Cannabis in Canada

"Canada/Cannabis Day", 2014

Until mid-October 2018, cannabis – often referred to as marihuana or marijuana – is legal only for medicinal purposes and only under conditions outlined in the Access to Cannabis for Medical Purposes Regulations (ACMPR) issued by Health Canada. The cultivation of cannabis is currently legal in Canada for seed, grain and fibre production only under licences issued by Health Canada. In mid-October 2018, Canada will become the second nation in the world after Uruguay to formally legalise the drug—in the Netherlands, the drug is not formally legal although officially tolerated by the authorities.

Cannabis was first banned in Canada in 1923, with regulated medical cannabis becoming legal in 2001. In response to popular opinion, Justin Trudeau, the leader of the Liberal Party of Canada, committed to legalizing cannabis for personal use while campaigning during the Canadian federal election, 2015. The Liberals won the election with 184 seats, allowing the party to form a majority government with Trudeau as Prime Minister. The plan was to remove cannabis possession for personal consumption from the Controlled Drugs and Substances Act; however, new laws would be enacted for greater punishment of those convicted of supplying cannabis to minors and impairment while driving a motor vehicle.

The legislation to legalize cannabis for recreational use (Cannabis Act, Bill C-45) was passed by the House of Commons of Canada in late November 2017; it passed a second reading in the Senate of Canada on March 22, 2018. On June 7, the Senate passed the bill with numerous amendments, and sent it to the House of Commons for voting. On June 18, 2018, the House passed the bill with most, but not all, of the Senate's amendments, and sent it back to the Senate for confirmation. The Senate accepted this version of the Act the following day. Prime Minister Justin Trudeau announced the following day that recreational use of cannabis would no longer be against the Criminal Code as of October 17, 2018.

The Cannabis Act has given provinces the power to determine the method of distribution and sale, whether homeowners may grow their own plants, and whether cannabis use will be legal inside private residence or homes if children are present in the home 12 or more hours in a day and each will also establish the legal age for cannabis use. An excise tax will be levied, to be shared with the provinces and territories. After legislation, estimated annual sales will be $4 billion (US $3.2b), according to the federal government.

History

Main article: Legal history of cannabis in Canada

Cannabis has been illegal since it was added to the country's Confidential Restricted List in 1923 under the Narcotics Drug Act Amendment Bill after a vague reference to a "new drug" during a late night session of the House of Commons on April 23, 1923. According to one government official, cannabis was outlawed after the Director of the Federal Division of Narcotic Control returned from League of Nations meetings where the international control of cannabis was broached. Cannabis did not begin to attract official attention in Canada until the later 1930s, and even then it was minimal; the first seizure of cannabis by Canadian police was not until 1937. Commercial cultivation of industrial hemp was forbidden in 1938. Between 1946 and 1961, cannabis accounted for only 2% of all drug arrests in Canada.

In the 1960s cannabis began to rapidly increase in Canada. For the entire period 1930–1946 the RCMP recorded only 25 cannabis arrests, but this rose to 2,300 cases in 1968, and to 12,000 cases in 1972. In response to the increased popularization of marijuana and the increase in criminal charges against middle class citizens, the government formed the Royal Commission of Inquiry in the Non-Medical Use of Drugs, usually referred to as the Le Dain Commission in 1969 to investigate the non-medical cannabis use in Canada. The commission's 1972 report recommended removing criminal penalties for cannabis possession, though not legalization, per se. While the subsequent two federal governments discussed the recommendation, no steps were actually taken to change legislation.

On September 15, 2017, Canada's first licence for recreational cannabis distribution was awarded to Organigram Holdings (market name OGI:CVE) by the province of New Brunswick. This marked a milestone for marijuana distribution in Canada.

Steps to legalization

After he was elected Prime Minister in 2015, the first significant step that Justin Trudeau took was the creation of a federal-provincial-territorial task force to discuss a jointly suitable process for the legalization of cannabis possession for casual use. This Task Force on Marijuana Legalization and Regulation released a 106-page report to the public on 13 December 2016, with various recommendations. Those were provided for consideration by the federal and provincial governments but they were not binding. Sales for recreational use will not commence until July 1, 2018, at the earliest, based on legislation (Bill C-45, the Cannabis Act) passed by the federal government in June 2018.

