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MICHELLE EATON and NATHAN LISON
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On Oct. 17, 2018, Canada became the first G7 nation to legalize recreational cannabis. With the potential of being a global leader in this space, the industry has since faced numerous hurdles navigating an overly complex regulatory environment.
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While the long-awaited federal review of the Cannabis Act is finally underway, there are some missing pieces from the review that will leave the sector with continued challenges.
On the positive side, the review sets out to address the original intent of the Cannabis Act: eliminating the illegal market and preventing youth from accessing cannabis. In addition, it will revisit the social equity mandate for cannabis legalization, which was not originally included in the Act.
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On the downside, it completely exempts wholesale distribution, which includes all retail stores and accounts for a significant portion of the cannabis sector. While wholesale and distribution technically fall under provincial purview, the federal review offers a unique opportunity to evaluate the effectiveness of each province’s and territory’s regulatory approach.
For example, Alberta’s government, which runs wholesale distribution, charges a 6% markup to retailers whereas the Ontario Cannabis Store (OCS), the Ontario government’s wholesaler and distributor, charges a 30% markup to retailers.
The Saskatchewan government has taken an entirely different approach by allowing licensed producers and retailers to have a direct commercial relationship. This allows them to determine their own product and pricing mix, creating a more diverse and competitive retail market
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The examples above illustrate the importance of why a provincial review of wholesale and distribution is critical to ensuring the legal sector can compete on price and displace the illegal market, a battle currently being lost in several Canadian provinces and territories.
Ontario’s Auditor General conducted a review of the OCS in December 2021. In their report, they outlined a range of vulnerabilities including pricing models, how the OCS manages data and oversight of their delivery service partner.
Despite flagging these issues nearly a year ago, a recent cyberattack brought the entire province’s wholesale and delivery system to a halt. This further demonstrates why these reviews are essential, but only as effective as the action taken by government in response to their findings.
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Additionally, the lack of clarity between the federal and provincial agencies continues to cause inconsistent enforcement and confusion for industry.
For instance, required window coverings have created potentially dangerous working environments that are the perfect cover for robberies and violence. Several violent crimes at cannabis retailers could have been prevented in Canada with simple clarification about this section of the Cannabis Act.
While a cautious approach from federal and provincial regulators was understandable at the outset of this nascent industry, ongoing reviews and action on those reviews will be critical to enact the necessary broader reforms.
It is our hope that all levels of government continue to work closely with industry to ensure we can successfully displace the illegal market and make Canada a global leader in recreational cannabis.
— Nathan Mison is president of Diplomat Consulting and co-chair of the Ontario Chamber of Commerce’s Ontario Cannabis Policy Council; Michelle Eaton is vice president of public affairs for the Ontario Chamber of Commerce. @misonnathan @michellelyeaton
