Cannabis in Canada
One Year Later
In June of 2018, the Government of Canada cast its ballots for the final vote on the nationwide legalization of recreational cannabis. By October 17, the Canadian Cannabis Act had become the official framework governing the sale, possession, production, and distribution of cannabis products nationwide. Today, Canadian adults can possess up to thirty grams of cannabis in public, grow up to four plants per household, and purchase cannabis products from provincially operated retail outlets.
In the weeks following this historic event, speculation arrived from all sides as to how the legalization of recreational cannabis would affect Canadians and how the cannabis industry would affect the Canadian economy. Nearly one year after the casting of the ballots, we examine how things have changed.
According to the quarterly National Cannabis Survey released in May by Statistics Canada, there has been an increase in the number of people who say they have used cannabis. In October of 2018, just after legalization, that number was fourteen percent. By May of this year, it had grown to eighteen percent. While the vast majority of reported users are between eighteen and twenty-five, the increase seems to be mostly among men between forty-five and sixty-four. Consumption among other groups such as women, people under twenty-five, and seniors remains roughly the same.
The majority of the people who reported using cannabis in that study claimed to have tried cannabis in the past, but first-time use has increased substantially as well. More than 327,000 people claimed to have tried cannabis for the first time in the first quarter of 2018, but in the May survey, this number had nearly doubled to just shy of 650,000 people. While it was not initially clear how legalization would affect the stigma around cannabis, early data is indicating that many Canadians who had not tried it before are willing to try it now.
The number of cannabis users continues to increase at a staggering rate, but according to an article about the results of the National Cannabis Survey from the website of news organization CBC, these rapidly rising numbers are often referred to as a ‘straw fire effect’ in that they burn brightly for a short time before slowing down when the novelty wears off. Researchers are waiting to see how long this initial rising trend will continue.
Even though cannabis can be obtained legally from provincial retail outlets and online, black market sales still represent a majority market share. According to an article published by Toronto newspaper The Star, seventy-nine percent of the cannabis purchased in Canada during the last quarter of 2018 was illegally purchased through unauthorized dealers. Though illicit markets are still holding a substantial portion of cannabis sales, legal markets are positioned to grow going forward.
Supply chain issues and regulatory bottlenecks are major factors in the slow shift toward the public adopting legal cannabis product sources. According to a Global News article from April of this year, supply has been unable to match demand, and as a result, many consumers turn to black market sources.
This shortage has not resulted from a lack of available product. According to Health Canada, Cannabis companies can and have been producing more than enough dried cannabis product, but that issues arise during distribution. Tammy Jarbeau, a spokeswoman for Health Canada, told Global News in April, “The supply of cannabis is not the issue. The issue is the supply chain, in other words, converting the raw product into packaged goods and moving it to distributors or retailers and to customers.” Across Canada, there is currently enough qualified farmland to produce one million kilograms of cannabis per year.
As a result of these challenges, legal retailers are finding it difficult to keep the product in stock, which is causing consumers to return to black-market channels. Fortunately, the May survey reports a promising trend of increased legal acquisition and decreased black market sourcing over the last year. While less than one million people obtained cannabis legally in the first three months of 2018, that number increased to 2.5 million people in the first three months of 2019. During that same period, the number of people purchasing cannabis illegally decreased by more than ten percent.
Beyond availability, one of the most significant barriers to legal cannabis for the average consumer is price. According to research done by Statistics Canada, legal cannabis costs an average of $9.70 per gram while cannabis purchased illegally will cost on average $6.51 per gram. Fortunately, some experts believe that prices will soon come down.
Because high demand is being predicted, producers have continued producing, but regulatory bottlenecks have stalled distribution, and inventory is being stockpiled as a result. According to a report by U.S. based cannabis research firm BDS Analytics, Canada could reach an oversupply of cannabis by the end of this year. When that happens, BDS expects that the retail cost of legal cannabis products will be driven down. This will enable more consumers to purchase cannabis legally, further eroding illicit markets.
While the fight for legal cannabis has been won in Canada, Canadian consumers may still face consequences when it comes to international travel. A guidance document published on the website for the Office of the Privacy Commissioner of Canada recommends not using a credit card when purchasing cannabis products either online or from private retailers. Many credit card companies store their records in the United States where U.S. regulatory authorities have the legal right to read them without a warrant.
While many states have relaxed their laws, the U.S. Customs and Border Protection Agency is a federal department, and cannabis is still considered a controlled substance at the federal level. The agency has stated that it will continue to apply long-standing federal regulations that treat cannabis as an illicit drug. Further, U.S. Customs has in the past denied entry to Canadians who work in the cannabis industry on drug trafficking grounds, including employees of the Canadian government. In some cases, this can result in a lifetime ban from the United States.
A statement posted to the U.S. Customs and Border Protection Agency website clarified when Canadians who work in the cannabis industry will be allowed entry: “A Canadian citizen working in or facilitating the proliferation of the legal marijuana industry in Canada, coming to the U.S. for reasons unrelated to the marijuana industry will generally be admissible to the U.S., however, if a traveller is found to be coming to the U.S. for a reason related to the marijuana industry, they may be deemed inadmissible.”
Despite these many hurdles, the Canadian cannabis industry is booming. As the first among G7 countries to legalize cannabis nationally, it is operating at a scale that is as yet unrivalled. According to Statistics Canada, the Canadian Government earned 186 million dollars on products and services related to cannabis since legalization. This includes 79 million in the fourth quarter of 2018 and 107 million in the first quarter of 2019, increasing more than 34 percent between October and May.
Extrapolating from these figures, U.S. cannabis research firm Brightfield Group has predicted that the Canadian Cannabis industry will be worth five billion dollars by 2021.
According to Greg Engel, Chief Executive of Canadian cannabis producer Organigram, the biggest threat to Canada’s present advantage is competition from the United States. In a recent interview with Yahoo Finance, Engel said that he believes the Canadian Chamber of Commerce should help the industry mitigate these challenges.
“What I really do see as a threat to the Canadian industry is changes in the U.S. from a regulatory framework perspective,” said Engel. “We’ve got an opportunity to build on the advantage we have in the near-term.”
The Canadian cannabis industry is positioned for even more growth going forward. As price and quality metrics improve and illicit markets begin to lose their advantage, more Canadian consumers will purchase their cannabis through legal channels. The industry will prosper and innovate, and Canadian cannabis users will find an abundance of new products coming to market. Capsules, oils, sprays, and many more innovations are already available. Edibles and beverages are soon to hit the shelves. Cannabis is in high demand and growing like a weed.