Canada's legal cannabis market infiltrated by organized crime?

According to Survey from Radio Canada, The Canadian cannabis industry is said to lack transparency, allowing organized crime or individuals affiliated with criminal organizations to infiltrate the industry. This discovery contrasts with the stated aim of legalization, which is supposed to eradicate organized crime by depriving it of its sources of profit. If individuals with links to criminal organizations can reconvert to the legal business and act as a bridge to the parallel world of drug trafficking, then legalization is in vain.

Legalization takes place under the aegis of Health Canada, whose mission is to grant licenses to verified and safety-tested individuals. However, the federal organization is not properly equipped to do this, as its primary mission is to verify product quality. What's more, financial schemes such as family trusts make it possible to keep the names of certain stakeholders out of the public eye.

A weak verification system

Radio Canada would not divulge the names of either the individuals or the companies involved, but reports that one investor in a very large cannabis company had long-standing links with certain Mafia members and major drug traffickers. Another businessman in the same company is also said to have links with the Rizzuto clan, a Montreal Mafia family. The investigation points to another case where a company was sold to an individual whose entourage includes drug traffickers.

Yet Health Canada claims to have «no evidence» of such infiltration. In this case, producers are subject to due diligence investigations that examine possible affiliations with criminal organizations and criminal records before a production license is issued. Those concerned must obtain security clearance in order to hold a license. The Royal Canadian Mounted Police (RCMP) provides information and proof of possible affiliation. Health Canada then decides whether to grant the license. The federal police reported that 10% of applicants were suspect in their eyes, but apparently some slipped through the cracks.

In fact, there are ways of circumventing these checks. Family trusts, for example, make it possible to invest in a company without the beneficiary's name appearing in the transaction. Marie-Pierre Allard, professor of taxation at the Université de Sherbrooke, explains: «The beneficiaries of the trust are not revealed publicly, it's anonymous. Some sources of funding come from abroad including tax havens. As a result, verifying the source of funding is extremely complex, but these transparency problems are not unique to the cannabis industry.

With regard to Health Canada's safety investigations, some consider them to be limited, notably because they only concern the company's managers, not the shareholders. The real owners of the companies, those to whom the profits are paid, are therefore not controlled by these investigations. As a result, it's easy for powerful families or criminal organizations to set up a front man with a clean criminal record. Conservative Senator Claude Carignan criticizes this naiveté: «If there's someone with a criminal record, that's not the person they're going to use to apply for a license. You'd have to be completely naive to think that.

The senator had tried to have Bill C-45 amended to require greater transparency in the cannabis industry, but to no avail: «If we want to eliminate the mafia from the cannabis market, we can't allow them to use tax havens or trusts to enter indirectly through the back door.

At the same time, tax expert Marwah Rizqy had suggested to the Senate that companies operating on a trust model should be excluded from the licensing system: «Perhaps it would be wise to refuse the license outright, since you are not in a position to establish unequivocally that the security clearance is really valid». His recommendation went unheeded.

However, a recent adaptation of regulations includes more individuals in safety investigations, without guaranteeing complete transparency.