute, please visit www.jaswalinstitute.com.

For further information please contact:

Johnny Jaswal
Managing Director and General Counsel
Jaswal Institute
Telephone: (416) 737-9653
Email: [email protected]

Johnny Jaswal advised fashion designer Joe Mimran on a partnership with The Kroger Co. (NYSE: KR) to introduce Kroger’s new apparel brand.

The full press release can be viewed on The Kroger Co.’s (NYSE: KR) website and is included below.

Kroger Partners with Fashion Designer Joe Mimran to Introduce Apparel Brand

OD_JulyAug_2017

The Jaswal Institute acted as exclusive legal advisor to RSquared on the sale of its business, for cash and stock consideration, to Tokyo Smoke, which will transition RSquared to become its Canadian flagship location. Financial terms of the cash and stock deal will not be disclosed. The Jaswal Institute advisory team was led by Johnny Jaswal and included Marcin Mazierski and Justin Rosen.

Reza Yazdjerdi, Reza Sheikh, and Pouria Tehrani – directors and owners of RSquared – commented:

“I honestly want to write something that does not sound generic and doesn’t come across as cliché because words can’t describe our level of appreciation for the work that Johnny has done for our team at RSquared. We had no idea what to expect going in as we were referred to Johnny’s firm by a former client as we were randomly calling law firms to try to find a best fit for the sale of our company. Price was an issue but the most important issue on our mind was making sure that we do this right. From my first conversation with Johnny, we knew we were dealing with a professional. He was quick to respond knowledgeable and honest. He set the tone from the beginning and he established a much-needed trust right off the bat and we can truly say we were not disappointed at any time during our negotiations. He was knowledgeable, trusting and patient. He knew when to apply pressure and when to bring all parties together and create a sense of calm. It was not an easy deal and it had many turns and twist but Johnny managed to bring all the parties together. The amount of care and passion that he put into this deal has amazed us all including the other parties involved. I don’t think we told him this during the negotiations but our buyers were exceptionally amazed at his level of involvement, attention to detail and knowledge.

In short, I want to thank you Johnny for what you did for us, it has been a true pleasure and words can’t describe our level of gratitude.

Wishing you all the success going forward because I know that if we ever need a lawyer or anyone in our circle asks for a competent, caring and knowledgeable person you’d be the first on our list.”

About Tokyo Smoke

Tokyo Smoke is a cannabis-oriented consumer brand that recently raised $3 million in Series A funding. Its major investors include W. Brett Wilson (former CBC Dragons’ Den investor), Chuck Rifici (CEO at Nesta Holding Co. Ltd., co-founder of Canopy Growth Corporation, Director at Aurora Cannabis Inc., CannaRoyalty Corp. and Supreme Pharmaceuticals Inc.) and Globalive Capital Inc. (founders of Wind Mobile). In 2017, Tokyo Smoke will issue branded cannabis strains in partnership with Aphria Inc., one of Canada’s leading licensed producers of cannabis, and expand into the U.S. market.

About RSquared

Considered one of Toronto’s hippest cafes, RSquared is a top ranked coffee house located on Queen Street West, which Vogue recently ranked as the second coolest neighbourhood in the world.

About the Jaswal Institute

The Jaswal Institute is a Toronto-based business law firm that provides exceptional legal services, government relations services and a full range of related investment banking advisory services to small- and mid-market companies.

Through our expertise with respect to legal frameworks, regulations, capital markets and business issues, the Jaswal Institute provides its clients a unique outlook on the business environment, offering crucial insight into difficult but important business matters.

Our role is to provide advice and solutions to complex legal, financial and strategic issues, thus enabling our clients to maximize value and realize corporate and personal goals. For further information about the Jaswal Institute, please visit www.jaswalinstitute.com.

For further information please contact:

Johnny Jaswal
Managing Director
Jaswal Institute
Telephone: (416) 737-9653
Email: [email protected]

The Jaswal Institute is pleased to welcome Marcin Mazierski and Justin Rosen to the firm, effective January 9, 2017.

Marcin Mazierski

Marcin Mazierski is an LPP Candidate at the Jaswal Institute. He arrives at the Jaswal Institute with regulatory, capital raising, mergers, acquisitions and senior management operational business experience.

Marcin is currently involved in the oilfield industry where he works with Rocanda Enterprises. In over five years, Marcin’s role with Rocanda has included negotiating and drafting key contracts, managing regulatory permits and compliance matters, advising on legal matters, researching and evaluating new business ventures, formulating the company’s safety program, reviewing strategy and financial projections, marketing the company’s products and services to major market players, traveling overseas to meet and qualify potential business partners, helping manage field operations and overseeing the company’s logistics.

