Wendel Rosen Business & Legal Updates

Canada Goes Legal and Gains Competitive Edge

On October 17, Canada became only the second country in the world, after Uruguay, to legalize cannabis for recreational use. Canada’s brand new recreational market allows consumers to purchase, possess and/or share up to thirty grams of cannabis and grow up to four plants. Notably, edibles can only be made at home, and other manufactured products, such as concentrates are prohibited. However, the Canadian government expects to make edibles, concentrates and other manufactured products available for legal sale by this time in 2019.

Since 2001, Canada had limited legal cannabis use to medical purposes only. The 330,000 Canadians estimated to use medical cannabis will still be able to access their medicine through the parallel medical cannabis market under the control of Health Canada, the Canadian governmental department responsible for national public health.

Individual provinces and territories will have regulatory control over enforcement including minimum age requirements, personal possession limits, additional restrictions related to residential growing, where and how to purchase cannabis products and legal consumption locations. Currently, Ontario and Nunavut provinces are only permitting online sales via their government-operated online stores, while other provinces allow for private licensed stores, government operated stores, or both. Quebec and Alberta have opted to make the legal age of consumption eighteen to be in-line with their alcohol rules, while nineteen is the prevailing legal age in the rest of the country.

A big question Californians are asking is how will Canada’s legalized recreational cannabis industry impact the U.S. cannabis market? Most would agree that Canada’s nationwide legalization is a huge step forward for global acceptance of cannabis and will hopefully provide a workable model for legalization in more countries. But the competition it may represent is discouraging to some U.S. operators continuing to struggle with inconsistent federal policies, including banking limitations on the one hand, and large tax burdens on the other.

Many California cannabis companies, grappling with the high additional cost of state and local compliance are feeling vulnerable to competition and buyouts by well-capitalized Canadian enterprises. These fears are not entirely unfounded. The twelve largest Canadian cannabis companies, which are collectively valued at about $42 billion, are able to take on more traditional investors. An example is Constellation Brands’ massive investment in Canopy earlier in 2018. In contrast, many investors are still wary of pumping money into California companies facing the federal ban, high taxes and a slow, convoluted path to state and local licensing.

Canada, like California, foresees an on-going battle with a powerful and entrenched black market. Despite that, Canada is shaping up to be the global leader in cannabis capital and investments with an estimated 4.9 million Canadian cannabis users and a market expected to be about $5.6 billion.

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