Shortly after taking office in November 2015, Justin Trudeau, Canada’s new prime minister, asked the ministers of public safety, health, and justice to examine nationwide adult use legalization, ultimately hoping to create a system for the growth, distribution, and regulation of cannabis.
Medical cannabis has been permitted across the country since 2001, but in the last decade there’s been government resistance toward decriminalization of the drug. The former Prime Minister, Stephen Harper, called cannabis “infinitely worse” than tobacco.
Trudeau’s plans represent a rather considerable change for the nation, from a political standpoint.
Five months after Trudeau’s request of his ministers, at the Special Session of the United Nations General Assembly on the World Drug Problem, UNGASS, in April 2016, Canadian Minister of Health Jane Philpott announced the country’s plans to introduce legislation that would legalize recreational cannabis in the spring of 2017.
According to polls, most citizens approve of full legalization, and have for a few years. If Trudeau and his party’s plans unfold seamlessly, Canada would be the first country since Uruguay to fully legalize and regulate cannabis. When considering the potential global impact of Canada’s plans to legalize, it’s worth noting that Canada has roughly ten times the population of Uruguay, and is a G7 giant.
But who might be the major players and what will this new marketplace look like?
A multibillion dollar industry
According to the most recent Canadian Tobacco, Alcohol and Drugs Survey in 2013, 11 percent of the Canadian population over 15 years of age smoked cannabis at least once annually.
A poll released in December 2015 by Forum Research, a Canadian polling and market research firm, found that 19 percent of respondents age 18 and older had smoked cannabis in the past year—another 24 percent said they’d try it once it became legal. With a population just smaller than the Golden State, at around 35 million, the potential market size surpasses 15 million.
Lorne Bozinoff, president and founder of Forum, says the results of their most recent poll aren’t surprising. “It’s not even an untried idea anymore,” he said. “It’s an idea whose time has come.”
Support for legalization risen steadily over the past half decade. As recently as 2010, only 50 percent of Canadians supported cannabis legalization, according to a Angus Reid poll. But in 2012, the same year voters in the U.S. states of Colorado and Washington legalized cannabis, the percent of legalization backers countrywide jumped to 57 percent, then to 59 percent in 2014. An Ekos post-election poll puts support even higher, with two-thirds of Canadians polled in favor of legalization. And coinciding with Philpott’s UNGASS announcement in April, an Angus Reid Poll found the approval rating had continued to inch higher, with 68 percent of Canadians now backing the idea.
While there aren’t current projections regarding taxation rate, it will likely be steep. For comparison, a pack of cigarettes is estimated to cost roughly $2.50 to produce in Canada, but the final price can range from $8 to $12–a combined federal and provincial tax rate between 60 to 80 percent.The Canadian Imperial Bank of Commerce estimates that potential tax revenues could fall between $2 and $5 billion a year conservatively from up to 10 billion in sales. Trudeau has suggested the government doesn’t intend to profit much from possible tax revenues, focusing funds instead on mental health and addiction programs.
So far the outline of where all this money could go isn’t set, but Bozinoff says their December poll showed Canadians had varying preferences regarding where the funds from legal cannabis would go.
“People seem pretty intent on debt reduction, but also thought monies should go towards forms of drug and alcohol treatment—a common idea when considering drug revenue,” said Bozinoff.
Canada and cannabis commercialization
Canada isn’t a newcomer to medical cannabis, but the industry has really only gained traction in the last few years.
The now-replaced Marihuana Medical Access Regulations allowed doctors to recommended cannabis to patients who would either grow it or select someone to do so for them. Under the MMAR rules, Health Canada supplied quantities of medical cannabis grown by a single producer to help meet patient demand, but there were concerns this system was open to abuse and that patients weren’t able to gain reasonable access to the drug. This prompted the government to look for outside help—privatized growers to take on the production and distribution burden—and to pass a new law in 2013, the Marihuana for Medical Purposes Regulations.
The new law stated that the country’s nearly 40,000 medical patients couldn’t grow the drug themselves, but must use designated licensed producers and providers and receive orders by mail. There are currently 32 registered suppliers in the country.
There was yet another twist in Canada’s medical cannabis world in February when a federal judge sided with medical cannabis patients who fought back on the no-home-grow provision. The judge ruled that the new medical cannabis regulations were flawed and gave the government six months to revise them.
