Legal pot shops operations are concerned that illegal businesses on reserves are hurting their business. (Jennifer Smith - Morning Star)

Okanagan, Shuswap cannabis stores sue B.C. for letting illegal shops operate on reserves

14 licensed shops are seeking $40 million to compensate for revenues lost to the illicit market

A group of Okanagan and Shuswap cannabis stores are suing the province over what they call a failure to enforce the Cannabis Control and Licensing Act and crack down on illicit retailers.

Filed in B.C. Supreme court in Victoria on April 27, the lawsuit claims the legal retailers are losing an average of $500,000 a year because unregulated pot shops on First Nations reserves are drawing revenue away from their businesses.

A total of 14 stores in Kelowna, Vernon, Penticton, Salmon Arm, Oliver and other smaller communities filed the lawsuit, which names the Attorney General of B.C., the Minister of Public Safety and the Community Safety Unit (CSU) as defendants. The CSU is responsible for enforcing the Cannabis Act, with a focus on the illegal sale of cannabis.

The plaintiffs say that in 2019 the B.C. government told legal retailers that enforcement measures would be taken against the illicit market on reserves, but those measures never materialized.

“None of these claims have proven to be accurate and no such enforcement activity on reserves was initiated or applied.”

The plaintiffs say they were mislead by the province’s assurance that they would enforce the Cannabis Act on reserves.

“Legal retailers relied on these promises in deciding to undertake the licensing process and the investment into their retail locations. The defendants failed in their duties to the plaintiffs.”

The lawsuit notes that by the end of 2021, the CSU had taken action against more than 70 unlicensed cannabis stores, removed $25 million worth of cannabis products from the illegal market, issued 39 penalties and ultimately closed down 170 unlicensed stores. However, the plaintiffs say almost none of those stores were on First Nations reserves.

The suit says the government has found there are 50 to 100 unlicensed pot shops on reserves, but adds that the number has grown significantly since that estimate. The plaintiffs claim the province is fully aware of the proliferation of illegal shops but have refused to take action.

“The defendants are aware of the continued, and growing, retail sales of cannabis on Indian Reserves in a manner that is circumventing and disregarding the prevailing legislative and regulatory regime in British Columbia for the retail sale of cannabis,” reads the notice of claim.

The retail stores are seeking $40 million in damages to compensate for the loss of sales due to the “negligent failure” of the province to enforce the Cannabis and Control Licensing Act.

An industry survey conducted by the Okanagan Cannabis Collective last year found that 60 per cent of legal retailers in B.C. fear their business is no longer viable due to competition with the illicit market. Ninety per cent said they are in direct competition with illegal operators and 75 per cent said it’s having a negative impact on their business.

READ MORE: Okanagan cannabis retailers feel ‘squeezed out’ by illicit operators, public stores: survey

READ MORE: Splatsin cannabis dispensary closing doors near Enderby


Brendan Shykora
Reporter, Vernon Morning Star
Email me at Brendan.Shykora@vernonmorningstar.com
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