KHAN: Provinces act where feds fail on illicit cannabis

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When the Cannabis Act became law back in 2018, it was hailed by the federal Liberals as a bold move that would keep cannabis out of the hands of youth, protect public health and safety, and reduce criminal activity.

The idea was that by creating a regulated industry, illicit operators would either jump on the bandwagon and go legal or be pushed out of the market by a newly created legal sector. Some progress has been made on this front.

A 2022 study by Deloitte estimated that between 2018 (legalization) and 2021, the industry contributed $43.5 billion toward Canada’s GDP while sustaining over 150,000 jobs nationally.

Despite this, almost six years on, the industry continues to face serious challenges, with many feeling that the federal Liberals have washed their hands of the industry they helped to create.

According to Statistics Canada, the illicit market still accounts for about 35% of total sales nationally. Another recent study by Deloitte found that the average price in the illicit market remains 20% lower than in licensed stores, which deters price-conscious consumers from going legal.

This poses real risks to Canadians as revenues generated by the sale of illicit market cannabis often find their way into the pockets of organized crime.

Despite this, the federal government continues to ignore the advice of the House of Commons Standing Committee on Finance, which in February recommended adjustments to the excise tax structure aimed at improving the ability of the legal cannabis sector to compete with an entrenched illicit market.

Any product from the illicit market is risky.

A 2022 study by the National Research Council on behalf of the Ontario Provincial Police found that a random sampling of seized illegal cannabis contained high levels of unauthorized pesticides. Add to this, the fact that many of the products they sell are packaged to look like popular junk food brands to appeal to youth, and it’s clear that more work is needed.

After the creation of a Cannabis Industry Forum within the Department of Innovation, Science and Economic Development this past February, some industry players expressed cautious optimism about increased federal engagement. But the minister has yet to attend a meeting, signalling political indifference to an already skeptical stakeholder group.

The good news is that Canadian provinces, many of which have Conservative or NDP governments, have decided to fill the void created by federal inaction and have begun taking decisive steps to help ensure the long-term viability of their legal operators.

In September 2023, for instance, Ontario reduced the average wholesale mark-up it charges licensed producers. It then doubled the number of stores a licensed retailer can operate and allocated $31 million over three years to fund a Provincial Joint Forces Cannabis Enforcement Team targeting illicit market stores and websites across the province.

The Alberta government has boldly allowed licensed retailers to sell products at festivals or trade shows closed to minors — opening up another opportunity for responsible consumer engagement. In June of this year, the province announced that certain legally licensed retailers could sell private label products, usually sold at lower prices to appeal to a more cost-conscious consumer.

In 2023, Manitoba eliminated a 6% levy on legal cannabis sales, which had driven prices up unnecessarily.

As helpful as these provincial changes are, they cannot fully compensate for a lack of federal action.

In March of this year, the recommendations of a statutory review of the Cannabis Act were released (more than a year late), with the federal government’s expert panel confirming that “… the illicit cannabis market remains entrenched, and too many illicit retailers continue to operate both online and physical stores.”

Legitimate cannabis retailers, who are on the front lines of the fight against illegal operators, know this all too well with more and more cannabis companies filing for bankruptcy protection in 2024.

Cannabis legalization remains a cornerstone achievement of the Trudeau Liberals, but the lack of meaningful reform and engagement with industry since legalization risks tarnishing this legacy. With a federal election just over a year away, there is still time for federal action to help ensure the sustainability and success of an industry they helped to create.

Only time will tell if they follow the lead of their provincial counterparts.

Omar Khan is the Chief Communications and Public Affairs Officer at Calgary-based High Tide Inc., the second-largest retailer of legal cannabis in the world by store count. He previously served as Chief of Staff to Ontario’s Minister of Health and Long-Term Care and Minister of Economic Development and Trade, and Senior Adviser to Ontario’s Attorney General.