Federal government to announce review of Cannabis Act as legal industry faces big hurdles

CTV National News: Cannabis black market impact Adrian Ghobrial reports on the overwhelming impact the black market has had on the cannabis industry and the scramble to stamp it out.

Nearly four years after cannabis was legalized in Canada, the federal government will finally announce its plans Thursday for a long-overdue review of the country’s Cannabis Act.

The legislative review was supposed to take place nearly 12 months ago, and calls for reform are echoing from coast to coast to coast.

According to Health Canada, “the legislative review must study the impact of the Act on public health. In particular, it must look at the impact on the health and consumption habits of young persons with respect to cannabis.”

With so many unlicensed weed providers operating store fronts across the country as well as online, some industry leaders are telling the government that the health and well-being of consumers is being put at risk.

When weed was legalized across Canada in October 2018, it sparked a "green rush," but fears are now mounting that parts of Canada’s cannabis industry could go up in smoke.

CTV National News spoke with the former CEO of cannabis behemoth Canopy Growth, the president of the Cannabis Council of Canada, and a brand partnerships expert who currently works for a company that is connecting consumers with black market products.

While nearly everyone working in the marijuana game agrees that wholesale changes are needed, finding a consensus on how to move forward remains elusive.

Industry complaints range from sky-high taxes, government overreach and advertising restrictions to the proliferation of the black market.

Leafythings, an online cannabis directory, was recently given the “best innovative technology” award at a national industry gala, though their big win turned heads mainly because the products they offer online come from both licenced companies and unregulated retailers – which lawmakers still point to as illegal.

Nima Derak, the company’s director of brand partnerships, characterizes those in the black market as “independent operators that are looking to enter the market -- most of these people want to enter the (legal) market but because of the government’s financial barriers they’re really struggling to.”

In major urban areas across the country, regulated pot shop owners are sounding the alarm, claiming that provincial governments are handing out too many retail licenses, resulting in city streets becoming saturated with stores. Look no further than Toronto, which now has more weed stores than Tim Hortons locations.

“A lot of these mom and pop businesses are going to go bankrupt, they’re going to lose their life savings,” adds Derak, though many legal, regulated cannabis store owners are pointing to the black market as a big part of the problem.

George Smitherman, the president of the Cannabis Council of Canada, believes that “the playing field is nowhere near level. There's illegal retail store fronts, there’s also considerable illegal delivery services which are also largely ignored (by the authorities).”

A report commissioned by the Cannabis Council of Canada notes that in Ontario, each gram of weed is taxed more than 27 per cent collectively by the provincial and federal governments. An additional markup of nearly 19 per cent is then applied by the Ontario government - that's all before a product arrives on the market for sale. “No other sector could deal with a tax bite that's like that,” claims Smitherman.

Meanwhile the black market is operating without paying a dime in taxes for their products. Smitherman believes the authorities and prosecutors must find a way to shut down illegal operations. “There’s a significant body of regulation, but there isn’t enough law on the books to stop obvious illegal operators and no one is doing anything about it,” he said.

Large-scale regulated growers and cannabis producers are also finding themselves with a smaller piece of the pot pie, with mass layoffs and plummeting shares at large Canadian industry players like Aurora Cannabis and Canopy Growth.

In 2019 Canopy Growth's stock hit nearly $70, today it has fallen to about $4 a share. The company declined our request for an interview but their former CEO, Bruce Linton, did sit down with CTV National News, noting that Canopy’s “actual sales number, dollars of cannabis sold, has been declining while the market is growing. So they're actually selling less total revenue.”

Linton wants to see the easing of government restrictions on marketing and advertising so that regulated growers and producers can compete with the black market who don’t have any limitations on their packaging or the potency of their edible products.

“If you want to have a legal, regulated, safe system succeed, it has to be able to sell product that you can identify, associate with and build from,” notes Linton.

Derak and his colleagues at Leafythings believe there’s a way for everyone to succeed. He’s calling for a “system to be set up similar to the Canadian food standards, where growers and brands are able to retain samples of their product, and send samples to independent labs for testing and distribute directly to regulated businesses.” He also claims that many of the black market businesses would be open to paying taxes if “overreaching” government regulations are dropped.

Smitherman, who was previously a minister of health in Ontario, believes that Derak and others are “trying to make the illegal market work better for themselves,” not the industry and consumers as a whole.

Derak fired back, saying: “our focus is legal age consumers, giving them the right to choose where they purchase and what they purchase,” and pointing out that Canada's cannabis industry “as a whole is a $6-billion market and we're neglecting half of the market. It's time to bring that money in and start contributing to Canadian society.”

When cannabis was first legalized in Canada, the federal government downloaded the regulatory responsibilities to each provincial government, creating a patchwork system, with different legislation and regulations depending on where you are in the country.

For an industry that is sputtering its wheels as the world watches, all eyes will now turn to the Canadian government’s review of the Cannabis Act. In an email to CTV National News, Health Canada states that “the Government is committed to putting into place a credible, evidence-driven process for the legislative review, which will assess the progress made towards achieving the objectives of the Cannabis Act.”

With the government set to announce its plans on how it will review the Cannabis Act, this week Aurora Cannabis reported a fourth-quarter loss of just over $600 million.