Subsequently, the substance will remain controlled: sold only at government licensed retailers, and grown only by licensed producers. During the federal election campaign, the Liberals had promised "new, stronger laws" against sales to minors, driving while impaired and sales through channels not specifically authorized to do so.

Until approximately October 17, 2018, marijuana remains illegal (except with a physician's prescription, for medical purposes), as Trudeau reminded police forces across the country in late 2016. He insisted that they "enforce the law": criminally charge illegal storefront dispensaries. Trudeau also explained that the intent of the legislation is not to encourage recreational use of cannabis. The intent is "to better protect our kids from the easy access they have right now to marijuana [and] to remove the criminal elements that were profiting from marijuana," he told the Toronto Star on 2 December 2016.

Police forces took the Prime Minister seriously and in March 2017 raided five locations of the Cannabis Culture retailer in Toronto, one in Vancouver, British Columbia, and another in Hamilton, Ontario. They also searched homes in Toronto, Stoney Creek and Vancouver. Multiple charges were laid against Marc Emery and Jodie Emery, owners of Cannabis Culture, a company that franchised pot dispensary shops. The couple was convicted in December 2017 of drug related charges, including possession of marijuana for purpose of trafficking, fined and placed on two years of probation. Drug-related charges were laid against three others who were also subsequently convicted.

Toronto Police had told the media that the unlicensed marijuana dispensaries are linked to "high-level drug traffickers ... often tied to organized crime, given the amount of marijuana sold".

First Nations chiefs attending the Assembly of First Nations widely agreed that the distribution of cannabis on reserve lands should be governed by First Nations governments, and not provincial legislation.

On June 1, 2018, the Canadian Senate passed an amendment to C-45 outlawing cannabis "brand-stretching." The amendment, which passed 34-28, outlaws the sale and display of cannabis-related merchandise and makes it difficult to publicly promote cannabis once legalized. However, this amendment was rejected by the Liberal government when the bill was returned to the House of Commons and does not appear in the final version of C-45 that received Royal Assent.

On June 19, 2018, the Senate passed the bill and the Prime Minister announced the effective legalization date as October 17, 2018. Canada is the second nation (after Uruguay) to legalise the drug.

Regulation by province

Further information: Cannabis laws of Canada by province or territory

In Canada, regulation varies province to province.

Public opinion

Since 1997, public opinion polls have found an increasing majority of Canadians agree with the statement, "Smoking marijuana should not be a criminal offence". A June 2016 national poll conducted by Nanos Research showed that 7 in 10 Canadians are in favour of legalization.

By 2006, a high percentage of the population was using cannabis, in spite of the risk of police charges for possession, and especially for selling it without the required licence, according to statistics gathered by the Centre for Addiction and Mental Health. Nearly half (44%) of Canadians admit to trying it at least once; no statistics were provided as to the percentage who use it frequently. The CAMH report also indicates that by the last year of High School, nearly half (46%) of Ontario students admit to having used marijuana in the past year. Naturally, the CAMH discussion includes warnings about the negative effects of cannabis. Other groups also warn about the risk, including the Canadian Automobile Association whose 2016 poll indicated that "Almost two thirds of Canadians are concerned that roads will become more dangerous [due to impairment by the drug] with the legalization of marijuana". 0 An October 2016 national poll by Forum suggests that about five million adult Canadians now use cannabis at least once a month; this is expected to increase by 19 percent after marijuana is legalized. Canaccord Genuity analysts Matt Bottomley and Neil Maruoka released a research note with a more moderate estimate of the number of users. They predicted that approximately 3.8 million persons will be recreational users (presumably on a frequent basis) by 2021. A report by Canada's Parliamentary Budget Officer (PBO) is more bullish, estimating that by 2021 some 5.2 million adults may be users.

Cannabis as a commodity

Growers that currently produce marijuana are licensed by Health Canada under the Access to Cannabis for Medical Purposes Regulations (ACMPR). As of late 2016, there were 36 authorized producers across the country in Health Canada's list. Sales were allowed only by mail order, but by late 2017, some major retailers had applied for a change in the rules to allow them to also sell the product. By December 21, 2017, 82 licences had been issued under the Access to Cannabis for Medical Purposes Regulations (ACMPR), but not all of the producers had been licensed to begin selling medical marijuana. The vast majority of these companies were located in Ontario. At that time, no licences had been issued yet for producing recreational cannabis; the producers already licensed were hoping to be added to that list after it is created. Between February 1 and early April 2018, some 89 additional applicants were approved as cannabis growers by Health Canada; at the time the agency was considering the merits of another 244 applications.

