Justin Trudeau and the Liberal Party of Canada made a bold move in the 2015 federal election by promising to end the nearly 100-year ban on recreational cannabis use.
At the time, Trudeau made it clear that he wanted to end the criminalization of cannabis users, which disproportionately affected people of color and Indigenous Canadians. This commitment helped give the Liberals a majority government.
Six months after the 2015 election, an Abacus Data poll found that while the Liberal vote grew by double digits across all age groups, the increase in support was even higher among younger voters, representing a 30 percentage point increase among those ages 18-18. year olds corresponds to 29 year olds and an increase of 31 percent among 30 to 44 year olds. 43 percent of young voters who supported the NDP in 2011 voted for the Liberals in 2015, while 29 percent of young Conservative voters also switched to the Liberals. According to Abacus, this trend in youth support for the Liberals was at least partly due to their commitment to cannabis legalization.
To its credit, the newly elected Liberal government quickly developed a legalization framework that came into force five years ago, on October 17, 2018. This framework helped boost an industry that, according to a report by Deloitte and the Ontario Cannabis Store (OCS), a provincial Crown corporation, added $43.5 billion to Canada’s GDP and supported 151,000 jobs across the country between 2018 and 2021. This puts Canada’s cannabis sector on par with economic heavyweights such as the dairy industry and the automotive sector in terms of overall economic impact.
However, the same federal government that implemented legalization has largely ignored the economic prospects of this emerging industry. To date, no federal economics minister has met directly with the cannabis sector, and many government agencies are reluctant to consider cannabis companies for programs. And this despite thousands of new job losses and high-profile industry bankruptcies within the industry.
This neglect comes at a time when a resilient illicit market, operating without an expensive and complicated regulatory environment, has expanded capabilities with limited enforcement risk. So what can the Liberals do to prevent a political victory and economic boon from turning into a failure in the next election?
By re-engaging with the public safety rationale of legalization, liberals can also contribute to untapped economic and social development opportunities. Since barely more than 50% of total cannabis sales are generated on the legal market, there is still a lot of room for improvement.
One notable obstacle is the THC content limit of 10 mg per edible cannabis packaging or beverage container. This artificially low limit compared to all other formats has resulted in a significant loss of market share as the category has been left to the illegal market. A comparison of Canadian edibles sales to mature markets in the U.S. shows we are missing out on $300 million or more in annual sales.
These illegal market sales mean lost revenue for cannabis companies and lost taxes for governments, but they also pose a higher risk to cannabis users because products available on the market illegally almost always contain traces of pesticides and other banned substances when tested.
Another challenge is excise taxes, which have a significant impact on the industry’s profitability. After five years of legalization, only about 20% of producers are profitable, even though the industry is an economic driver. The alcohol and tobacco sectors have excise tax rates that allow for consistent profitability, but cannabis faces the challenge of a newcomer fighting for market share against an established opponent.
Further comparing the profitability formula between cannabis, alcohol and tobacco shows that the cannabis industry is uniquely burdened with high regulatory fees, expressed through a special 2.3% tax that Ottawa imposes on the turnover of most recreational cannabis sales.
Finally, the business needs to be resolved with the current excise tax framework. Currently, cannabis producers are required to apply a separate excise tax stamp for each province/territory, creating an inconvenient mess for companies and an expensive reality for consumers. Moving to a national digital label with key embedded information would lower barriers to entry for smaller manufacturers while reducing costs for retailers and consumers.
The success of cannabis legalization in Canada depends on a balanced approach that considers public health, economic development and social justice. After five years, the evidence suggests that public health concerns related to legal cannabis have been adequately addressed, with no adverse risks reported, no increase in youth use, and no significant increase in incidents related to driving or public disorder were recorded. An adaptable regulatory framework that is continually reviewed and adjusted is critical to addressing unforeseen challenges and ensuring the sustainability of the industry.
As Canada celebrates the fifth anniversary of legalization, it is a pivotal moment for the federal government to take responsibility for an industry it helped build and on which the livelihoods of thousands of Canadian families depend.
– George Smitherman is President and CEO of the Canadian Cannabis Council, the national representative of licensed cannabis producers and processors, and previously served as Ontario’s Deputy Premier and Minister of Health and Long-Term Care.
– Omar Khan is Chief Communications and Public Affairs Officer at High Tide Inc., Canada’s largest non-franchise recreational cannabis retailer. He previously served as Chief of Staff to the Minister of Health and Long-Term Care of Ontario and Senior Advisor to the Attorney General of Ontario.