In the meantime, despite regulatory confusion and uncertainty about how legalization might unfold, licensed medical cannabis businesses are pushing ahead.
One of those licensed providers is Tilray, a subsidiary of Privateer Holdings out of Seattle. Tilray is headquartered in Nanaimo, British Columbia, and CEO Greg Engel said the community has welcomed them with open arms.
The company used local contractors and supplies to build their 60,000-square-foot facilities, and a report found that, since opening, Tilray has brought $48.1 million in economic activity to the city, and created more than 200 jobs.
The cannabis industry, like any market, operates under supply and demand. The most recent marketplace data released by Health Canada shows the amount of stock outweighed the amount sold in the last two quarters.
“The medical market hasn’t grown as fast as predicted—we’ve still got a lot to do educating both medical professionals and the general public about the drug’s benefits,” Engel said.
Today, licensed medical cannabis providers that must send cannabis by mail face growing competition from a sea of storefront operations that have popped up, especially in Vancouver. Last June the city became the first in the country to adopt regulatory business measures for medical retail dealers and compassion clubs, giving new applicants and existing operations until August 24th, 2015 to file for a license to operate. (Here in the U.S., some states made a similar move to regulate existing medical cannabis storefronts after illegal shops proliferated.)
In late October, the city announced it had received 176 applications before the deadline, approving 11 for additional development, planning to investigate 30 claims further and rejecting the rest. Denied applicants with storefronts were ordered to shut down their businesses by April 29th or find a new location in compliance with zoning regulations, rules city officials have now begun to enforce. Currently 10 operations have gained development permits and 11 are in review according to city records. And as of May 17th, at least 30 cannabis businesses in the city have closed, while 139 violation tickets have been issued to the city’s 61 shops still operating without a license.
Toronto officials are considering introducing similar bylaw amendments to help handle the estimated 100 illegal cannabis storefronts operating in the city, with inspectors sending out notices to the landlords of these businesses warning them of the heavy fines associated with harbouring illegal shops, fees maxing out at CAD $50,000. Recently, in addition to warnings, there have been increased raids.
Engel said it’s unclear just where these illegal businesses source their cannabis product, and some patients still mistake them for licensed venues, while others don’t seem to care about the storefront’s legal status. A lot of these challenges will probably even out over time, he said, as more people come to understand the laws and more illegal operators are shut down.
There have been significant changes in the marketplace since last spring. The number of clients authorized by physicians is increasing each month, and the growing talk of recreational legalization has sparked further normalization of cannabis use overall. “Anytime there’s recreational discussions, the medical marketplace is stimulated,” Engel said.
Tilray will stick to medical cannabis, Engel said, but that’s far from the case with their parent company. Privateer is looking to set up a new company to cover the recreational market. And they’re not alone.
The potential players
Taylor West, deputy director of the D.C. based National Cannabis Industry Association, said Canada has the attention of some members.
“The potential of the Canadian market is certainly a topic of conversation within the industry, but it’s still a bit early to see how everything will shake out,” she said.
One NCIA member looking north is Dixie Elixirs, which is known for their cannabis-infused drinks. While edibles are still illegal in Canada, MMPR underwent an amendment last summer allowing licensed providers to apply to produce and sell cannabis oil products. Dixie Elixirs’ chief marketing officer Joe Hodas said that Canada is very much on the company’s radar, though the edibles industry remains a bit murky.
“Canada has always, and continues to be on our target list of countries to move into,” said Hodas. “We’ve had internal discussions about the matter and begun to talk with partners in Canada that would act in an affiliate relationship, licenced to manufacture, distribute and market the Dixie brand.”
Joe Hodas said while Canada is not a top priority for Dixie Elixirs, he certainly agrees Canada is a great test bed for other markets, especially abroad.
“Right now transitioning neighbouring states offer, economically speaking, low-lying fruit,” he said, drawing most of their current investments, “but we’ll be watching our neighbours to the north closely.”
One Canadian cannabis company with a lot riding on the success of the country’s medical, and eventual recreational, cannabis markets is Canopy Growth (formerly Tweed Inc.). CEO Bruce Linton wants to situate Canopy at the top of both marketplaces, and he’s been acquiring the necessary facilities and well-known partners–including, most recently, Snoop Dogg.
