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Canada's three-month-old legal cannabis market is a ripe target for counterfeiters who could disguise unregulated weed as authentic, government-regulated product, according to an anti-counterfeiting expert and a cannabis technology entrepreneur.
"I believe it's a certainty," says Lorne Lipkus, chair of the Canadian Anti-Counterfeiting Network and a partner at Toronto law firm Kestenberg Siegal Lipkus. Lipkus practises brand-protection law and has consulted with individuals in Canada's legal cannabis industry.
"Everything that you can think of that someone is prepared to buy is likely being counterfeited."
Legal marijuana could be particularly susceptible to fakery, Lipkus warns, because it's sold in sealed, opaque packages that can be copied by experienced counterfeiters. Even security features such as the government excise tax stamps that seal each package of legal cannabis can be replicated well enough to dupe unsuspecting consumers, he says.
"Nobody is going to be opening packages on a regular basis, wanting to see if what is inside is counterfeit. They will look at the package itself."
'It might still be cannabis, but it'll be substandard, and they will make a lot more money than a legitimate company' - lawyer and anti-counterfeiting expert Lorne Lipkus
An ongoing supply shortage of legal cannabis could increase the odds of counterfeiting, Lipkus suggests.
"(The) moment there is a popular product that people want — it could be a particular strain (of cannabis) that's of more value than another strain, that is in shorter supply, and costs more money than another strain — well, someone will want to counterfeit that, because they'll want to earn more money doing that, knowing that they can not pay the appropriate taxes, they don't have to pay for the delivery system that a legitimate entity does, and they can put a substandard product in," he says.
"It might still be cannabis, but it'll be substandard, and they will make a lot more money than a legitimate company."
Thunder Bay-based entrepreneur Donna Tremble also thinks counterfeit cannabis is inevitable, and she's building a business around trying to stop it. The CEO of cannabis technology firm Kaamos Inc. has developed anti-fraud software for the regulated marijuana industry, inspired in part by her previous experience working for her father's Indigenous tobacco distribution business in Ontario.
"There are so many stories, straight from the warehouses, talking about how product gets diverted straight from the warehouse on a reserve in southern Ontario, and how it gets out to Manitoba and Alberta where there are higher tobacco taxes," says Tremble.
"Cannabis, like tobacco, is a highly regulated industry," she adds, explaining that the duties on legal cannabis create a similar opportunity for counterfeiters to profit by circumventing taxation.
Tremble has already noticed illicit cannabis being sold in packages designed to look like Health Canada-approved product.
"That's not a true counterfeit, because it's not, let's say, a fake Tweed package," she says, referring to a leading producer of legal cannabis.
"We haven't seen that yet. But I think once the edibles market opens up and the vape pens start to come onto the market, that's when we might start to see some more counterfeit products."
That's because cannabis edibles and concentrates require more processing than simple cannabis bud, which means more movement from place to place. Every time a product changes hands through a supply chain, Tremble says, it's more susceptible to counterfeiting, a form of fraud.
Lawyer Lorne Lipkus agrees.
"The moment you start packaging something that is edible, or an oil that has to go into some sort of a delivery system, I think you're going to find more counterfeiting opportunities," he says.
A recent report in U.S. cannabis publication Merry Jane lends credence to that notion, explaining how international counterfeiters replicate branded cannabis vape pen cartridges from states where marijuana is legal and regulated, like California. Then, the counterfeiters sell those fake cartridges into jurisdictions where marijuana remains illegal, where dealers fill them with unregulated cannabis oil and sell them.
Donna Tremble's cannabis fraud-prevention software, called Aurinko, is designed to prevent such hijinks in the cannabis industry by identifying anything unusual in a company's supply chain. The product is ready for a soft launch, she says.
"Regulated cannabis production generates a ton of data," says Tremble, such as seed-to-sale tracking information, or security records of who enters which rooms in a government-regulated cannabis production facility.
Aurinko crunches all that data, using machine learning algorithms to teach itself what normal supply chain operations are supposed to look like — and by extension, what they're not supposed to look like.
"The program will find anomalies in the data that are suggestive of something happening that's not supposed to happen," says Tremble.
In order for software such as Tremble's to take off, Canadian cannabis firms will have to perceive a real risk from counterfeit cannabis. Lipkus suspects counterfeiting is already happening in Canada's cannabis market, and sees no reason why bogus bud couldn't make its way onto the shelves of recreational cannabis stores regulated by provincial governments.
"You've got counterfeit tobacco products in mainstream, legitimate stores across the country," he says.
"So if they can do that, why wouldn't they be able to do this?"