What we have learned after 5 years of legalisation in Canada

By: Contributor Activism

Canada remains one of the few countries in the world that allows regulated access to recreational marijuana. But, five years after its legalisation, there’s still a bittersweet feeling about its success. The people of Canada are very satisfied in terms of public policy; but, in contrast, the country’s cannabis industry is struggling to survive due to illicit market competition, strict regulations, and taxes.

Five years after Canada legalised cannabis (on 17th October 2018), experts are presenting a nuanced review of the results of the adopted policy. Sadly, these results don’t reflect a total success of the policy, and researchers consider it to be a mixed situation, since the benefits in terms of social justice outweigh the health benefits, and especially the realisation of an economically sustainable market.

Canada’s move to legalise cannabis aimed to keep it out of the reach of young people, to prevent criminal profits, and to protect public health and safety, by allowing adults access to a legal supply of quality-controlled cannabis.

While many felt that this was a progressive process, some experts were concerned about the potential negative consequences that this could have on the health of Canadians. And, as of now, the legalisation of cannabis in Canada doesn’t seem to have been the public health disaster envisioned by some of its detractors, but neither can it be described as a comprehensive or unequivocal success.

What the data says

In terms of tangible results, data suggests that cannabis use rates, related emergency visits, hospital admissions, and driving incidents under the influence of cannabis have remained constant or have increased only slightly. The health consequences that alarmists were constantly warning of, such as increases in schizophrenia, psychosis, and road traffic deaths, so far do not show any correlation with the increased access.

However, there’s been a positive change in the supply of this substance. Most users now buy cannabis through legal channels rather than by illegal means. According to the Canadian Cannabis Survey on individuals who reported having used cannabis in the last 12 months, 68% reported that they generally obtain cannabis legally, either from legal stores (61%) or from online sources (7.7%).

There has also been a significant reduction in cannabis-related arrests, resulting in fewer people suffering the stigma and potentially permanent consequences of having a criminal record. Experts highlight these changes as crucial markers of social justice, which could indirectly improve public health in general.

Cannabis possession charges for youth and adults, before and after legalisation

A legalisation below the expectations

Five years later, we are really seeing that cannabis is a viable industry on an economic level. And the signs of this viability are everywhere. However, the days of wine and cannabis, when money was no problem and a high demand was expected, are now long gone, having been replaced with the sobering reality that legalisation has been far below expectations.

The largest firms (Canopy Growth Corp., Aurora Cannabis Inc., and Tilray Brands Inc.) have reduced their investments, fired thousands of workers, and faced balance sheets that reflect a turbulent market with a path towards profitability that is much longer than they ever imagined. Others weren’t so lucky, though: they either sold their business to a larger rival at a bargain price, failed, or went bankrupt.

Until there is a significant regulatory reform in all the critical weak points of the industry, we will continue to see companies fail and a lot of consolidation in the market. What’s more, many cannabis businesses were doomed from the beginning: they spent quickly and furiously in anticipation of legalisation, rushed to produce the right amount of marijuana (at first there wasn’t enough, and then there was too much), and discovered that serving consumers wasn’t that easy. It was the perfect breeding ground for a market correction to occur.

Too much regulation

Experts say that part of the problem is excessive regulation of cannabis whilst the country tries to maintain a careful line between public health and the building of a solid industry. Others say that it’s simply a matter of too many players and too much production that far outweighs demand. And because Canada is one of only a few countries in the world to allow the manufacture and use of recreational cannabis at federal level, the options for domestic producers to earn money outside Canada’s borders remain extremely limited.

These challenges were hard to see from the beginning. There was no global roadmap, because no other country had yet tried to legalise recreational cannabis on such a large scale.

When Canada approved its historical Cannabis Law in 2018, one of its main objectives was to drive cannabis users away from the illicit market towards a legal and regulated market. The law was designed to keep this plant away from minors and limit the cash flow towards the illegal trade of marijuana. There was also the economic argument: that Canadians and the country’s economy as a whole would benefit from it.

In many ways, that economic equation remains true: Canada’s domestic recreational market is worth billions. In 2022, Deloitte Canada estimated that, since its legalisation, cannabis added 43.5 billion Canadian dollars (31.91 billion US dollars) to the country’s gross domestic product. And Canadians can access legal and regulated marijuana virtually anywhere in the country.

Having said that, over 131 billion Canadian dollars have also been reportedly lost in investments in cannabis businesses. Currently, there are around 3600 licensed cannabis retail stores and 970 licensed cannabis producers nationwide, but few of them appear to be profitable: a recent survey conducted by the Cannabis Council of Canada found that only 20% show any kind of positive cash flow.

Evolution of the number of licensed retail stores (2018-2023)

Too many actors for the same movie

Some have also highlighted the excessive regulation of the industry, where cannabis remains a controlled substance. By law, cannabis companies cannot advertise their products or generate brand recognition like the firms in other industries. They also have to pay higher regulatory fees than companies that sell other controlled substances. It is part of a delicate balance that the government has tried to strike between public health and the management of a new legal industry.

There are also too many players in the industry, and competition generates increasingly low retail prices. Prices fell from 11.78 dollars per gram in 2019, to a range between 3.50 and 6 dollars per gram in September 2023. With this price deflation, you can kiss goodbye to any aspirations of profit. And the excessive excise duties that the federal government and provinces charge authorised producers has only made matters worse.

The illicit market is the reason why the legal industry is so unhealthy

Companies argue that the widespread presence of unlicensed dispensaries and other clandestine sellers remains a problem. To date, Health Canada estimates that the black market controls over 30% of the market. This is probably the biggest challenge yet: had the illegal market disappeared, as people predicted, there wouldn’t have been dramatic plant closures and employee layoffs, since those sales would have been available to the legal ‘actors’.

The pressure from the many licensed producers, as well as from the black market, has effectively created a race to the bottom where cannabis companies need to set low prices on their products just so that they can sell them. And that’s definitely not a recipe for success.

Last year, the Canadian government announced the launch of a legislative review of the Cannabis Act to address these problems. However, this won’t be a quick process, and there’s concern that many companies won’t be able to survive the wait because they are already on the verge of bankruptcy. Nevertheless, the changes to regulations should be based on a sound understanding of the potential health and safety impacts, and not be driven by private economic interests.

Steps must be taken and the evidence must be used to make timely and tangible changes to the regulatory framework, including the strengthening or reduction of the industry’s regulation. These will be necessary measures to support the achievement of the objectives outlined in the Cannabis Act, and thereby consolidate Canada’s position as a world leader in the responsible regulation of cannabis.

Kannabia Seeds Company sells to its customers a product collection, a souvenir. We cannot and we shall not give growing advice since our product is not intended for this purpose.

Kannabia accept no responsibility for any illegal use made by third parties of information published. The cultivation of cannabis for personal consumption is an activity subject to legal restrictions that vary from state to state. We recommend consultation of the legislation in force in your country of residence to avoid participation in any illegal activity.

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