Statistics indicate that as of September 2016 nearly 100,000 Canadians had bought medical marijuana legally, a significant increase over the 30,537 in September 2015, presumably since it is becoming a mainstream drug and since supplies are becoming more readily available. According to a StatsCan estimate, Canadians may have spent roughly CAD$6.2 billion (US$4.8 billion) on marijuana in 2015, although the agency admits that there is no scientific method of accurately measuring illegal consumption.

The largest of the licensed producers is Canopy Growth Corporation of Smiths Falls, Ontario, renamed from Tweed Marijuana Inc. in September 2015 after it purchased competitor Bedrocan. Subsequent acquisitions for this corporation included Vert Medical, the German cannabis distributor MedCann and a majority interest in Quebec's Groupe H.E.M.P.CA Inc. In early December 2016, Canopy announced a friendly takeover bid of another Canadian producer, Mettrum Health (CVE:MT), in anticipation of an expanding market after marijuana is legalized for recreational purposes in 2017. In addition to sales in the domestic market, Canopy Growth began selling medical cannabis products in Germany and Brazil in 2016. The company was described as "one of the world's — and Canada's first — premier exporters of marijuana" by the Financial Post news organization.

Canopy Growth's patient base increased by approximately 260 per cent and revenue increased by about 180 percent in the calendar year 2016 vs. 2015. The increase would have been even greater but the company had difficulty maintaining adequate stock in some high-demand categories such as mid-to-high THC level products and oils. A report by the Financial Post indicated that inventory shortfalls have been a problem for many of Canada’s licensed medical marijuana producers; this could worsen after recreational marijuana is legalized. When the year end report was released, Canopy Growth's share price fell seven percent to $12.09 on the Toronto Stock Exchange (ticker WEED). The December 2016 year end report indicated a profit for the first time in the company's history (3 million in net income). Previously, Canopy Growth had been operating at a loss ($3.3 million in 2015, for example) partly because it was using funds to acquire competitors in preparation for significantly increased cannabis demand by the recreational use market expected to commence in early 2018. (The company's most recently announced acquisition is of Mettrum Health Corp., for $430 million, awaiting final regulatory approval.) In early December 2016, Reuter's survey of four market analysts had indicated a consensus rating of Buy in early December 2016.

In 2018, Aurora Cannabis bought competitor CanniMed in advance of the anticipated growth in the market and announced a plan to acquire MedReleaf. If that second deal is approved, the value of the new company could be as high as $7 billion, making it larger than Canopy Growth Corporation with its market cap of $6.45 billion. It would have distribution agreements in a number of countries, including Germany, Italy, Brazil and Australia.

The report by the Task Force on Marijuana Legalization and Regulation had recommended that cannabis growers should be licensed at a federal level, separately from the producers of medical marijuana. The expert panel also recommended that the process ensure competition by licensing both large and small producers. While licensing should be federal, each of the provinces should be allowed to determine how and where the product will be sold.

After the probable date of legalisation (summer 2018) became well publicized, industry analysts reported that some of the producers who had been licensed for medical marijuana, including Aurora Cannabis, were already increasing the capacity of their operations for future sales to the distributors of recreational cannabis. Nonetheless, a report in June 2017 raised concerns that the companies licensed for medical marijuana would be unable to meet the very high demand of 655,000 kilograms per year when recreational use of the product becomes legal.

A report in late November by Ernst & Young suggested that there would be mergers, leaving fewer players in this industry. "Many believe that consolidation is inevitable, leaving a few large players post-legalization." Also in late 2017, Deloitte predicted that the recreational cannabis market would be worth close to $23 billion.

The federal legislation would also allow householders to grow up to four cannabis plants but in November 2017, Quebec announced that it would not permit this option.

Stock market volatility

At times in 2016, and in 2017, the stock prices of some producers increased significantly as retail investors became more bullish on this segment of the market but then dropped at a later date. Between September and mid-November 2017, the typical stock cannabis producer's value increased by 54%, according to Vahan Ajamian of Beacon Securities Ltd. The share price of Canopy Growth, for example, more than doubled in price during the fall of the year, but declined in mid-November while others, such as Aurora Cannabis, increased at the same time during another volatile period. At the time, analysts could not predict the long-term outcome for any company. A report by Investopedia on November 15 said that most cannabis stocks "can be labeled as penny stocks, so any investment may carry a significantly higher risk component. One of the few Canadian marijuana stocks to trade on a major exchange (NASDAQ) and not as a penny stock, was the late comer Neptune Wellness Solutions. Neptune converted its krill oil extraction plant to focus on CBD oil.

