Is Canada’s Cannabis Legalization Really That Big Of A Deal?

Canada’s legalization is more important socially and politically than economically.

As a legal analyst I don’t feel compelled to write about every breaking news story in the cannabis world. There are talented, hard working, and connected journalists who do that. I only write about a news event when I have something to say about it that is unique and/or helpful to my clients and readers. For this reason, I almost passed on commenting about Canada’s legalization of cannabis, a summary of which you can read about here. I certainly wouldn’t be breaking a story by mentioning it. The fact that cannabis became lawful in Canada on October 17, 2018, has been front page news for all major media outlets. The run up has been fertile ground for a number of different stories, from volatile stocks to long lines to the Trump Administration’s chaotic and contradictory responses to it. All of the breathless reporting, combined with a potent combination of anxiety and desire that many of my clients have about penetrating the Canadian market, led me to ask a question that I haven’t seen asked; namely, is Canada’s legalization of cannabis really that big of a deal? And the answer I came up with is, “sorta”.

To be clear, I want to acknowledge that by legalizing cannabis Canada has broken some deep seated stigmas about the plant and users of it. From a social/cultural standpoint, the fact that a respected first world nation with unique geopolitical standing has legalized cannabis in the context of a coherent and sophisticated regulatory scheme cannot be downplayed. The long-term effect that it will have on other nations, including its neighbor to the south, remains to be seen. However, it is difficult to imagine it being anything but positive for cannabis.

Also, the fact that Canada was willing to break international law by breaching three treaties (the Single Convention on Narcotic Drugs (1961), the Convention on Psychotropic Substances (1971) and the Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988)), all of which require signatory countries to ban the possession and production of recreational cannabis, set a significant precedent. Given that the United Nations World Health Organization is set to launch a review of the current international classification of marijuana, Canada’s legalization was timely and may have even prompted the review. So, it would be absurd of me to assert that Canada’s legalization is unimportant. At a minimum, the political and cultural impact is immense.

But what about the economic impact? One thing that appears to have gone unnoticed in all of the front page articles is the fact that Canada is not the largest jurisdiction in the world in which recreational (adult use) marijuana is lawful. That title is still held by California, which has a population of almost 40 million, compared to Canada’s population of 38 million. In terms of countries in which marijuana is lawful for adult use, the United States remains unchallenged. The combined population of US states that allow adult use of marijuana exceeds 65 million, and that’s not counting states with meaningful medical use laws. The US figure may soon be topped if Germany, which already allows medical use, reforms its laws to allow for adult use. Germany’s population of 82 million is more than twice that of Canada’s. Of course, if Germany legalizes marijuana, then much of Europe will follow.

From a market standpoint, Canada’s legalization is big. But its importance lies more in the Canadian “brand” than in any actual sales figures. Despite daily stock reports announcing yet another international acquisition by a Canadian firm, actual sales are not expected to outpace California’s through 2020. (This is despite the fact that California is underperforming on its projections.) Canada is a big market, to be sure, and several of my clients are well positioned to take advantage of it. However, before getting swept up in the “Canada Craze” I encourage my clients to step back and prioritize their resources. How much time and money should be spent on the Canadian market relative to the rapidly expanding US market? Usually, the answer is “not as much as we thought.” The questions of whether to go public in Canada, consider acquisition offers by a Canadian firm, build a manufacturing facility in the Great North, or even create a robust distribution network to market products to Canadian citizens should take market size into account. In fact, this may very well be the most important consideration.

Before being called a naysayer, I want to be clear that yesterday was an important moment in cannabis history. It was a clear victory for cannabis advocates. It was also a victory for Canada, which has shown the world that it has an important role to play in the cannabis space. I have worked with some serious, thoughtful, and knowledgeable Canadian professionals and learned a lot in the process. Moreover, watching the Trump Administration grasp for a coherent response to Canada’s legalization has been perversely enjoyable. All of this is positive and progressive. My point is, despite the impression you may be receiving from the media, all roads do not lead to Canada when it comes to cannabis markets. Currently, at least for most US companies, the map points right back home. 

October 18, 2018

Rod Kight is an attorney who represents lawful cannabis businesses. He speaks at cannabis conferences across the country, drafts and presents cannabis legislation to foreign governments, is regularly quoted on cannabis matters in the media, and maintains the Kight on Cannabis legal blog, where he discusses legal issues affecting the cannabis industry. You can contact him here.

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