When Canada legalized cannabis last fall, the country began blazing a trail that the U.S. should one day follow. There’s much to emulate about the Canadian government’s approach to legalization, and a few things to avoid, but having marijuana legalized on such a large scale so close to home will no doubt have a profound effect on America’s future treatment of the issue.
Medical or recreational marijuana is now legal in 33 U.S. states, even though its possession or use is illegal under federal law. It’s an untenable situation that individuals engaging in an activity that’s now legal in 60 percent of the country are violating federal law. This is problematic for marijuana users, as well as for the cannabis industry. And even though a market is taking shape to support the use of both medical and recreational marijuana, it’s proving to be a stilted effort at best.
National banks are hesitant to get involved, meaning that cannabis companies are struggling to secure loans and lines of credit. This also complicates leasing, contracting, insurance, banking, income taxes, and more. And beyond all that, growers, dispensaries, and other would-be industry participants must be willing to commit federal felonies daily, exposing themselves to risks like steep fines, forfeiture, and jail time.
I can’t imagine the country continuing down a path where a burgeoning new industry is notably constrained and a growing percentage of the country is both following the law and in violation of it at the same time.
Canada is just the second country in the world, after Uruguay, to legalize recreational marijuana. Its passage of the Cannabis Act created a blueprint that the U.S. could follow. It also puts us in the prime position to observe the strengths and weaknesses of a large country’s legalization efforts and tailor our own approach accordingly. If Canada’s rollout continues to unfold without any major catastrophes, U.S. lawmakers pushing for federal reform will have a credible model to use to inform their conversations.
Congress could address some of these issues by repealing the federal ban as it relates to conduct that is permitted under state law. But a more sweeping solution like the one adopted by Canada would prove the most beneficial for all parties, our government included.
What’s working so far
The Canadian government took the time to assemble a federal task force to help craft a bill that anticipated and addressed many of the issues that could result from legalization. The legislation is deep and comprehensive, yet manages to leave the majority of regulatory decisions — such as where cannabis can be sold and consumed — in the hands of its provinces, an approach I believe the U.S. will want to emulate.
Under the Cannabis Act, Canadian provinces retain the ability to ban recreational use, a scenario that should be attractive to America’s most conservative states. But residents of provinces that ban recreational use can still order cannabis online from a government-run website. That eradicates the need for illegal drug purchases even in areas that aren’t prepared to condone recreational use of marijuana. An approach like Canada’s, which lets states stay true to their values, also has the best chance of persevering despite a divided government.
Another selling point of Canada’s model is the institution of modest taxes on marijuana. These not only generate revenue but also help displace the black market. The national government is imposing an excise tax of 10 percent or $1 Canadian per gram, whichever is higher, and gives provinces 75 percent of the revenue. That’s in addition to sales taxes, which range from 5 to 15 percent. These taxes are still less than those in California, where higher taxes have resulted in legal marijuana costing about 77 percent more than cannabis being sold by unauthorized dealers. This is also true in other tax-heavy U.S. states: Legal marijuana is being priced out of the market.
Another factor that drives individuals to the black market is the minimum age to buy marijuana. Canada’s is set at 18 years, whereas in the 10 American states that have legalized recreational use, the purchase age is 21. That means the 38 percent of college students who use marijuana (as of 2017) must continue to do so illegally.
If the U.S. is to truly benefit from legalization, it will need to take similar steps to squelch its black market as Canada has done.
The Canadian government is also sealing conviction records for marijuana consumers who were charged for crimes that have since become legal, without fees and waiting periods. This is a huge benefit to those who were caught in an ineffective and decades-long “war on drugs.”
What needs more work
Although Canada’s approach has been overwhelmingly thorough and positive, changes this big are bound to have a few kinks that need to be worked out. The longer we’re able to observe the transition, the more we’ll learn, but there are a few immediate lessons we can take away from Canada’s efforts so far.
One is the country’s failure to address what to do about people who are currently incarcerated for possession crimes that have since become legal. While the country is actively working to help citizens who have already served their time, those who remain in jail also need assistance.
Critics have noted that Canada’s strict packaging laws, which require companies to use plain packages and regulate font size, styles and colors, have made it more difficult for brands and suppliers to clearly articulate how products differ and recommend the best strains and doses to users. These laws are well-intentioned, as they’re meant to prevent companies from marketing their products to children. But poorly branded products make it harder for buyers to identify the products most likely to meet their needs.
And although Canada has done a phenomenal job structuring a program that squeezes out illegal competition, unlicensed drug dealers aren’t giving up without a fight. Illegal cannabis dealers in Canada have responded to legalization by lowering their prices to make them more competitive. It will be interesting to see how the country will address this.
Although Canada still has some issues to address, the rollout of its legalization of marijuana has been smooth. It has generated excitement across the country, as well as within the U.S. investment community. Following legalization, American investment dollars began pouring into Canadian marijuana producers, retailers, and grow technologies. The fact that Canada legalized cannabis before the U.S. will give the country a leg up on the cannabis business, leaving the U.S. to play catchup if and when it ever is legalized nationally. Canadian companies are already investing in the U.S. market and looking to license U.S. products, and they have the best shot of building the biggest portfolios of companies. There’s also speculation that Canada could set up a lucrative export business for other countries that have legalized medical use of cannabis.
The U.S. has a lot to gain should it decide to follow in Canada’s footsteps. It could eliminate the costs of incarcerating citizens for something that 33 states now say is legal, drive out a black market, and give people more safety and transparency in purchasing cannabis. By legalizing cannabis, Canada acknowledges that battling citizens who aren’t committing violent acts or hurting others isn’t worth doing. It’s a paradigm shift that other countries, like the U.S., should tap into.
Lyle Hauser is the founder and CEO of The Vantage Group, a Florida-based private equity firm and specialized business consultancy that serves early-stage companies, including cannabis and cannabis technology companies.