Market analysts Matt Bottomley and Neil Maruoka of Canaccord Genuity believe that approximately 3.8 million persons will be recreational users (presumably on a frequent basis) by 2021 with a potential for $6-billion of sales. These analysts predicted that after legalization, there may be a "shortfall of supply in the near term" (until about 2020 perhaps) which is likely to increase the product's selling price. Their prediction was based on the government's strict standards which have resulted in few producers becoming licensed under the current system. Presumably the government will relax the qualification standards to increase the number of producers who will be licensed after cannabis is legalized for recreational use but no such plans have been revealed to date.

Some industry observers had warned that "speculation and investor frenzy are fuelling many of the gains". Other observers pointed out that marijuana company values are high but point out that "the players have real products with real sales that are growing, unlike the many dot-com firms that fed that bubble." Nonetheless, "cannabis investors chasing the Big Green Rush are playing a dangerous game," according to Dan Nicholls, Vice President of the Marijuana Index in Los Angeles. “For a first-time investor, stocks are always risky,” he said. "You can lose everything you put in, potentially, especially in a market like this." Some market analysts voiced concern about the long-term retail price of recreational marijuana; they predict that it will decline over time after legalization because of competition and bulk sales to provincial governments. According to the CEO of Cronos Group, "It’s not going to be 80 or 90 per cent margins forever. There will be a very rapid price compression" after the initial shortage of product is resolved.

The probability of reducing prices as producers' costs decline due to economies of scale was confirmed by the head of the federal-provincial task force in late 2017. The government also intends to keep the net cost to the consumer adequately low so as to virtually eliminate the need for an illegal market but "not so low as to create an incentive for increased use".

Certain investment counsellors also warned clients that marijuana stocks are very risky. According to Barry Schwartz, chief investment officer at Baskin Wealth Management in Toronto, "It's not the type of investment we’d ever make" adding that he would advise anyone who asks about investing in this sector, "don't do it". In spite of the significant increases in the stock prices of several cannabis producers in early November 2017, few institutional investors were buying such shares because of the uncertainty as to which would succeed and which would fail.

In November 2017, business columnist David Olive of the Toronto Star strongly recommended against investing in this industry. His rationale includes these aspects: there are too many producers for the small Canadian market ("close to 100 players"), retail prices will drop significantly, reducing margins, and the expense ratio is excessively high, so most companies will not be profitable. "Only the most risk-tolerant and speculative-minded investors should go anywhere near it," he warned.

The promise of legalization boosted the price of shares in companies such as Aurora Cannabis Inc. (ACB.TO), Canopy Growth Corp. (WEED.TO 2.00%), Aphria Inc. (APH.TO) and MedReleaf Corp. (LEAF.TO) in November and December 2017. A market analyst explained that the confidence was based on the fact that legal marijuana will not be more expensive, with tax included, than the black market product; this should ensure a sizeable market for producers. Advertising will probably be used to boost sales. The federal task force had recommended that restrictions on ad content should be similar to those for tobacco ads, extremely stringent. The cannabis producers' lobby group, however, was proposing the gentler restrictions that apply to alcohol producers: not to appeal to youth and to promote only the brand, not the recreational use of the product.

As the stock markets approached the year-end closing in 2017, the price of major cannabis stocks surged but Bloomberg News reported that "some analysts are skeptical about demand projections, and betting against the stocks is difficult to do" because there was "almost no stock left to short, and some investors who have taken short positions in the market have lost money", quoting Ihor Dusaniwsky of S3 Partners (investment analysts) in New York. The BCMI Cannabis Report warned that the boom could "end badly", with the bubble bursting as other industries' "manias" had burst in the past. On January 4, 2018, a plunge in prices was being reported by Bloomberg.

