NYT: When Cannabis goes corporate — discusses a Canadian company in Ontario

Marijuana plants grow under artificial sunlight in one of the many climate-controlled rooms at Tweed Marijuana in Smiths Falls, Ontario. Tweed is one of about 20 companies that are licensed to grow medical marijuana in Canada. Credit Dave Chan for The New York Times

Hershey stopped producing chocolate in Smiths Falls, Ontario, six years ago. The work went to Mexico, but the factory remains, along with reminders of the glory days: A sign that once directed school buses delivering children for tours. A fading, theme-park-style entrance that marks what used to be the big attraction — a “Chocolate Shoppe” that sold about $4 million of broken candy and bulk bars a year.

The once ever-present sweet smell of chocolate is gone, too. In the high-ceilinged warehouse, where stacks of Hershey’s bars and Reese’s Peanut Butter Cups once awaited shipment, the nose now picks up a different odor: the woody, herbal aroma of 50,000 marijuana plants.

Clinical, climate-controlled rooms with artificial sunlight house rows upon rows of plants at various stages of growth. In the “mother room,” horticulturalists use cuttings to start new plants. The “flowering rooms” are flooded with intense light 12 hours a day to nurture nearly grown plants in strains with vaguely aristocratic names like Argyle, Houndstooth and Twilling.

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The new owner of this factory, at 1 Hershey Drive, is Tweed Marijuana.  It is one of about 20 companies officially licensed to grow medical marijuana in Canada.

A court ordered the government to make marijuana available for medicinal purposes in 2000, but the first system for doing so created havoc. The government sold directly to approved consumers, but individuals were also permitted to grow for their own purposes or to turn over their growing to small operations. The free-for-all approach prompted a flood of complaints from police and local governments.

Tweed Marijuana moved into a former Hershey’s chocolate plant which closed six years ago. Credit Dave Chan for The New York Times

So the Canadian government decided to create an extensive, heavily regulated system for growing and selling marijuana. The new rules allow users with prescriptions to buy only from one of the approved, large-scale, profit-seeking producers like Tweed, a move intended to shut down the thousands of informal growing operations scattered across the country.

The requirements, which went into effect in April, are giving rise to what many are betting will be a lucrative new industry of legitimate producers. The government, which will collect taxes on the sales, estimates that the business could generate more than $3.1 billion Cdn a year in sales within the next decade.

“It’s just so rare that you have an industry that’s growing but which has a huge established market,” said Chuck Rifici, Tweed’s chief executive. “A year ago, if you asked me if I’d be working while looking at thousands of pot plants, I would never have thought that would be the case.” Before deciding to focus on the marijuana business, he worked as a financial consultant to technology start-up companies in Ottawa, less than an hour’s drive to the north.

Canada is not unique in transforming once-forbidden cannabis into a legal, or at least tolerated, proposition. The Netherlands has long allowed personal possession and cultivation of small quantities while allowing commercial sales through licensed cafes. Spain permits growing for personal use. Portugal has decriminalized possession of small quantities of all drugs.

In the United States, 20 states and the District of Columbia have legalized medical marijuana; both Washington State and Colorado have legalized recreational use with conditions.

But marijuana remains illegal under federal law, creating uncertainty; the federal government, for example, recently banned state-legal marijuana growers from using federal water on their crops.

Canada’s across-the-board law, by contrast, provides a cohesive set of regulations, laying the groundwork for a group of companies to set up operations.

“That was really important for us as investors,” said Brendan Kennedy, chief executive of Privateer Holdings, a marijuana private equity fund based in Seattle that started Tilray, one of Canada’s new legal growers. “People talk about the Colorado model; people talk about the Washington model. I think someday they’ll talk about the Canada model. By creating a tightly regulated federal system, by creating a federal license, by making it difficult to navigate in and capital-intensive, Canada has attracted a different kind of player into this industry.”

When Hershey departed, hundreds of jobs were lost, a major blow to the town of Smiths Falls, which has a population of about 9,000. Credit Dave Chan for The New York Times

For most of its recent history, Smiths Falls (population 9,000) was defined by two things: the 19th-century canal that passes through its center and the chocolate-scented air. The Hershey plant, which had about 800 employees at its peak, was a vital part of the economy. Until a recent repainting, the town’s water tower featured the Hershey’s logo and declared Smiths Falls “the Chocolate Capital of Ontario.”

