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The department served notice Monday it will soon invite firms to bid on a contract to cultivate and distribute medical marijuana, which is now being done in Flin Flon, Man., by Prairie Plant Systems Inc.
The winning firm will be expected to deliver a steady stream of government-approved dope to certified medical, users starting in the fall.
Health Canada posted a notice on a government tenders website saying it would put out a formal request for proposals in the spring of 2008, without specifying a date.
Ottawa has been a reluctant supplier of pot since a series of court rulings forced it into the medical marijuana business.
The marijuana program licenses certified medical users to grow their own pot, to have someone grow it for them or to buy it straight from Health Canada.
The department has paid Prairie Plant Systems more than $10 million to cultivate government-certified dope in a mine shaft in Flin Flon, Man.
The company couriers the weed directly to users in 30-gram packets.
Health Canada first awarded Prairie Plant Systems the deal in late 2000 and has been extending it in six-month increments since 2006, says company president Brent Zettl.
He added the company has yet to decide whether it will bid on the new contract, although he expects it will.
"We didn't expect that this process would be able to continue. ... These are the rules that they have to abide by," Zettl said.
"We had anticipated internally that something would have to happen. We expected it would be something along these lines."
The winning firm could wind up in the advantageous position of one day being the sole supplier of medical marijuana.
Health Canada has said it plans to eventually end its licensing of home-grown weed. That would force all medical users to buy their supplies directly from Ottawa, perhaps through pharmacy distribution.
Ron Marzel, a Toronto lawyer who recently brought the matter before the Federal Court on behalf of a group of medical users, says he's concerned about any monopoly on legal production and supply of the drug.
"The government's just had such a horrible track record in terms of supplying medication to patients," he said.
"There are many different strains of cannabis out there and the government's position to date has been, 'Well, we're growing one strain and we've got one supplier and that's it. Live with it.'
"The pharmacological evidence is that different ailments require, and different symptomatology require, treatment with different strains. And the government hasn't paid heed to that at all."
The Federal Court decision in January struck down a key restriction in the government's pot program.
A judge's ruling eased Ottawa's grip on medical marijuana by allowing growers to supply the drug to more than one user. Prior to the ruling, each licensed grower could supply only one licensed user.
The federal government is appealing the decision.