Prior to working for Rocanda, Marcin accumulated 4 years of experience as an associate at Q1 Capital Partners, a boutique investment bank providing M&A, financial and strategic advisory services to private companies in diverse industries. While at Q1, Marcin met with and advised clients, built financial models, created business plans, conducted due diligence and evaluated target companies on behalf of clients looking to execute acquisitions.

Marcin has a Master of Business Administration from the Schulich School of Business, a Juris Doctor from Osgoode Hall Law School and a BA in Psychology from York University.

Justin Rosen

Justin Rosen is an Articling Student at the Jaswal Institute. Justin completed his JD at Bond University and graduated with honors. He holds a Master of Laws degree from the University of Southern California and graduated cum laude. During law school, Justin was a member of student government and president of his class. While completing his JD, he participated in two mooting competitions and was selected to be a member of the prestigious Honor Society of Phi Kappa Phi as recognition of his academic excellence.

Prior to the Jaswal Institute, Justin was a summer student at Thornton Grout Finnigan LLP, widely recognized as one of the foremost insolvency law firms in Canada. At TGF, Justin was involved in several high-profile restructuring and litigation matters and conducted research, drafted memorandums for both external and internal use, drafted factums and other court materials, conducted security reviews for large banks and attended court with senior lawyers.

Prior to TGF, Justin was a management consultant at ICM Partners, one of the world’s largest and most successful international talent agencies, in Los Angeles. At ICM Partners, Justin was responsible for negotiating business contracts and coordinating client projects and implemented ICM’s communications strategy to improve the exchange of information and ideas within the firm. Justin represented a wide range of high-profile clients.

Prior to law school, Justin spent the summer working at Stikeman Elliott LLP carrying out research for projects in securities and commercial law.

Justin is currently a writer for an electronic publication, Insolvency Insider, which provides weekly articles and updates on Canadian filings, news and events in the insolvency world.

Justin will be admitted to the Ontario Bar in June, 2017.

About the Jaswal Institute

The Jaswal Institute is a Toronto-based business law firm that provides exceptional legal services, government relations services and a full range of related investment banking advisory services to small- and mid-market companies.

Through our expertise with respect to legal frameworks, regulations, capital markets and business issues, the Jaswal Institute provides its clients a unique outlook on the business environment, offering crucial insight into difficult but important business matters.

Our role is to provide advice and solutions to complex legal, financial and strategic issues, thus enabling our clients to maximize value and realize corporate and personal goals.

The Jaswal Institute is fully compliant with Ontario’s securities laws and instruments, including National Instrument 31-103 ─ Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and its companion policy.

The Jaswal Institute is fully compliant with Ontario Laws, including the Real Estate and Business Brokers Act, which regulates the trade in real estate and businesses.

For more information please contact Johnny Jaswal, Managing Director of the Jaswal Institute.

Johnny Jaswal’s post The Economic and Valuation Impacts of Cannabis Pricing by Organized Crime Groups appeared first on Lift.

A closer look at how organized crime could continue to impact the legal market post-legalization

My firm regularly advises clients in the cannabis space, providing services ranging from regulatory advice to due diligence for hedge funds looking to invest in the sector. Over the last several weeks, given the recent spike in valuations of cannabis stocks, I have seen an influx in the number of cannabis related inquiries.

My response to the recent run-up has been relatively straightforward. Based on the financial statements of most marijuana companies, the fact that most are in a position of negative to low cash flow and the fact that many of these companies have not shown any profitability, the recent valuations are the result of speculation and irrational exuberance — investor enthusiasm, not supported by fundamentals, which has driven price levels to unsustainable levels. This argument is supported by data that demonstrates short-sellers are significantly increasing positions in marijuana companies which, as The Globe and Mail recently highlighted, is reminiscent of the 2014 run-up in U.S. cannabis stocks that began with a mania for cannabis related companies but quickly resulted in a steep downward trend on the bets.

Despite the current valuations and the fact that the recent run-up may face a reversal on selling pressure, several of the Canadian cannabis stocks may be solid long-term investments as the companies are substantial and built on fundamental businesses on the precipice of regulatory disruption.

The issue at this early stage is trying to accurately value these organizations. To that end, clients have approached me to assist in dissecting estimates, reports, and forecasts provided by financial institutions in an attempt to come to a fair valuation range of players in the cannabis space, which leads me to the topic of this article, marijuana pricing in the recreational marijuana market.

While studying analyst reports and pricing inputs, I noted that several analysts are employing market prices in recreational forecasts estimated using the current average prices in the medical marijuana space. In general, analyst price targets for marijuana stocks and industry wide valuation are based on average price per gram numbers in the $7.50 range.

In the Jaswal Institute’s view, these inputs are potentially flawed for two reasons. First, financial institutions are assuming pure market-based rates in a recreational market that are not impacted by regulatory price intervention similar to the alcohol industry. Second, assuming market-based rates, analyst estimates have not incorporated sharp price declines similar to those experienced in legal recreational cannabis markets in the U.S. subsequent to the systems coming online. Though these steep price declines surprised some investors in the U.S. space, the plummeting marijuana prices had been long predicted by experienced drug policy analysts. Accordingly, it is our view that current analyst reports in the industry are fundamentally flawed as they have failed to account for regulatory price intervention and price trends in the recreational market.

