City pushing for closure of 21 illegal cannabis shops but still faces uphill battle

A total of nine officers from Toronto's Municipal Standards and Licensing department are assigned to probe individual locations, issue closure orders and seize cannabis products and money.

Officials have laid 41 charges against operators of illicit storefronts since fall 2018

The number of illegal cannabis shops operating in Toronto increased after the province revealed it would only allow 25 licensed stores — including five in the city — to open on April 1 this year. (Rebecca Silverstone/CBC)

By-law enforcement officers are continuing to investigate 21 "suspected illegal cannabis storefronts" in Toronto, city officials said Wednesday. 

A total of nine officers from Toronto's Municipal Standards and Licensing department are assigned to probe individual locations, issue closure orders and seize cannabis products and money, the city said in a news release. 

In the six months since pot was legalized in Canada, Toronto officials have laid 41 charges related to the operation of illicit shops. 

"We are staffed and prepared to continue this enforcement," said Mark Sraga, director of investigative services at the city.

The most recent raid was on Tuesday at a popular location on Fort York Boulevard. Sraga's team had already been there several days earlier. Overnight Monday, however, staff at the dispensary were able to get back into the premises and reopen the shop by Tuesday morning. 

'Repeatedly, defiantly reopening'

Sraga then had a metal door installed to make it more difficult for employees at the location to get back in. 

Maximum penalties for people charged under the provincial Cannabis Control Act include a fine of up to $250,000 and two years in prison. Meanwhile, corporations can face a fine of up to $1 million. Ultimately, it is up to a court to levy the fines. 

Despite the potential for steep financial penalties, some shops continue to reopen after being shut down.

"We've had a couple of operators who have been repeatedly, defiantly reopening despite our barring of the entry to the premises," Sraga said

"The amount of profit that these operations are making, they aren't just going to close up and go away with the marketplace the way it is right now — with not enough legal storefronts available to service the population," he continued. 

When cannabis became legal in October of last year, Toronto police had closed all but about 12 illicit retail locations in the city. After the provincial government announced that only 25 licensed brick-and-mortar stores would open province-wide come April 1, however, the number of illegal shops ballooned to 32, according to Sraga.

He said that his team will be pursuing enforcement actions against landlords who allow their properties to be used for illegal storefronts. 

Black market activity continues

"We will be charging them and holding them equally responsible," Sraga continued. "We are going to be utilizing every tool that we can to achieve full compliance with the provincial statute."

The faces of Canada's illegal cannabis market are as varied as the legal regulatory schemes currently unfolding across the country, experts say, noting unlicensed dispensaries are not prevalent in every province.

But preliminary numbers support critics' assertions that removing penalties for recreational cannabis use is not enough to stamp out black market activity. 

Data prepared by Statistics Canada indicates consumers spent $1.48 billion on cannabis products during the last three months of 2018. The agency reports, however, that 79 per cent of that money was spent on the illegal market.

Michael Armstrong, a Brock University associate professor who has been studying the business side of legalization, said the numbers paint a more nuanced picture when broken down by province. 

Working from StatsCan and Health Canada data, Armstrong said he's observed that legal market share is highest in provinces that have opened more physical storefronts per capita than in those that have limited legal sales to online outlets or put a tight cap on the number of brick-and-mortar retailers.

In provinces that have made legal purchasing more feasible, such as Prince Edward Island, Nova Scotia and Alberta, legal cannabis sales made up between 29 and 39 per cent of market activity, Armstrong said. But in Ontario, where pot could only be purchased legally online until April 1, legal market share was just 13 per cent during the quarter.

Illegal storefronts still highly lucrative

The situation was worse in British Columbia, he said, noting the province's one legal storefront and online sales operation took in just four per cent of the cash consumers spent on cannabis during the quarter.

There, as in Ontario, dispensaries that figured largely in the black-market landscape prior to legalization are once again doing brisk business.

Last week the province's public safety minister announced a province- wide enforcement team put in place last fall would start to ramp up its efforts to make the dispensaries close their doors.

Mike Farnworth said the 44-member team wouldn't immediately be shutting down unlicensed pot stores but would instead inform operators about new licensing regulations governing marijuana sales in the province.

Police in Ontario have taken a more aggressive approach, with 10 forces across the province banding together to shutter dispensaries. 

Ontario Provincial Police Det. Insp. Jim Walker said the various police services have formed a joint task force that's made at least 44 arrests since its activities kicked into high gear in January. 

Illegal storefronts are still highly lucrative, Walker said, adding officers with the task force have dismantled businesses
bringing in daily totals of as much as $20,000. 

Armstrong, however, questioned the effectiveness of the police strategy, noting that closing a dispensary is more likely to force the proprietor to conduct business underground rather than cease operations altogether.

"If you shut them down, you don't shut down demand, you're shutting down that one supplier," he said. "Shutting down
dispensaries is an important step once there's a legal alternative.

"Until there's a legal alternative, I see it as largely a waste of police resources."

With files from The Canadian Press