On October 17, 2018 Canada became the first OECD country to legalize and regulate cannabis
By: Geoff Turner, Senior Consultant – Bluesky Strategy Group, Ottawa Canada
The opening day of legal weed in Canada was extraordinary, not for any hint of social or legal tumult, but because it went just fine, thank you. Celebrations from supporters were low-key and gracious, signs of protest were barely evident. Stock markets fluctuated, beginning the adjustment from speculation to actualization. Opposition politicians effectively acknowledged there was no platform to undo it, for the simple reason that majorities of voters across party lines support it. The biggest complaint was that the newscasts and talk-shows needed to move on to something else already, the cheery wall-to-wall coverage was becoming a bit exhausting for everyone.
While the first early snowflakes fell in the national capital, business was also brisk across the land. Canadian e-commerce giant Shopify, who is running many of the online retail outlets for provincial governments, reported a velocity of over 100 transactions a minute and expects millions of purchases to be rung up in the first week. Private and government storefronts opening their doors for the first time in many cities saw lines of up to 1000 people, and everybody was all smiles for the news cameras. The Canadian public’s acceptance of legalization, and the corresponding enthusiasm for the cannabis economy, has clearly been solidifying for several years now.
Distinct from peer countries who maintain medicinal and/or decriminalized regimes, Canada has now fully legitimized and regulated the use, possession, production and retail of cannabis and its derivative products. A business boom has rapidly filled the legal market space, and with more countries seemingly approaching their own legalization moment the long-term international opportunities are enormous – it is a green boom that is being heard around the world.
The private sector – including entrepreneurs, established companies, major capital interests and legions of retail investors – have been busy in the three years since legalization was announced; marketizing tech-like valuations and brands, doing frequent deal-making to build future empires or embrace and mitigate competition (i.e., beverage alcohol and pharmaceutical), or simply diversify in a blue-ocean market. The mainstream and business media are cheering from the sidelines, and regular people – who may never have even used cannabis – are enthusiastic about investing in its future. Fueling this, in part, is a white-hot and occasionally Wild-West, semi-legal market in some US states, producing high volumes of capital and ambitious ventures while broadly stoking more traditional actors into legal markets and partnerships. However, these US cannabis economies are operating in blatant and protracted disharmony with US federal law, and a reckoning may one day come due – no such risk in Canadian markets.
All of this business activity underpins one of the core goals of legalization in Canada: competing and prevailing over organized crime and shady operators who profit from the popular illicit market, estimated by Statistics Canada at more than $6 billion in 2018 – nearly the same amount as spent on beer. All the better to have it flowing to above-board investors, their employees and local economies, and of course tax collectors! Plus, consumers will be vastly better served by a sophisticated market with unprecedented product choice, quality and safety assurances; though price sensitivity relative to the black market is critical. Simple decriminalization, a popular alternative for grappling governments, leaves production and sale in black-market hands and simply leaves consumers alone – not far off the traditional status quo, and with little to no benefit to the legitimate economy.
How has this open market developed in Canada, and what was the path to legal cannabis? The election of Prime Minister Justin Trudeau, campaigning in part on full legalization, set in motion only the final act of a social transition process that took over 20 years, and can be seen reflected in various stages around the world currently. Understanding the pattern may offer critical insights into future opportunities arising from other jurisdictions’ progress along a similar path.
At a high level, there are three broad consensuses that have underpinned progress toward legalized cannabis. First, among many developed countries with historic participation in the “war on drugs”, there is a growing if not mature consensus that cannabis criminalization has not worked, and in many ways has been socially detrimental. Second, an even stronger consensus has emerged in the past two decades that cannabis as medicine has merit (even absent concrete evidence), and courts around the world have been granting some degree of access for bona-fide patients. Finally, when compared to alcohol or tobacco use, most people acknowledge that cannabis fares credibly better with regard to public harm, applying a certain degree of pressure on politicians and policy makers to reconcile those facts with an historic criminal approach in line with harder drugs that create higher degrees of social disorder and criminality.
Beginning at the turn of the 21st century, Canada’s courts ruled in favor of patients and medicinal marijuana advocates, overturning criminal sanctions for bona fide medical users. For over a decade after, government grappled with how to regulate and supply a medical access system that was both distinct from, but also deeply intertwined with, the still criminal recreational market and supply chain. There was plenty of failure in those early years – dabbling in government-produced pot and self-cultivation licenses – but by 2013 the government understood that it would have to create a legal production market, and a more accessible system for patients. And so, they established the framework for private Licensed Producers (“LPs”) to grow and retail medical cannabis products to any Canadian with a physician’s prescription.
This sea-change to open authorized production to private sector operators and investors fully legitimized the business of growing and selling pot. This is where the boom began, and many of the dominant companies in Canada’s cannabis space started, grew and capitalized as producers and purveyors of medicinal cannabis, always with an eye on full legalization down the road. They suspected the genie was out of the bottle, and they were right.
With a liberalized medical system came an influx of cannabis users, anecdotally not all of whom had any kind of serious medical condition. The pressure was mounting to reconcile a now full-throttle medical market with an ineffective criminal regime and the reality of low social harms from responsible non-medical use. As it should be, it took a politician and their platform to get the mandate in late 2015, but the forces at work had been pushing Canada in this direction for a long time.
In the three years since, the complexity of the cannabis project has been laid out and steadily worked through by policy makers. This has been a boon for government relations and public affairs companies, helping to guide industry, entrepreneurs, regulators and politicians as they grapple with big opportunity as well as difficult choices and issues. The work is far from over, as government has sensibly staged the roll-out.
While much feted, October 17th has only been the beginning, seeing basic legalization of possession and sale, and ensuring all Canadians have reasonable access to a limited assortment of products (primarily traditional marijuana, the dried cannabis flower). Over the coming months, additional processes will unfold to regulate two very large components of legalization yet to come: “infused products” (edibles, beverages, topical products) and “consumption establishments” (akin to bars and restaurants in the alcohol context). Other critical areas of business and regulatory activity ancillary to legalization are also prominent, such as specialized equipment and service supply for rapidly growing LPs, devices for road-side testing of suspected impaired drivers, and additional opportunities for private retail-store licenses issued by provinces (especially Ontario, the largest market in Canada).
What are the lessons from this story for observers internationally? Medicinal cannabis was always the “thin edge of the wedge” – driven through the courts, through public opinion and eventually in to the heart of general cannabis prohibition itself. It took nearly 20 years in Canada to reach the logical conclusion but expect it to move much faster as dominoes begin to fall across nations who embrace the consensus on cannabis.
Geoff Turner is a Senior Consultant with Bluesky Strategy Group in Ottawa, Canada, and formerly a Senior Policy Advisor to the Ontario Minister of Finance with responsibility for Cannabis legalization, retail and taxation issues.
Bluesky Strategy Group would be pleased to work with you on identifying opportunities in your national context or helping you or your clients access the incredible range of opportunity in this new and exciting Canadian market that is already leading the world and looking to grow.