Canada must help legal cannabis industry rid itself of illicit market, say experts

The federal government’s ongoing review of the Cannabis Act focuses on protecting public health – but experts and industry insiders say it must also find a way to boost the legal marijuana industry and help it compete with the illicit market.

The law, which legalized recreational marijuana in Canada in 2018, came with an obligation for the federal government to review it three years after it took effect.

After some time, the government launched the review in September 2022. It is led by a panel of five experts from diverse backgrounds in health, law and public policy. The expert panel is expected to report its final findings and advice to the federal government by spring 2024.

“The work of the expert panel will meet the current and emerging needs of Canadians while protecting their health and safety. Through this helpful, inclusive and evidence-based review, we will strengthen the Act so that it meets the needs of all Canadians while continuing to shift the illicit market,” said Federal Health Minister Jean- Yves Duclos, in a press release.

But the Cannabis Council of Canada (C3), which represents cannabis companies nationally, says some marijuana rules and regulations intended to protect public health are undermining the ability of the legal market to weed out the illegal market.

In its submission to the federal government as part of the review, C3 called for sweeping changes to the Cannabis Act. They include reducing the excise tax on cannabis products, reducing the number of restrictions on packaging labeling and advertising, and ending the taxation of medical cannabis.

« We have a regulatory system that doesn’t make much sense, which frankly prohibits the ability of legal cannabis producers to compete with illicit market products, » said Pierre Killeen, Vice President of Legislative and Regulatory Affairs at C3. , to CBC News.

In the most recent federal government cannabis survey, 48% of respondents said they always get their cannabis from a legal and licensed source.

« If we’re going to meet the legalization goals, we need a financially sustainable cannabis industry, » Killeen said. « We are the government’s partners in this enterprise, although we have never really been treated by any level of government as a partner in this enterprise. »

Cannabis stores saw sales of just under $3.8 billion in Canada between January and October 2022, according to the latest data from Statistics Canada. Stores sold roughly the same amount throughout 2021.

Killeen said many cannabis businesses will be forced to close if the federal government doesn’t make changes to marijuana laws — and he’s not optimistic.

“Your best indicator of the future is the past. So if you look at the approach of the Government of Canada and provincial governments to the economic challenges facing the cannabis industry, there is no track record of success. « , did he declare.

“So I think … at this point in the journey, we are pessimistic about the prospects for the Cannabis Law Review, which will result in measures that respond to the urgent and immediate financial crisis facing cannabis license holders. cannabis. »

Michael Armstrong, an operations research professor at Brock University who studies the cannabis industry, agrees that the federal government is unlikely to make some of the biggest changes that C3 wants.

“On some of these requests, I think [C3 is] will get a resounding no because they will contradict the public health and public safety objectives of the federal government,” he said.

« Keep in mind that the balance of the federal government is that they want the legal market to be attractive enough to attract all existing users from the illicit market, but they don’t want it to be so attractive that it brings lots of new users. »

Health Canada recently announced an increase in the amount of cannabis-infused beverages that can be legally possessed.

Armstrong said that’s the kind of smaller adjustment the Cannabis Act review is likely to produce.

He added that C3’s request for less restrictive packaging and labeling rules is right.

« I think it would be perfectly reasonable to let the industry put a little blurb, like a paragraph, saying, ‘Hey, that’s what this product is for,' » he said.

The standard excise tax on dried cannabis flower is $0.25 per gram. Cannabis consumers also pay sales tax on the product and, depending on the province, may have to pay a markup from monopoly retailers such as the Ontario Cannabis Store. The Ontario government recently announced that it earned $520 million from marijuana sales last year.

Brad Poulos, a lecturer at the Ted Rogers School of Management at Metropolitan University of Toronto, said the government had set the excise tax too high to allow the legal cannabis industry to compete with illegal products not taxed – and that it should consider reducing it.

« When it’s time to get rid of this illicit market, when you get rid of prohibition, you know what you’re not doing? You’re not taxing [cannabis] like crazy,” Poulos said.

Poulos added that he would also like to see the government eliminate taxes on medical cannabis.

« There’s only one drug in Canada that’s taxed, and that’s cannabis, » he said.

« So what that tells me is that the government doesn’t actually consider cannabis a medicine. »

It’s one of the many changes Don Davies, NDP health critic and Vancouver Kingsway MP, wants to see come out of the Cannabis Act review.

« Much of the legitimate legal cannabis industry is hampered by excessive rules and regulations which I believe prevent it from reaching its full potential and in fact help to facilitate much of the black market that still exists, » he said. Davies said.

« In my hometown of Vancouver, cannabis store windows have to be shaded. You can’t look inside. A liquor store doesn’t… More importantly, the Product labeling doesn’t really tell consumers what they want and need to know. »

The Conservative Party did not respond to CBC’s request for comment on the Cannabis Act review.

Kun Karunaker, CEO and co-founder of Toronto-based cannabis production company Strains Limited, agrees that industry regulation is excessive. Karunaker’s company holds four cannabis-related licenses and recently applied for a fifth.

But Karunaker credits Health Canada with reaching out to him and his company for comment on cannabis laws — something he said Ontario’s provincial government hasn’t done as well. often.

« I’m not going to criticize Health Canada who right now is listening more to people like us, and they’re having these conversations about where they can improve and where they can improve, » he said. .

Karunaker said he would like federal government officials to visit his facility so they can see what it’s like to operate a cannabis business.

“They need to be there with someone like us who can actually show them and go through these things with them,” he said.

Karunaker said some recent changes to cannabis regulations made him optimistic about the industry’s future — an optimism Davies shares.

« Hopefully we can make progress and we certainly need to because this industry is very important to the future of Canada, » Davies said.

« I’m very bullish on the cannabis sector. It’s sustainable, it’s clean, it’s high tech. Canada can be a world leader. »

Cannabis tourism, a missed opportunity: expert

Susan Dupej, a researcher at the University of Guelph’s Lang School of Business and Economics, said Canada missed an opportunity to become a world leader in cannabis tourism after legalization.

She said removing restrictions on promotion and advertising could lead to more travelers heading to Canada in search of a legal toke.

« The cannabis law says where consumption can’t take place, right? It’s restrictive, » Dupej said.

« But there are no rules, no guidelines around the development potential of spaces where consumption could take place. »

Although cannabis is federally illegal in the United States, Dupej pointed to a Forbes magazine report that valued the US cannabis tourism industry at $17 billion.

Dupej said it’s hard to know how much the cannabis tourism industry in Canada is worth, but she estimates it to be significantly less than $17 billion.

Poulos said that’s not the only area where the United States has an advantage when it comes to cannabis.

« Americans are building the world-famous brands, and so this is a lost opportunity, » he said.