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Legalizing recreational cannabis was supposed to end organized crime’s control over the cannabis industry. But without a public registry of beneficial owners and publicly operated stores, we have no way of knowing what’s happening.
Ottawa (07 Nov 2018) — Less than a month after recreational cannabis was legalized, the CBC is reporting that some licensed cannabis growers have ties to organized crime. Reporters found that companies owned or partially owned, by individuals involved in organized crime were given cannabis production licences by Health Canada.
Ability of companies to hide identity of owners reason for problems
While Health Canada and the RCMP are supposed to do security checks on applicants for licences to produce cannabis, the ability of companies to hide the identity of the real owners (known as beneficial owners) means it takes a lot more resources to do the security checks. An RCMP superintendent interviewed by Radio Canada admitted that the RCMP is unable to fully investigate every company.
Companies based in tax havens and family trusts were identified as being particularly problematic for Health Canada and the RCMP.
Public registry of beneficial ownership of companies needed
A public registry of the beneficial ownership of cannabis companies was proposed by the Senate during the debate on the legislation of cannabis. If the federal government had accepted this proposal, it would have made the security checks on licences to produce cannabis a lot less complex.
Under the proposal, the names of people owning or exercising control of a company applying for a licence to produce cannabis would have been made public. This would have included directors, officers, members, major shareholders and others controlling the company directly or indirectly. The proposal would also have included those involved in parent companies — making it harder for the real owners to hide behind a network of shell companies.
But it’s not just the cannabis industry where a public registry of beneficial ownership is needed. The level of secrecy around who controls companies registered in Canada is being used for tax avoidance, money laundering and for financing terrorism. There’s even been a term coined for using Canadian registered companies to hide or launder money — “snow washing.” A public registry would make snow washing a lot more difficult.
Cannabis retailing needs to be public
The reports of links between some cannabis growers and organized crime raise new questions about the decision of some provinces to privatize all or part of the retailing of recreational cannabis. If organized crime is involved in growing legal cannabis, it would be extremely naïve to assume that they aren’t also looking for way to get involved in selling it.
Provinces that decided to privatize cannabis retailing have said private stores will be regulated. But that’s the same claim that the federal government made about cannabis growers. Because monitoring businesses operating privatized services costs money, provinces will be tempted to cut corners.
Legalizing recreational cannabis was supposed to end organized crime’s control over the cannabis industry. But without a public registry of beneficial owners and publicly operated stores, we have no way of knowing what’s happening.