Excise tax and sales tax

From the early planning stages, the government indicated that the substance would be taxed. An estimate in late 2016 suggested revenues of $618 million per year from a federal tax initially, and eventually, billions, according to a report by Canada's Parliamentary Budget Officer (PBO). (A recent government estimate indicates that the illegal marijuana industry is worth $7-billion per year.) The Task Force report recommended that high-potency cannabis (with a high THC content) be taxed at a higher level than the conventional product to make it less attractive to consumers.

The federal government had announced in October 2017 that its budget would include $546 million over five years to prepare the "legal framework to strictly regulate and restrict access to cannabis" and another $150 million over six years to enforce the restrictions on drug-impaired driving. Health Canada and the Royal Canadian Mounted Police will receive a share of the funds. Of this amount, municipal and indigenous police services should receive $81 million to offset the increased cost of training and resources.

On November 10, 2017, the government announced that the federal excise tax, to be shared 50/50 with the provinces and territories, should not exceed $1 a gram or 10 per cent of the producer’s price, whichever is higher. The government's press released did not specify higher tax on high-potency products. In December 2017, after demands from provinces for a higher percentage, a two-year agreement was signed to provide a full 75% of the tax; as well, the maximum to be taken by the federal government would be $100 million per annum, with any excess paid to the provinces and territories. The final retail price of the product will include provincial sales tax, ranging from 5% to 15% depending on the province. This arrangement will be discussed again in December 2018 to determine whether the five months of experience indicated that the 75/25 tax splitting scheme had proved to be appropriate.

In provinces where householders would be permitted to grow their own plants, no tax would be charged on such cannabis.

Retail distribution

After the federal government announced that marijuana would be legalized, Ontario Premier Kathleen Wynne commented that the Liquor Control Board of Ontario (LCBO) stores might be the ideal distribution network for stocking, controlling and selling such products. The Union representing LCBO staff had also been lobbying for this process. However, the Task Force specifically recommended against selling cannabis in conjunction with alcohol.

After it was known that the federal legislation would give the provinces the power to determine the method of distribution and sale, Ontario announced its plans for retailing recreational marijuana. The Liquor Control Board of Ontario would be the sole vendor but not through the 651 stores that sell alcoholic beverages. Instead, a subsidiary, the Ontario Cannabis Retail Corporation (OCRC), would initially open 40 stores in 2018; by July 2019, there should be 80 such outlets. The product would also be marketed through online sales.

As of mid-November 2017, New Brunswick planned to take a similar approach, as did Quebec. The latter had announced that their Société des alcools du Québec (SAQ) liquor stores would be the sole retailer of recreational cannabis in the province. Initially, 20 retail outlets would be opened and products sold online would be delivered to customers made by Canada Post.

Manitoba would also handle online sales using a public system but would allow retail stores to be operated by the private sector while Alberta was considering the possibility of permitting on-line sales by the private sector. Manitoba's plan was quite specific, with the Liquor and Gaming Authority (LGA) to regulate all aspects of the product and the Manitoba Liquor and Lotteries Corporation (MBLL) to purchase and track the cannabis that was being sold. British Columbia, however, was considering a more flexible system of outlets that would differ from one community to the next, including "government liquor stores, private liquor stores or other variations of retail operations". None of the provinces would allow cannabis to be sold at outlets that also sell alcoholic beverages.

Nova Scotia intends to sell its recreational cannabis, as well as cannabis seeds, through both online, and existing 12 select Nova Scotia Liquor Corporation (NSLC) stores across the province.

Further reading

• Nolin, Pierre Claude; Kenny, Colin (2003), Cannabis : report of the Senate Special Committee on Illegal Drugs, University of Toronto Press, ISBN 0-8020-8946-1
• Kyle Grayson (12 April 2008). Chasing dragons: security, identity, and illicit drugs in Canada. University of Toronto Press. ISBN 978-0-8020-9479-7.

See also

• Cannabis laws of Canada by province or territory
• Drug liberalization / Drug prohibition
• Minors and the legality of cannabis
• Legal history of cannabis in Canada
• Legality of cannabis by country
• Legality of cannabis
• Effects of cannabis
• Designer drug
• Marijuana Party (Canada)
• Medical cannabis

External links

• 2002 Canadian Senate Special Committee on Illicit Drugs
• Failed Decriminalization Bill
• The Report of the Canadian Government Commission of Inquiry into the Non-Medical Use of Drugs – 1972 – LeDain Commission Report
• Authorized Licensed Producers under the Marihuana for Medical Purposes Regulations
• Cannabis Educational Research Center