It is the Jaswal Institute’s view that both regulatory price intervention and price trends in the recreational market will be, among other factors, primarily shaped by cannabis pricing by organised crime groups. Consequently, to fully understand the potential economics, valuations and pricing in the recreational marijuana market, it is essential to understand cannabis pricing by organized crime groups as pricing must be competitive enough to dissuade consumers from an established and well-entrenched black market.

As stated in a November 2016 report by the Office of the Parliamentary Budget Officer titled Legalized Cannabis: Fiscal Considerations, “when the average legal price is less than or equal to the average illicit price, almost all consumption (98 per cent) is projected to shift to the legal market…. However, as the legal price increases above that of the illicit price, the market share of legal cannabis progressively decreases.”

If prices are too high, users will remain loyal to a deeply rooted black market that has been operating for decades. As highlighted in a heavily-redacted Public Safety Canada document obtained through an access to information request, in 2014, Criminal Intelligence Service Canada reported that there were 665 organized crime groups operating in Canada, with approximately 85% involved in the $45 billion illicit drug markets. Canada’s economic history with respect to cigarette tax hikes, which shaped a flourishing illicit tobacco market, has shown that Canadians are willing to embrace a black market on price sensitivity.

Conversely, if prices are too low, we can anticipate significant tax base and profitability impacts on governments and companies in the recreational cannabis space. To that end, organized crime pricing becomes an extremely important influencer with respect to the viability of marijuana companies in Canada as it shapes the pre-tax price of legal cannabis in a recreational market.

To assess the price of illicit marijuana, we reviewed the Office of the Parliamentary Budget Officer’s November 2016 report titled Legalized Cannabis: Fiscal Considerations, and Public Safety Canada’s September 2016 report titled Cannabis Performance Metrics for Policy Consideration. The Office of the Parliamentary Budget Officer arrived at a regionally-weighted average price of $8.32 per gram and a purchase-quantity-weighted average price of $9.36 per gram, using the average of the two weighting approaches to arrive at an $8.84 per gram figure for the overall average price of illicit cannabis in Canada in 2015-16. With respect to the legal market, the Office of the Parliamentary Budget Officer estimated that the minimum pre-tax price of legal cannabis per gram would be $6.67, with a midpoint estimate of $7.50 in 2018. By 2021, it estimated that the minimum pre-tax price of legal cannabis per gram would fall to $5.83, with a midpoint estimate of $6.67.

However, when examining the results of Boucher, Lawrence, and Maslov presented in Public Safety Canada’s report, though an older study, the average illicit price of cannabis is found to be $7.54 per gram, which corresponds with a pattern of substantial decline in marijuana prices in other Western countries. The lower figure presented by Public Safety Canada could imply pre-tax legal cannabis price numbers closer to the $5.00 per gram range in the legal recreational marijuana market to effectively seize market share from, and compete with, the black market.

Even if we assume illicit pricing at the higher end of estimates, given the high profit margins of organized crime groups, we anticipate voluntary reduction in pricing by these crime groups to compete with the legal market and protect market share. As stated by Mostafa Askari, the assistant parliamentary budget officer, with respect to the illicit market, “…their profit margins are very high, so they have room to compete with the legal market….” If we begin to approach the lower bound of recreational estimates, the economic viability of cannabis companies is brought into question. As stated by Bruce Linton, CEO of Canopy Growth, in a recent news interview, Canopy tried pricing medical cannabis at $5.00 per gram, but found that though it was a great way to introduce and bring patients on, “it’s not a sustainable price at which you can run a business.”

When analysing the research and data presented above, there is an argument that current analyst valuation targets in the cannabis space are fundamentally flawed due to the assumed pricing of dried cannabis. Further, there is an argument that a recreational model, based on the existing medical model, which is assumed by most analysts in coming to their valuations, cannot succeed as a profitable enterprise. The conclusion is not that cannabis legalization will be a failed endeavour in terms of profitability, only that it must be formulated to adapt to factors such as organized crime pricing. By way of example, this could imply using dried cannabis as a loss leader to attract customers and stimulate sales in higher margin cannabis products such as oil-infused edibles, including chocolates, brownies, candies and soda, which would also create a larger tax base for governments. A key to this strategy however is that governments must allow these higher margin and value-added markets to develop via enacting regulations to allow companies to produce products currently offered on the black market. There are smarter licensed producers that have come to the realization that regulatory burdens and organized crime competition may inevitably price them out of the dried cannabis market and are thus preparing and lobbying for edibles regulation. It is not a secret that Canopy, which operates Tweed out of the iconic Hershey Chocolate factory in Smiths Falls, is looking to bring chocolate back to the factory through chocolate cannabis products and other edibles. In a previous article published by Lift we highlighted different ways that past, present, and future policy decisions influence and impact economic outcomes in the emerging cannabis marketplace. This article builds upon our previous analysis and highlights the need for governments and companies in the space to potentially shift strategies based on the existence of data that could suggest a flawed model.

