Liberals’ legal pot promise expected to shake up black market, medical cannabis industry

The federal Liberals’ campaign promise to legalize recreational pot will likely shake up the economics of both the black market and medical cannabis industries, say experts. 

The federal Liberals campaigned on a promise to legalize the recreational use of marijuana. Now that the Liberals have gained a majority in the House of Commons, experts say a new policy has the potential to change the industry in Canada | Shutterstock

The federal Liberals’ campaign promise to legalize recreational pot will likely shake up the economics of both the black market and medical cannabis industries, say experts.

But B.C. marijuana advocacy lawyer Kirk Tousaw said the new government will first have to look to other jurisdictions if it wants to be successful at regulating recreational cannabis.

“We can learn from Washington (state) overregulation can be just as problematic as under-regulating an industry and maybe even more problematic,” he told Business in Vancouver October 20, the day after the Liberals won the majority of seats in the House of Commons.

Tousaw pointed to state governments in Oregon and Colorado, which he said have struck the right regulatory balance.

While the recreational use and possession of marijuana remains a criminal offence in Canada, the federal government regulates the use and production of medical marijuana.

But critics have complained Health Canada regulates that side of the industry is too tightly. The government agency has issued just 26 licences over the past two years after receiving more than 1,200 applications under the new Marihuana for Medical Purposes Regulations (MMPR).

Tousaw said Health Canada’s “serious error” in over-regulating has set up most medical marijuana producers to fail.

“They’re not able to succeed because they’re competing against a well-entrenched and long-standing black market in cannabis that delivers high-quality products for a relatively low price, safely and effectively, quite frankly,” he said.

Nanaimo-based medical marijuana producer Tilray had to lay off more than 60 of its nearly 200 employees in June, with CEO Greg Engel citing the need to serve patients more efficiently in the “MMPR market as it exists today."

But if done correctly, Tousaw said the Liberals have the chance to wipe out the illegal trade of cannabis. Canadians just can’t expect it to happen instantaneously.

“If we implement a legalization policy that allows individuals to produce for themselves on a non-commercial basis so that it’s not illegal to grow this plant as long as you’re doing it properly, that’s step 1,” he said.

According to the Liberal party platform, the new majority government plans to form a federal-provincial taskforce that includes input from experts in public health and law enforcement to “design a new system of strict marijuana sales and distribution, with appropriate federal and provincial excise taxes applied.”

Engel told BIV the taskforce should also include representatives of the country’s regulated medical cannabis industry.

“Growing and producing at the scale and the level that we’re doing has not really been done under this type of regulated environment before,” the Tilray CEO said.

“So the companies that have operated to date have key learnings (the Liberals) can build off of.”

Engel said he also expects a regulated recreational system to be a boon to the existing medical industry as opposed to a potential for more competition.

“We can look at the various U.S. states that have parallel systems. We’ve seen significant growth in the medical cannabis industry when adult recreational use has come into play,” he said.

“There’s a socialization or normalization within the population.”

A Leger poll conducted on behalf of Tilray revealed last week 86% of Canadians support regulated access to medical cannabis. The online poll sampled from 1,555 Canadians from September 14-17 with a margin of error of plus-or-minus 2.5%, 19 times out of 20.

Engel said Tilray is staying focused on the medical side of the industry and he would first need to see what the new regulations would look like before the company considers expanding into the recreational market.

“I think the biggest thing is that Canada’s really well positioned to be a global leader in not only RnD (research and development) and regulation surrounding cannabis but in terms of the first G-20 country to look at adult recreation use federally,” Engel said.

“We’ve learned a lot from our federally regulated medical system.”

Aurora Cannabis, which is headquartered in B.C. and has built its medical marijuana production facility in Alberta, has already begun exploring entry into the recreational pot industry in Washington state.

CEO Terry Booth told BIV in May that the U.S. market dwarfs Canada’s market, which is why the company has been eager to build a facility just across the border in Bellingham, Wash.

Aurora did not respond immediately to interview requests from BIV to find out if the medical marijuana producer is considering entering Canada’s recreational market.