By Omar Khan, Senior Vice-President of Corporate & Public Affairs, High Tide Inc. @ Nasdaq.com
It’s been over three years since Canada became the first G7 country to legalize the recreational use of cannabis by adults. While Canada may have been the first industrialized nation to end prohibition, it won’t be the last. With Germany set to become the second European Union member (after Malta) to legalize later this year, and with public opinion polls showing support for legalization reaching record highs (no pun intended) across the United States and Europe, there is strong momentum for further cannabis reform on both sides of the Atlantic.
Although legislative gridlock and general political polarization may make it difficult for the U.S. Congress to enact comprehensive cannabis reform in the near term, most political analysts believe that it will happen eventually. At the end of the day, politicians respond to public sentiment and it’s clear that a majority of Americans across partisan lines now support an end to federal prohibition. For example, a recent survey from YouGov found that 78 percent of Democrats, 58 percent of Republicans and 74 percent of Independents back either national legalization or federal recognition of state cannabis laws.
In Europe, it’s a similar story. According to a recent report by Hanway Associates, a London-based cannabis regulatory consulting firm, support for legalization now stands at 55 percent across France, Germany, Italy, Spain, the Netherlands, Portugal, Switzerland, and the United Kingdom. So why are government and public attitudes shifting and what can be learned from Canada’s experience?
Across much of the industrialized world public sentiment towards cannabis legalization has evolved over the past two decades as mainstream media shifted the way they cover cannabis stories from a criminal justice frame towards one of social justice, wellness and economic impact. The economic argument, in particular, has proven powerful as legacy jobs in the North American and European manufacturing sectors continue to be offshored.
Legalization, if done right, can yield many economic and social benefits. In Canada, the cannabis overall cannabis sector contributed $17 billion CAD to the country’s gross domestic product for the year ending July 2021, a number that rivals the economic clout of the powerful dairy industry. According to a recent study by Deloitte, Canada’s cannabis industry has also supported over 150,000 direct and indirect jobs since legalization, saving many rust belt towns from economic oblivion.
Beyond the economic impact, Canada has also seen public health and criminal justice benefits as well. For example, Canada’s national statistics agency, StatsCan, has found that both teenage consumption and the illicit market’s share of cannabis sales have decreased by approximately 50 percent since legalization. And while overall cannabis use has not increased as some had feared, those who do want to consume now have the ability to choose regulated products that have undergone rigorous health and safety checks.
Yet despite these successes, Canada’s road to legalization has been far from perfect. High taxes, regulatory restrictions on marketing, and the absence of a social inclusion lens in the regulatory framework have all combined to make it harder for legal operators to compete with an entrenched illicit market.
Canada’s initial legalization framework focused almost exclusively on public health. Essentially the federal government took the view that despite legalization, they wanted as few people to consume cannabis as possible. Federal oversight of the cannabis sector was placed solely under the purview of Health Canada, Canada’s equivalent to the American Food and Drug Administration (FDA). This exclusive emphasis on public health meant that important issues like the economic health of the industry and social inclusion have been largely ignored by Canada’s federal government.
An estimated 500,000 Canadians have criminal records for cannabis-related offenses. This number includes a disproportionate amount of black and indigenous Canadians. These individuals have been largely kept out of senior opportunities in Canada’s legal cannabis industry, which according to a study by the University of Toronto’s Center on Drug Policy Evaluation, is 84 percent white at the leadership level of companies.
The lack of an overall economic sector strategy has also contributed to Canadian cannabis companies losing out on what should have been a strong first mover advantage. High excise taxes, as well as onerous provincial markups, have made it harder for Canadian companies to fully exploit the advantage of having a large legal domestic market. Those Canadian companies who have thrived, like High Tide, have done so through both geographic, channel and product diversification.
Recently the Canadian federal government seems to have belatedly caught onto the problem. In its most recent budget, the Government of Canada has proposed a “cannabis strategy table” to be housed within the department of Industry, Science and Economic Development and has described it as a forum to facilitate “an ongoing dialogue with businesses and stakeholders in the cannabis sector.” The table would “provide an opportunity for the government to hear from industry leaders and identify ways to work together to grow the legal cannabis sector in Canada,” according to the budget document.
While details of how the table will work and who will sit on it are yet to be revealed, many industry representatives have welcomed the proposal as an important first step towards developing a holistic approach towards shaping the cannabis sector. The hope is that this type of integrated and institutionalized approach towards industry consultation will be adopted by Germany and other jurisdictions looking at cannabis reform right out of the gate.
Cannabis is a fast growing industry with a global market opportunity projected to reach $90.4 billion USD by 2026 according to a 2021 report by Markets and Markets. No doubt this is an important factor for countries like Germany and the United States to consider as they develop cannabis reform legislation. As they, and other jurisdictions, look to follow Canada’s path toward legalization, they should learn from its mistakes by ensuring the systems they create allow their legal industries to effectively compete against entrenched illicit market operators, while ensuring that legacy operators have a realistic path toward participation in the new industry. While Canada has been a pioneer on the legalization journey, its missteps have held it black from dominating this nascent global industry. This has created an opportunity for other jurisdictions to capitalize on, should they be so bold.