Authored by Johnny Jaswal, BEng, MBA, JD, Managing Director of the Jaswal Institute. The Jaswal Institute is a law firm that provides exceptional legal services, government relations services and a full range of related investment banking advisory services. If you require further information, please contact Johnny Jaswal.

Johnny Jaswal’s post The Financial Impacts of the New Medical Marijuana Regime and Legal Decisions on the Canadian Cannabis Market appeared first on Lift.

A technical look at the different ways that past, present and future policy decisions influence and impact economic outcomes in the emerging cannabis marketplace.

On August 24, 2016, the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) replaced the Marihuana for Medical Purposes Regulations (“MMPR”), allowing individuals to produce cannabis for personal medical purposes or to designate someone to produce cannabis on their behalf. The ACMPR is Canada’s response to the Allard v. Canada (“Allard”) decision by the Federal Court of Canada in February of 2016, which found that the MMPR regime, made pursuant to the Controlled Drugs and Substances Act, infringes section 7 Charter rights to liberty and security by unjustifiably restricting access to medical marijuana. The Court found that, under the single source system of a licensed producer, there is no guarantee that required marijuana will be available when needed at an acceptable price level due to the MMPR structure and market characteristics. According to the Court, limiting patients to government-approved contractors and eliminating the ability to grow one’s own marijuana or to engage one’s own designated producer is not tenable. Given that liberty and security interests are engaged, the Court held that MMPR regulatory restrictions, including prohibitions against plant growth by patients or their delegates, are arbitrary, overbroad and do not minimally impair section 7 rights. The Court declared the entire MMPR regime invalid, striking it down, but suspended the operation of the declaration of invalidity for six months to permit Canada to enact the new ACMPR medical marijuana regime.

Though the case did not turn on a right to grow one’s own cannabis, which Canada has seen previously under its repealed personal cultivation regime (the Marihuana Medical Access Regulations), and instead focused on enhanced access to medical cannabis, the implications to licensed producers are potentially significant. Although the impact of specific medical marijuana amendments, such as allowing individuals to produce cannabis for personal medical purposes or to designate someone to produce cannabis for them, may not be drastic on the medical marijuana regime, the impact of the ACMPR and the Court’s principles on future recreational marijuana regulation may have significant financial and market impacts that affect the economics of the marijuana space. In other words, in a rapidly changing environment, the status quo is subject to extreme shifts which require diligent attention.

Under the new regime, personal cultivation and licensed producers are the only legal means of obtaining medical marijuana. The application process to become an exclusive government-approved contractor is strict, thorough and expensive. Based on 2016 statistics obtained from Health Canada, the application success rate is less than 3%, which highlights the exclusivity of the licensed producer club. This exclusivity is essential when considering the fact that these government-approved contractors, because of the regulated supply chain and lobbying campaigns, are assumed to be the frontrunners of production and supply in the recreational marijuana market promised by the federal Liberals. In an attempt to differentiate themselves and prepare for legalization, licenced producers have gone as far as signing major artists to gain an early advantage. For example, a major marijuana company recently partnered with Snoop Dogg on content and brand strategy, a move highlighting a shift towards recreational marketing and away from earlier medical positioning which used lab coats and doctors for branding. In other words, rappers are being used to build the recreational market over doctors, unless of course you are Dr. Dre. To that end, it is no surprise that certain licenced producers have market capitalizations in the hundreds of millions of dollars, which do not coincide with the smaller medical marijuana market but appear to price in the anticipated market for recreational marijuana being branded by the likes of the D-O-double-G. In other words, despite what the retail points of sale end up being for medical and recreational marijuana, it is safe to assume investors in specific licensed producers are buying forecasts of these government-approved contractors as exclusive or leading producers and suppliers of both the medical and recreational marijuana markets. As discussed above, for that reason, stakeholders must assess the impact of regulatory changes on economics as legal decisions can significantly alter forecasts that form the basis of significant investments.

Given the rapidly changing regulatory market, any stakeholder in the current regime should understand the potential economic impacts of regulatory movement. To that end, this article will attempt to highlight the significance of regulatory changes and legal decisions on the economics of the marijuana space using the new ACMPR regime and Allard decision. To pursue our economic impact goals, based on principles espoused by Canadian courts and the fact that the ACMPR allows personal cultivation, we are assuming that personal cultivation provisions will be included in any recreational marijuana regime. Importantly, given Canada’s position on accessibility and affordability, we have assumed that a personal cultivation regime will not include taxes or plant fees.