“It was a huge tourist attraction for the town,” Dennis W. Staples, the town’s mayor, said of the Hershey’s factory, which lured about 400,000 visitors a year. “They were without a doubt an excellent corporate citizen.” The company sponsored sports teams and hockey tournaments and helped underwrite a “chocolate and railway” festival each summer.

The relationship seemed so fixed — the factory had been there for more than 40 years — that Mr. Staples was a bit puzzled in February 2007 when reporters called asking for comment on Hershey’s plan to leave town. No one had told Mr. Staples. “Probably not the best way to communicate to the mayor,” he said.

Hershey shut down its conveyor belts in 2008. But that was just the beginning of the bad news for Smiths Falls. A year later, the province of Ontario closed a nearby home for up to 2,650 developmentally disabled adults. Stanley Tools, an industrial company, left, as did two other American manufacturers. And a portion of the Canadian Pacific Railway’s old transcontinental line, for which Smiths Falls was a regional hub, was ripped up. In all, about 1,700 jobs vanished, according to Mr. Staples.

Chuck Rifici, chief executive of Tweed, at a vault where marijuana is stored after it is harvested and while it is waiting to be packaged and shipped to clients. Credit Michel Comte/Agence France-Presse — Getty Images

At first, Hershey promised to help the town find a new business to take over the plant. A flavored-water company expressed interest but couldn’t get the money together. In 2012, Hershey sold the plant to a holding company controlled by the Omnicom Group, the ad-agency giant. The new owner inquired about demolition permits last summer.

Around the same time, Mr. Rifici, who lives in Ottawa, showed up in Smiths Falls.

Mr. Staples and the town council were supportive. They believed that Tweed would help stem, even if just a little, the outflow of jobs and investment.

“If it’s going to happen somewhere in Canada, why not Smiths Falls?” Mr. Staples said. “It’s an opportunity to be part of an industry that’s sanctioned by the federal government,” he said. “It’s going to create 100 jobs.”

The mayor also had a personal reason. When his younger brother was dying from colon cancer 11 years ago, marijuana was the only way he found relief from his pain.

Despite the warm welcome, Tweed has had to overcome the stigma of a once-illicit business. Mr. Rifici said the factory owner wouldn’t lease the plant to a start-up focused on marijuana. So Mr. Rifici and his business partner Bruce Linton had to form a small investment pool to buy the plant for an undisclosed amount.

Even once in the building, Mr. Rifici said it was impossible to get a bank loan to buy equipment. Initially, Tweed raised money from private investors. More recently, the company has tapped the public markets for 15 million Canadian dollars by issuing stock.

Other licensed marijuana-growing operations have faced similar impediments. When Privateer decided to start Tilray, for example, Mr. Kennedy crisscrossed Canada to find the right spot. It was apparent, he said, that Privateer would hit resistance in many areas. Illegal growing operations had attracted widespread negative publicity for destroying rental houses with mold and creating fire hazards with their lighting systems.

In Nanaimo, British Columbia, Mr. Kennedy found economic development officials who eagerly courted Tilray. The city was looking for new businesses to offset a gradual decline of the forestry and fishing industries, the region’s historical economic base. The officials introduced local zoning bylaws that made it easier for the medical marijuana industry to operate.

Tilray has since bought a building for $3.5 million and spent $17 million to renovate it. The company employs 65 people, with plans to increase that number to 100. “One hundred new jobs in a community of less than 100,000, that’s a big deal,” Mr. Kennedy said.

Still, he said it took a while to find a bank that would deal with a marijuana grower. The Royal Bank of Canada eventually agreed to take Tilray’s account and to process its credit card transactions.

Nor has Tweed won over everyone in Smiths Falls. Like many small, blue-collar towns in rural North America, it has an illegal-drug problem, mainly crack cocaine and marijuana.

Darlene Kantor, 50, works as a building manager, and she says she is thrilled that Tweed came to town with its jobs and millions of dollars of investment. “But my main concern is: Is it going to make the illegal drugs more rampant?” she said.

Some are more skeptical about whether Tweed will be able to provide many jobs. “They were talking about creating jobs and such, and it’s not going to, it’s not going to do anything,” said Andrew Brinkworth, 18, outside the downtown Tim Hortons. “A lot of people here have criminal records, and they’re not going to be able to get a job at the plant if they have a record.”