Task force on cannabis

I give an A- to the Task Force on Cannabis Legalization and Regulation

Task Force on Cannabis Got it Mostly Right

Last week’s release of the report by the Canadian government’s Task Force on Cannabis Legalization and Regulation largely took a public health approach, which is appropriate given both the initial terms of reference and the evidence they gathered throughout the process. It was heartening to see the government get this right, for the most part, and to see the focus on access to medicine for medical users and fair access to safe and reliable cannabis for recreational users. They crafted a strategy governed by an overarching harm reduction objective, as opposed to the nanny state, control-oriented philosophy that governs so much of what happens in my native province of Ontario.

It’s by no means the utopian wide-open marketplace that many libertarians yearn for but it does take a realistic, balanced, “Made-in-Canada”, approach aimed at safe fair access to a product that, while harmful, is likely much less harmful than other legal products such as alcohol or tobacco, or the prescription drugs that cannabis often can replace. The report is comprehensive, balanced and does a good job of achieving the government’s objectives as set out in the terms of reference.

Small Business and Cannabis in Canada

The report is unambiguous in its support for a diverse supply chain “that also includes small producers”1. The goal of such an ecosystem is to provide unencumbered access to a wide variety of products related to cannabis, without creating virtual monopolies in the process, keeping in mind the first two objectives the government set out to achieve: to protect young Canadians by keeping cannabis out of the hands of children / youth and to eliminate the profits made by organized crime.

Were the government to hand the cultivation, production, distribution and sale of cannabis and its derivatives to either a government monopoly or a small handful of their cronies, then the upshot would likely be a near complete failure of the whole strategy. The evidence gathered from other legal jurisdictions shows that small, creative businesses flourish and innovate if you allow them space to operate.

When viewed in hindsight a few years from now, anything short of a relatively open, vibrant, legal industry with robust competition operating within an well-oiled regulatory framework should be deemed a failure.

Note that while everything still hinges on the legislation that the Canadian Liberal Party has promised to introduce by spring of 2017, for the purpose of simplification, I will assume that the task force’s recommendations become law.

The other potential boon for independent business is the recommendation that the sale of cannabis be kept separate from alcohol (there are ZERO jurisdictions where recreational cannabis is legally sold alongside alcohol). This won’t mean that some provincial and territorial governments won’t set up parallel monopolies for distribution and sale of recreational cannabis, but at least the same economies of scale won’t be available (if the recommendation is followed). Coupled with the recommendations to allow limited (away from schools, community centres, public parks, etc.) “dedicated storefronts with well-trained, knowledgeable staff”, the current dispensary community should be buoyed by the potential to eventually “go legal”.

Other reasons small/medium businesses should be excited

During her presentation of the report last week Anne McLellan, head of The Task Force on Cannabis said that for the strategy to work they have to attract the large numbers of growers currently operating in the grey or illicit market. She said “we agree there should be diversity of producers” and when pressed about how you protect the little guy from being squished she reiterated that the government should use “market intervention” to ensure diversity and avoid creating “corporate cannabis”.  She stated that the government “needs to understand the value of a diverse market”, while remaining silent on exactly what they ought to do or what sort of “market intervention” might be appropriate.

The federal government regulates cultivation and production, but exact look of the distribution and sale will fall to the provinces and will likely vary significantly across Canada. What is clear is that the independent cannabis industry still have much lobbying work to do at the provincial and municipal level if they’re to shape what the end of the supply chain will look like. The Task Force answered a lot of questions but there remain many more.

What the Task Force on Cannabis got wrong

Brands are going to be a huge force in this industry and in fact are a real opportunity for Canadian cannabis companies to get out in front globally and establish brands that eventually translate worldwide. Telling a brand manager that they can’t control packaging is like tying at least a few fingers behind their back. The overarching harm reduction objective led the Task Force on Cannabis to recommend that the government “Require plain packaging for cannabis products that allows the following information on packages: company name, strain name, price, amounts of delta-9-tetrahydrocannabinol (THC) and cannabidiol (CBD) and warnings and other labelling requirements.” But no mention of the company’s logo or even a product brand name. Alcohol has no “plain packaging” requirement and is arguably much more dangerous, especially if taken in large amounts. It’s vital that the government in the final legislation take a more balanced approach, similar to alcohol and much less like cigarettes, and allow brands to emerge. This is an industry-wide issue and you can be assured the CEO’s of the publicly-traded cannabis companies will be lobbying hard in this respect too.

Taxing Cannabis in Canada

On recommendations regarding taxing cannabis they achieved mixed results. On the positive side, they were wise enough to recommend keeping taxation low enough to achieve pricing competitive with current illicit channels, and creatively suggested that tax should increase on higher potency products. What they got wrong is their suggestion that the government, “Apply the same tax system for medical and non-medical cannabis products”. The report contains no detailed justification for this recommendation, and it seems potentially unfair to medical users.

In all the Task Force on Cannabis made 80 recommendations addressing dozens of competing, valid and politically-charged issues. With few exceptions medical cannabis users, the Canadian public, the cannabis industry, health and law enforcement should be pleased with the report. It contains all the protection a prudent person would want while leaving space for adults to have the freedom they clearly demand based on Canadians’ support for this initiative.

What the folks with the most at stake likely don’t quite realize yet is that it will be late 2018 before we’re able to walk in to the local cannabis retail store and buy a gram on the way home. The time it will take to develop and implement the myriad policies and regulations should not be underestimated, nor should the need for the government and industry to remain flexible throughout this entire process.