Following the Allard decision, based on personal cultivation regimes in the United States, publications have made the assumption that legal personal cultivation would not significantly impact sales or tax revenue in the Canadian marijuana market. To that point, Public Safety Canada’s September 2016 research report on cannabis performance metrics for policy consideration highlights that data regarding the market source, or the origin of cannabis that users consume is not readily available in Canada and thus a relevant metric, especially under legalization regimes. Given the economic importance of these metrics for policy consideration, the Jaswal Institute has attempted to quantify performance metrics that are currently unknown and highly applicable with respect to the Canadian market. It is the Jaswal Institute’s view that, given unique Canadian market characteristics, the new ACMPR regime and Allard decision may have significant impacts on the economics of the cannabis market in Canada.

We started by employing a methodology used by a University of Chicago study that estimates the marijuana tax gap by comparing marijuana taxes to cigarette taxes. The tax gap is a tax compliance measure defined as the amount of tax liability that is not paid and includes revenues lost to tax evasion. Though the Canadian experience will encompass tax losses due to legal personal cultivation, the tax gap analysis is useful as it embodies similar concepts of tax avoidance. We believe tobacco to be an appropriate comparison in our situation given our view that cannabis will be taxed similar to comparable goods in Canada such as tobacco and alcohol. Similar to the Chicago study, given personal cultivation of marijuana is easier than tobacco cultivation, we assume that marijuana tax gap rates will be higher than those of tobacco, which would render our estimates of economic impacts conservative. Next, we estimated tobacco tax gap statistics by studying Canada’s contraband tobacco market. It is important to note that estimates of marijuana tax gaps based on contraband tobacco tax gaps involve comparing legal tax avoidance through personal cultivation and illegal tax evasion through contraband tobacco. Accordingly, given personal cannabis cultivation will be legal, our cannabis tax gap estimates using the contraband tobacco market as a comparison will further render our estimates and economic impacts conservative. The conservative nature of our estimates is buttressed when considering that a 2013 Globe and Mail study found that approximately 80 percent of medical marijuana users either grew their own cannabis or obtained cannabis from friends licenced to grow marijuana.

With respect to our results, given Canada’s unique market characteristics, our contraband tobacco market is disproportionally greater by comparison when evaluated globally. Our research implies that tobacco tax gap rates in Canada range from 15 to 33 percent, with government sources indicating an average rate potentially as high as 30 percent. Notably, as mentioned above, given Canada’s unique market characteristics, Quebec and Ontario may have the highest Canadian tax gap rates ranging from 40 to 50 percent. When analyzing marijuana market forecasts, the implied economic impacts of the ACMPR and Allard decision, using tax gap rates, are significant. A recent research report by CIBC World Markets Inc. suggests a recreational marijuana market of $5-$10 billion, with federal/provincial governments potentially reaping as much as $5 billion from legalization. Applying our tobacco tax gap rates, by virtue of assumed legalized personal growing, the government share with respect to the legal marijuana market can be estimated to decline by ~$1.2 billion on average using conservative estimates. If we begin to experiment with higher tax gap rates, such as those in Quebec or Ontario, use various market size estimates, or adjust the tax gap rates upwards based on the legality of personal marijuana cultivation, versus the illegality of the contraband tobacco market, or the relative ease of personal marijuana cultivation, versus tobacco cultivation, the economic impacts of the new ACMPR regulatory regime and Allard decision can significantly alter expectations with respect to the Canadian cannabis market.

When examining Marijuana laws across the United States, an interesting point can be noted. In general, Washington State does not permit personal cultivation for recreational use. When conducting our tobacco tax gap rate analysis, we noted that Washington has one of the highest tax gap rates of any state. Further, in the RAND Corporation’s Cannabis Consumption Survey, 17 percent of respondents reported growing cannabis for consumption under the medical marijuana regime, which is over four times the rate observed nationally (the national rate is assumed to be understated as it is reported in the context of illegal personal cultivation). Though we cannot conclude Washington’s high tobacco tax gap rates and personal cultivation rates resulted in the prohibition on personal cultivation for recreational use, they are aspects that should be examined more closely by Canada’s stakeholders in the marijuana space as failure to examine the appropriate factors could be a costly mistake.