In 2012, Tweed bought the Hershey company’s former factory in Smith Falls, Ontario, giving them nearly 500,000 sq. feet of manufacturing space close to two of the country’s biggest urban centers—Montreal and Toronto.
“Everyone asked me what the heck I was doing starting so big. People generally don’t go all out like we did, majorly investing in a marketplace which currently had no active clients, but we thought it was a really good idea,” said Linton.
More recently, Tweed has also been making acquisitions. In August of 2015, they acquired Bedrocan Canada, a subsidiary of Netherland’s only nationally recognized medical cannabis provider, making it a powerful player in Canada’s cannabis industry.
“Part of the reason we wanted Tweed to be positioned where it is now is because we want our success to reach far beyond Canada, to the global marketplace,” said Linton. “We think others will look over and see what we’re doing here in Canada and want in.”
In an email to Cannabis Wire, Brendan Kennedy, CEO of Privateer Holdings echoed some of Linton’s thoughts, writing that Canada could be the next cannabis giant, and their company doesn’t intend to let the opportunity pass by. They estimate the adult cannabis consumption market in the country could be worth $5 to 6 billion.
Kennedy wrote that it’s too early to predict just what the regulatory model might look like in Canada–but Privateer is keeping an eye on the matter.
Tilray tried to win licenses to grow and sell cannabis in Uruguay and New York as each established their medical cannabis programs, but they haven’t won any other than Canada. This year, Tilray has obtained a license to export medical cannabis products from Canada to Australia, which legalized medical cannabis this year.
“We are playing the long game and we’re focused on setting up operations we believe will be sustainable over the long term,” Kennedy said.
The legislative process to legalize cannabis nationwide will begin next spring
At the UN general assembly meeting this spring, Canada’s health minister said, “Our approach to drugs must be comprehensive, collaborative and compassionate. It must respect human rights while promoting shared responsibility. And it must have a firm scientific foundation. In Canada, we will apply these principles with regard to marijuana.”
She continued, “To that end, we will introduce legislation in Spring 2017…While this plan challenges the status quo in many countries, we are convinced it is the best way to protect our youth while enhancing public safety.”
When contacted for comment, the Liberal Party of Canada said they could not address any questions regarding legalization.
“The Government of Canada remains committed to creating a system of strict regulation for legalized marijuana, with strong sanctions for those who sell outside this system. This will help ensure that we keep marijuana out of the hands of children, and that we keep the profits out of the hands of criminals. The next step in this process is to launch a task force that will provide the Government with expert advice on how the legalization process for marijuana should take place,” Ian McLeod, the Senior Advisor of Media Relations for DOJ Canada, wrote to Cannabis Wire.
Now that it appears that it’s not a question of when Canada legalizes cannabis–the “how” is in the spotlight. The debate over who will eventually supply legal cannabis in the country is gaining momentum, with pharmaceutical and grocery giants like Loblaws and Shoppers Drug Mart showing interest in selling cannabis products and the Canadian Pharmacists’ Association calling for primary control over the marketplace–a proposal the Canadian Medical Cannabis Industry Association says isn’t feasible. Meanwhile the Canadian Association of Liquor Jurisdictions set up an internal committee to investigate the association’s potential role in the future legal cannabis marketplace.
April’s Angus Reid Poll found 67 percent of Canadians want legalized cannabis to be sold by provincial agencies, such as liquor control boards, but when asked to compare cannabis to tobacco, prescription drugs, hard liquor and lettuce, pollers linked cannabis most closely to prescription drugs. And neighboring provincial leaders have totally differing stances on the subject, with Ontario’s Premier Kathleen Wynne coming out in line with the province’s Public Service Employee’s Union — favoring the sale of cannabis through liquor control models — and Quebec’s Finance Minister claiming back in February the province had no intentions of being involved.
Concrete plans for how legalization will ultimately play out are still in the works, but many entrepreneurs interested in Canada’s cannabis industry are moving–or seriously considering doing so–now.
“We truly believe Canada’s onto something really big,” Engel said. “Honestly, everyone’s pretty excited.”
Correction: An earlier version of this article stated that Prime Minister Justin Trudeau took office in October 2015; he was elected in October 2015, and took office in November 2015.