Canada will assess the impact of its legalization of cannabis for recreational use while business industry players see growth already slowing down four years after it was enforced.
The federal minister of Health of Canada, Jean-Yves Duclos, on September 22 announced the launch of a legislative review of the Cannabis Act.
The cannabis industry was eager for this review to start as it considers licensed sellers are struggling and need some adaption of the legislative framework.
The first objective of the review will be to “adapt and respond to the ongoing and emerging needs of Canadians” on cannabis while protecting the health and safety of people. It also aims to find out how a competitive legal industry of small and large players can displace the illicit market.
The Cannabis Act was enforced in October 2018, making Canada the second country in the world to legalize the recreational use of cannabis for adults 18 and over at the national level. A business opportunity but also a way for authorities to control the sale, possession, production and distribution of cannabis for better public health and less criminality.
A panel of five experts will engage with people who access cannabis for medical purposes, and broad industry stakeholders from public health to law enforcement.
The experts will evaluate the impacts of the Act on the access to cannabis for medical purposes, on young people, minorities and look at trends of home cultivation of cannabis. The panel will also assess progress made in deterring criminal activity and reducing the illicit cannabis market.
“We will strengthen the Act so that it meets the needs of all Canadians while continuing to displace the illicit market,” said Minister Duclos.
Legalization seems to have had a positive effect on the justice system while data on the consequences of public health is lacking. Cannabis consumption is up but the legal business already experiences slower growth.
“Excessive tax and regulatory burden” for the Cannabis Council of Canada
Cannabis Council of Canada, the national representative of cannabis producer and processor license holders, welcomed the announcement of the review but considers successes of the cannabis legislation are “in peril” as licensed producers and processors of cannabis “struggle to compete to with illicit cannabis industry.”
The cannabis industry thinks it is unable to compete with cheaper marijuana on the illicit market because of heavy taxes, too much red tape and regulations. For instance, license holders would like to be able to communicate with consumers and advertise. For the Council, the government doesn’t recognize the “urgent need for relief from the excessive tax and regulatory burden” on the cannabis industry. “We must underscore the need for urgent federal government action on the regulatory and commercial changes needed to compete with an unbridled, untaxed, and unregulated illicit cannabis industry. The legal cannabis sector cannot wait 2+ years for changes,” pointed out George Smitherman, president and CEO of the Cannabis Council of Canada and former deputy prime minister of the state of Ontario from 2006 to 2009.
Yet, retail sales show strong growth, according to Statistics Canada. Cannabis stores sold 3.2 billion Canadian dollars (US $2.3 billion) of products in 2021, up by 50% to 2020, which had already grown 126% to 2019.
But growth is quickly slowing down as sales only increased 22% from January to July this year.
Industry players think the market is worth 6 billion Canadian dollars while the illicit market would still account for roughly half of it.
A survey from Statistics Canada showed that cannabis from licensed sellers was sold 73% higher than the illicit market in 2019, CA $10.35 (US $7,49) per gram compared to CA $5.98 (US $4,33). Price was the driver for more than half of purchases outside licensed vendors.
But while the price of licensed sellers has been falling recently, fixed regulatory costs remain high. As of September 2022, cannabis sales are taxed at CA $4.97 per gram (US $3,59).
There is also stiff competition between stores. The number of stores doubled in 18 months to reach 3,200 retailers in June 2022, with two-thirds of the new openings taking place in Ontario, leading to a decrease in average sales per store, according to Cannabis benchmark.
The cannabis company Canopy Growth announced on September 27 that it is selling its 28 retail stores across Canada to other cannabis companies. Canopy Growth was once the world’s largest market capitalization for a cannabis company. But while shares were traded at CA $67.5 right before the legalization, Canopy Growth shares are now worth only CA $3.9 on the Toronto stock market.
Aurora Cannabis, another large Canadian cannabis organization operating also abroad, announced this week a loss before taxes, interests and amortization of CA $51 million (US $37 million) for the fiscal year 2022.