Our analysis above was focused on estimating the economic impacts of the new ACMPR regulatory regime and Allard decision. As stated above, we have assumed that, at minimum, personal cultivation provisions and the principles adopted in the Allard decision will impact the recreational marijuana market in Canada. Though beyond the scope of this article, given the Court’s position regarding access, it is an interesting exercise to anticipate what the future of cannabis regulation may look like in Canada. Specifically, beyond the immediate ACMPR amendments to allow for personal cultivation, the Court’s language with respect to access restrictions applies pressure on the government to address issues regarding retail channels for the sale of medical marijuana. The Court in Allard observed that dispensaries play a crucial role with respect to cannabis access. As stated by the Court, although the dispensaries are not legal, dispensary growth trends suggest a connection between regulatory access restrictions and the need for patients to pursue illegal sources to obtain their medical marijuana. When studying statistics, illegal dispensaries and compassion clubs are potentially supplying five times more patients than licensed producers, reportedly selling more in one month than the combined licenced producers sell in three months. This trend is likely to continue and grow with the new ACMPR regime permitting personal cultivation as personal cultivation is the alleged source of supply for dispensaries. Though regulatory amendments did not provide guidance with respect to storefront sales of medical marijuana to further address the Court’s observations regarding access, the point to make is that any future amendments could drastically impact the current structure and market forecasts assuming that the principles translate to the recreational market. As mentioned above, in the rapidly changing cannabis space, stakeholders must consider multiple factors that may radically impact the economics of planned investments.

Based on personal cultivation regimes in the United States, Canadian commentators have come to the conclusion that regulatory amendments, including legalized personal cultivation, will not significantly impact sales or tax revenue in the marijuana market. We have attempted to highlight that small changes in a rapidly changing regime may have significant impacts for certain economies, which should create pause and diligence. Canada cannot afford to blindly follow results from other jurisdictions in a rush to legalization as regulatory impacts have different outcomes based on unique characteristics of a specific economy. This article used Canada’s unique market characteristics and disproportionally large contraband tobacco market to estimate the potential economic impacts of legalized personal cultivation in Canada. Stakeholders must push the boundaries to properly assess multiple factors relevant to a specific economy. To further reiterate and highlight the need for diligent analysis, in our research, we came across excessive energy use taxes being implemented in certain United States communities that have reportedly resulted in drastic declines in personal cultivation operations, which would lead to low personal cultivation statistics and render the results ineffective for comparison purposes. Accordingly, failing to recognize the unique characteristics of particular markets, such as tax gaps and energy taxes, may lead to incorrect and costly policy decisions. As our government moves towards the legalization of marijuana, its task force must diligently explore all issues that may potentially impact legalization. Similarly, stakeholders need to monitor legal decisions, regulatory changes and the resulting industry economics meticulously before they are left holding the bag.

Authored by Johnny Jaswal, Managing Director of the Jaswal Institute. The Jaswal Institute is a law firm that provides exceptional legal services, government relations services and a full range of related investment banking advisory services. If you require further information, please contact Johnny Jaswal.

The Jaswal Institute advised buyers on ~$3,000,000 in M&A transactions in the dental space, which included both the purchase of assets and shares. The practises purchased include Forest Hill Prosthodontists, Cottage Country Bracebridge Dental Centre and Paula Jecu Dentistry Professional Corporation. A fourth practise was not purchased due to matters discovered by the Jaswal Institute in the due diligence phase.

Danial Dehghani, DDS, Owner at Cottage Country Bracebridge Dental Center, commented:

“Johnny Jaswal advised me on the purchase of my first dental practice and is hands-down one of the best lawyers I have ever worked with. He has remarkable negotiation and legal skills and worked diligently to complete my transaction on extremely favourable terms while covering all angles and ensuring I was protected. 

Johnny’s honesty, hard work and great attitude kept the transaction team composed and focused and ensured I accomplished all of my goals. I will be using Johnny as I expand my portfolio and would strongly recommend him as an exceptional and trustworthy advisor.”

Paula Jecu, DDS, Owner at Paula Jecu Dentistry Professional Corporation, commented:

“Johnny was my lawyer on the purchase of my first dental practice and I could not have asked for a better lawyer. There were several hurdles that, without Johnny’s great negotiation skills, would have jeopardized the deal. He was always available when I called, spent time to address all of my concerns and genuinely cared about us. The deal was confusing at times but Johnny made everything sound simple.

Johnny’s legal and business knowledge enabled him to manage and lead the advisory team of bankers and accountants. He negotiated advantageous deal terms, kept us safe and tactfully dealt with obstacles to guarantee a successful deal. I felt he was looking after my best interest.

If you want the best lawyer, use Johnny.”

As previously reported, with respect to financing activity in the period, the Jaswal Institute advised AIP Asset Management Inc. (“AIP”) on a Note Purchase Agreement with Carl Data Solutions Inc. (CSE: CRL, Frankfurt: 7C5) (“Carl” or the “Company”), a developer of Big-Data-as-a-Service and Internet-of-Things solutions for data collection and analysis, pursuant to which Carl has agreed to issue certain funds of AIP senior secured collateralized convertible notes in the aggregate principal amount of $2,000,000.

Jay Bala, CFA, Portfolio Manager at AIP Asset Management, commented:

“Johnny Jaswal is a highly proficient lawyer who has deep legal and business expertise as well as the personality and professionalism to make everyone feel at ease and get the deal done.

