NOTICE: Long-awaited Cannabis Act review leaves gaps for industry

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MICHELLE EATON and NATHAN LISON

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On October 17, 2018, Canada became the first G7 country to legalize recreational cannabis. With the potential to be a world leader in this area, the industry has since faced many hurdles in 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 elements missing from the review that will leave the sector with continued challenges.

On the positive side, the review aims to meet the original intent of the Cannabis Act: to eliminate the illegal market and prevent young people from accessing cannabis. Additionally, it will revisit the social equity mandate for cannabis legalization, which was not originally included in the Act.

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On the other hand, it completely exempts wholesale distribution, which includes all retail stores and represents a significant part of the cannabis sector. While wholesale and distribution technically falls under provincial jurisdiction, the federal review provides a unique opportunity to assess the effectiveness of each province and territory’s regulatory approach.

For example, the Alberta government, which handles wholesale distribution, charges retailers a 6% markup, while 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 business relationship. This allows them to determine their own range of products and prices, creating a more diverse and competitive retail market.

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The examples above illustrate the importance of why a provincial wholesale and distribution review is essential to ensure the legal sector can compete on price and displace the illegal market, a battle currently lost in several Canadian provinces and territories.

The Auditor General of Ontario conducted a review of the OCS in December 2021. In his report, he outlined a range of vulnerabilities, including pricing models, how the OCS handles data, and oversight of its delivery service partner.

Although these issues were reported nearly a year ago, a recent cyberattack has crippled the entire province’s wholesale and delivery system. This demonstrates once again why these reviews are essential, but only as effective as the actions taken by the government in response to their findings.

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In addition, the lack of clarity between federal and provincial agencies continues to cause inconsistent application and confusion for industry.

For example, required window coverings have created potentially dangerous work environments that are the perfect cover for theft and violence. Many violent crimes at cannabis retailers could have been prevented in Canada with a simple clarification of this section of the Cannabis Act.

While a cautious approach by federal and provincial regulators was understandable at the start of this nascent industry, ongoing reviews and action following those reviews will be critical to implementing the broader reforms needed.

We hope that all levels of government will continue to work closely with industry to ensure that we can successfully displace the illegal market and make Canada a world leader in recreational cannabis.

— Nathan Mison is President of Diplomat Consulting and Co-Chair of the Ontario Cannabis Policy Council of the Ontario Chamber of Commerce; Michelle Eaton is Vice President of Public Affairs for the Ontario Chamber of Commerce. @misonnathan @michellelyeaton

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