A preliminary report by a government-appointed panel of experts analyzing Canada’s adult-use legalization law paints a bleak picture of the nation’s 5.6 billion Canadian dollar ($4 billion-plus) cannabis industry, documenting significant bankruptcies, major racial disparities, piles of unpaid business taxes and a host of other issues.
The 113-page document – issued five years after the landmark 2018 Cannabis Act – is part of a “what we heard” report that summarizes the five-member panel’s meetings with hundreds of stakeholders, executives and health experts.
“A main message from industry representatives was that, despite the growth of the legal cannabis market, companies across the supply chain are struggling to realize profits and maintain financial viability,” the report said.
The next phase of the panel’s work includes preparing a final report for the country’s federal health and addictions ministers.
That document is expected to include an assessment of the 2018 law that legalized recreational cannabis as well as recommendations to address some of the issues raised in the initial report.
Any advice from the panel could have major implications for both regulated and underground cannabis operators, depending on the specific recommendations and whether the government commits to implementing them.
The final report is expected to be completed by March 2024.
The 2018 Cannabis Act mandated the formal review to examine the law’s impact on public health and consumption patterns as well as on Indigenous communities.
The review was subsequently broadened to cover:
- The law’s economic, social and environmental impacts.
- Progress toward providing adults with access to legal cannabis products.
- Efforts to crack down on criminal activity and displace the illicit cannabis market.
- The impact of legalization on access to cannabis for medical purposes.
- The impact on Indigenous peoples, racial communities and women. All have faced barriers to participating in the legal industry.
“The limited evidence available suggests that demographic composition of industry leadership in the cannabis sector does not reflect the diversity of the Canadian population,” according to the report.
Public health
The first part of the report summarizes what the panel heard regarding public health, the most important aspect of legalization.
Under the Cannabis Act, legalization was intended to protect the health and safety of Canadians, keep marijuana out of the hands of youth and make it harder for underground operators to turn a profit.
“However, many of the people we engaged with expressed concern that rates of cannabis use among youth in Canada remains high compared to other jurisdictions, and that legalization has not led to a discernible decrease in youth cannabis use,” the report noted.
“Some discussed the continuing ease of access to – particularly illicit – cannabis by youth, and the persistence of advertising from illicit sellers that is accessible to youth.”
Indigenous issues
The report also summarizes what the panel heard from First Nations, Inuit and Métis peoples.
“There were a number of themes that were raised,” the report noted.
“These include frustration about the limited engagement with the federal government during the development of the Act and its regulations.”
MJBizDaily has reported extensively on Canada’s lack of meaningful consultations with Indigenous people before the adult-use law was completed.
The report cited MJBizDaily research, which found that less than 1% of more than 3,300 provincially or territorially authorized retail stores were operating on First Nations reserves.
The report said some of the key areas of interest and concern among First Nations were:
- Jurisdiction, including the recognition of their legal authority over a range of cannabis activities.
- Public safety, such as the rise of unauthorized cannabis activities.
- Economic development, including the jobs and revenue that could be supported through participation in the legal cannabis industry.
Economic issues
Cannabis industry officials, for their part, are likely to focus on the report’s analysis of the law’s economic, social and environmental impacts.
The panel noted that its members heard a lot about the legal cannabis industry’s economic and financial struggles.
Industry representatives asserted that a viable trade is needed to maintain a safe and legal supply of cannabis products as well as to combat the illicit market.
“They expressed concern that companies in the legal market are struggling to realize profits and maintain financial viability, noting the burden of taxes, markups, fees, and regulatory compliance costs,” the report noted.
“Industry members also discussed the excess supply of cannabis and the challenges of competing with an entrenched illicit market.”
The panel also said it heard concerns about the risks of a market dominated by a few large players and of micro license holders returning to the illicit market.
A major criticism of the panel’s composition was the lack of any specialists in economics or business.
As a result, the panel plans to bring together a group of “independent economic advisors” later this month to provide advice on the economic impacts of the framework.
The panel also said marginalized groups, such as some First Nations, complained about the difficulties to enter the legal industry and challenges accessing capital.
Some interviewees called for social equity programs that would set aside licenses, grants and loans for marginalized communities – similar to what has been done in certain U.S. states.
California, New Jersey, New York and Washington were among the states singled out in the report.
Store access
The panel also examined access to legal products.
“Many industry representatives and others argued there is still consumer demand for products that are not available in the legal market,” the report noted.
As examples, the report cited higher-potency cannabis edibles products and cheaper CBD products.
“Conversely, public health stakeholders expressed some concerns with the types of products available in the legal market, notably high-potency extracts, and flavored edibles,” the report said.
The report highlighted the interprovincial disparity in store distribution, noting that Quebec has 1.2 stores per 100,000 people while Alberta has 20.4 retail outlets per 100,000.
The report also cited MJBizDaily reporting on cannabis companies using the Companies’ Creditor Arrangement Act (CCAA), noting that 14 of 35 applications filed under the law last year were from cannabis companies.
The report noted that 166 license holders had exited the Canadian cannabis market as of April 2023, representing 15% of the permits that had been issued under the Cannabis Act.
Almost half of all individual licensees, or 141 of 305, had an excise debt payable to the Canadian government in the past year of more than 25,000 Canadian dollars ($19,000), with the total outstanding debt owed by cannabis companies put at CA$192.9 million.
The report does note that, for the current fiscal year, CA$63.1 million in regulatory fees were charged, but CA$7.6 million was in arrears.
The internal Terms of Reference guiding the Cannabis Act review is available here.
Matt Lamers can be reached at matt.lamers@mjbizdaily.com.