Johnny strikes a perfect balance between accomplishing business objectives and risk mitigation. His ability to anticipate and prepare for issues allows you to close a deal on great terms while ensuring you are protected. We would highly recommend Johnny as your advisor.”

About the Jaswal Institute

The Jaswal Institute is a Toronto-based business law firm that provides exceptional legal services, government relations services and a full range of related investment banking advisory services to small- and mid-market companies.

Through our expertise with respect to legal frameworks, regulations, capital markets and business issues, the Jaswal Institute provides its clients a unique outlook on the business environment, offering crucial insight into difficult but important business matters.

Our role is to provide advice and solutions to complex legal, financial and strategic issues, thus enabling our clients to maximize value and realize corporate and personal goals. More information can be found at www.jaswalinstitute.com.

For further information please contact:

Johnny Jaswal
Managing Director
Jaswal Institute
Telephone: (416) 737-9653
Email: [email protected]

The Federal Court of Appeal recently quashed certificates, issued by the federal cabinet, approving the $7.9 billion Northern Gateway pipeline on the basis that the Conservative government did not fulfill its duty to consult First Nations communities.

The judgment was unforgiving of the Harper government, with the court stating:

Canada offered only a brief, hurried and inadequate opportunity…to exchange and discuss information and to dialogue. The inadequacies—more than just a handful and more than mere imperfections—left entire subjects of central interest to the affected First Nations, sometimes subjects affecting their subsistence and well-being, entirely ignored. Many impacts of the project…were left undisclosed, undiscussed and unconsidered. It would have taken Canada little time and little organizational effort to engage in meaningful dialogue on these and other subjects of prime importance to Aboriginal peoples. But this did not happen. Overall, bearing in mind that only reasonable fulfilment of the duty to consult is required, we conclude…Canada fell short of the mark.

Legal commentators have highlighted the significance of the Northern Gateway decision for companies looking to build energy infrastructure, referring to it as landmark, and have stressed the importance of the decision as a guide for federal and provincial governments with respect to carrying out consultation on pipeline projects.

The Jaswal Institute agrees with the impact of the decision but would argue that confining it to energy infrastructure would be a significant mistake for businesses and governments operating in a range of sectors. Specifically, with respect to a topic we have addressed in depth in several articles which can be found on our website, the Northern Gateway decision has the potential to alter the future of online gaming in Canada. To that end, the decision should have the Quebec government considering the future of its website blocking legislation that gives Loto-Québec the ability to order Internet service providers to block a list of gambling websites to be drawn up by the government agency itself. If Quebec is able to overcome the legislation’s myriad of potential challenges, which include constitutional issues, potential violations of trade agreements and net neutrality concerns, applied the right way by imaginative legal minds, the Northern Gateway decision may leave the website blocking legislation open for a knockout punch if the Quebec government doesn’t adapt as required to a shifting Canadian landscape that is emphasizing the need to protect and foster respectful and mutually beneficial relationships with First Nations communities.

As reported in recent press, the Mohawk community of Kahnawake, on the South Shore of Montreal, which has established the Kahnawake Gaming Commission to regulate online gambling, has requested consultation with both the federal and provincial governments to find a solution to the website blocking legislation that will not harm the Kahnawake community. The Mohawk community of Kahnawake, via the Kahnawake Gaming Commission, has become a model enterprise through, for example, its establishment of comprehensive gambling regulations and an advanced server park. The community stands to lose a substantial amount of its revenue if the website blocking legislation proceeds as planned. In a recent interview, Gina Deer, the Mohawk Council of Kahnawake’s Gaming Portfolio Chief, stated that the legislation is “an attack on the revenues of a community-owned and operated gaming site where all the benefit goes back to the community.” As Grand Chief Joseph Tokwiro Norton has reached out to the Quebec government to schedule a meeting to discuss the legislation and its impacts on the community, it is the Jaswal Institute’s view that the government has obligations to seek genuine reconciliation and for direct, good-faith negotiations to fulfill its duty to consult. As stated in the Northern Gateway judgment, the duty to consult is grounded in the honour of the Crown. The duties of consultation and, if required, accommodation form part of the process of reconciliation and fair dealing.

Though many may argue that I am casting the net too wide to apply the Northern Gateway decision to gaming, the court reiterated the legal principle that the duty to consult arises when the Crown has actual or constructive knowledge of the potential existence of Aboriginal rights or title and contemplates conduct that might adversely affect those rights or title. In the case at hand, it cannot be argued that that the Quebec government does not have actual or constructive knowledge of the potential existence of Aboriginal rights or title and is contemplating conduct that might adversely affect those rights or title. Ms. Deer has publicly stated “we have a full history dating back before pre-contact that we’ve conducted gaming not just for entertainment but wager purposes, so it’s not like it’s an activity we hadn’t been doing pre-contact. For us it’s very disheartening to see these sort of laws being created and no consultation or no accommodations for First Nations—especially Kahnawake—when they know how heavily we are involved in the industry.” As mentioned above, the government only requires actual or constructive knowledge of the potential existence of Aboriginal rights. This proposition derives further support from Haida Nation v. British Columbia, in which the Supreme Court delineated that that the duty to consult is grounded in the honour of the Crown and engaged regardless of whether the Aboriginal right has been proven.

Given I have spent my career on Bay Street, it has been commented that my legal position is not business friendly as I am supporting a view that delays legislation that arguably brings clarity to the grey areas with respect to online gambling in Canada. In contrast, I would argue that my legal position to support First Nations consultation in gaming would foster an environment of certainty with respect to the future of online gaming. As reported in a recent Globe and Mail article, the political infighting, prolonged regulatory and court battles and environment of regulatory uncertainty is damaging Canada’s reputation among foreign investors, reducing capital inflow, stifling IPOs and leading to increased unemployment numbers. To put it bluntly, government inability to resolve First Nations concerns is negatively impacting economic growth in Canada.

As illustrated by the recent Northern Gateway decision, I am certain Enbridge Inc. and its partners would agree with my reasoning as the decision was not the result of Enbridge Inc. and its partners not reaching out to First Nations communities. As stated in the Northern Gateway decision, it was not a case where the proponent of the project, Northern Gateway, declined to work with Aboriginal groups. Far from it. Once the pipeline corridor for the project was defined in 2005, Northern Gateway engaged with all Aboriginal groups, both First Nations and Métis, with communities located within 80 kilometres of the project corridor and the marine terminal. Northern Gateway engaged with other Aboriginal groups beyond that area to the extent that they self-identified as having an interest because the corridor crossed their traditional territory. In all, Northern Gateway engaged with over 80 different Aboriginal groups across various regions of Alberta and British Columbia. It employed many methods of engagement, giving $10.8 million in capacity funding to interested Aboriginal groups. It also implemented an Aboriginal Traditional Knowledge program, spending $5 million to fund studies in that area. As expressed above and worth repeating, it was the government that offered only a brief, hurried and inadequate opportunity to exchange and discuss information and to dialogue. The inadequacies—more than just a handful and more than mere imperfections—left entire subjects of central interest to the affected First Nations, sometimes subjects affecting their subsistence and well-being, entirely ignored. Many impacts of the project were left undisclosed, undiscussed and unconsidered. It would have taken the government little time and little organizational effort to engage in meaningful dialogue on these and other subjects of prime importance to Aboriginal peoples but this did not happen. Canada fell short of the mark.

In other words, Enbridge Inc. and its partners had their investment quashed as a result of government inaction and inability to consult and engage at the appropriate time, which opened the project up for challenge by First Nations communities. Frankly, businesses look after their own interests and should not have to worry about whether the government is fulfilling its duty to consult, which is clearly grounded in the honour of the Crown.

Though it is unfortunately too late for Enbridge Inc. and its partners to benefit from the arguments made in this article, gaming operators and governments involved in online gambling should look to the Northern Gateway decision to ensure they do not meet the same fate. As previously articulated by the Jaswal Institute and recent press, Quebec’s website blocking legislation has the support of the largest public online gambling company in the world, Montreal-based Amaya Inc., which is also a licenced partner of Loto-Québec. It is generally agreed that Amaya will play an expanded role in the future of online gambling in Quebec and Canada.

Though an unlikely ally, Amaya should consider supporting consultation with First Nations communities to ensure it does not face the same fate as Enbridge Inc. and its partners. Operators and businesses cannot blindly assume that governments are holding up their end of the bargain as the Northern Gateway decision painfully highlights. Quebec’s current course of action is leaving the future of online gambling in its province to a coin flip. If I was an operator looking to make significant investments in Quebec and Canada, I am not sure I would take those odds.

The legal foundations of Aboriginal rights date back centuries and have been established by numerous court decisions which reinforce the fact that the Crown, both federal and provincial, has duties to consult and, if required, accommodate, which form part of the process of reconciliation and fair dealing. Given that the Government of Canada recently announced its plans to adopt and implement the United Nations Declaration on the Rights of Indigenous Peoples, which stresses the importance of consultation of indigenous peoples to obtain their free, prior and informed consent, it is not hard to come to the conclusion that governments and businesses must deeply consider building trusting and mutually beneficial relationships with First Nations communities that promote the economic growth of our country.

Authored by Johnny Jaswal, Managing Director of the Jaswal Institute. The Jaswal Institute is a law firm that provides exceptional legal services, government relations services and a full range of related investment banking advisory services. If you require further information, please contact Johnny Jaswal.

This article was also published on CalvinAyre.com and can be found at http://calvinayre.com/2016/07/27/business/the-duty-to-consult-and-economic-growth/.