Within a few short months, recreational marijuana will be legal in Canada after the Senate passed the historic Bill C-45 (known as the Cannabis Act) on June 19, 2018. Canada is the second nation in the world to establish a nationwide marijuana marketplace. The industry will officially open on October 17, 2018.
In 2013, Uruguay passed similar legislation, making it the first country to create a system for regulating legal production, sale, and consumption of cannabis. Uruguay’s President Jose Mujica and other government leaders were motivated to pass the law so they could undermine the black market and drug trafficking, and create a culture of improved prevention and support for drug abusers.
As of 2017 when the law became fully implemented in Uruguay, anyone over the age of 18 can purchase up to 40 grams of marijuana from registered pharmacies each month and can grow up to 6 plants at home. An alternative to buying at pharmacies is to join a registered cannabis club growing its own marijuana. These clubs can have no more than 45 members, each of whom are limited to 480 grams of marijuana per year.
Lawmakers were conscious that they were creating a new paradigm and concerned about negative perceptions domestically and internationally, so they intentionally crafted the law to be conservative and controlled. For example, the distribution rollout ensured that pot-selling pharmacies aren’t located near schools. The law also took measures to discourage marijuana tourism and efficiently track consumer limits by stipulating that consumers must be citizens of Uruguay.
Although its model is quite strict and specific to the needs of the small country of 3.5 million people, Uruguay’s marijuana legislation puts it at the forefront of drug policy innovation. As a result, governments and drug policy experts around the world have kept a close eye on the development of their market.
According to Uruguay’s marijuana regulators, legalization has been successful and marijuana usage hasn’t increased in recent years. But some key challenges are worth noting for those interested in Canada’s emerging market.
Uruguay and Canada are, of course, different in many ways: their demographics, geographies, political systems, and economies are on different ends of the spectrum. But the goals of marijuana legalization are quite similar, and both countries are within an industry with very few precedents and little evidence of what works over the long-term.
Below we’ll look at some of the issues and discuss how those could play out in the emerging Canadian market.
Government supply shortages
The shortage of cannabis supply is a major issue holding back the full potential of the recreational cannabis market in Uruguay. Currently, only two companies in the entire country have licenses to grow commercial cannabis, and only so much can be produced in a given harvest. Meanwhile, 22,000 Uruguayans are registered purchasers.
Canada’s market will allow for many more producers, and it could actually face the opposite problem of oversupply.
Struggles to secure bank financing
Several prominent U.S. banks have said they will not work with Uruguayan banks that offer services to businesses involved with legal cannabis sales, citing U.S. federal regulations against drug trafficking in the Patriot Act. This caused banks in Uruguay to threaten pharmacies with closing their accounts. As a result, most pharmacies selling cannabis have had to resort to cash-only transactions or risk losing their banking services.
The legal marijuana system, which was implemented with a mission to decrease stigma of the drug, is already experiencing financial exclusion. This is not good for the legitimacy efforts of the industry.
Canada is in a completely different situation economically, with big-player national banks of its own that are open to financing the marijuana industry. It’s also unlikely that the U.S. banking system would threaten to break ties with Canadian banks like they did with smaller Uruguayan ones.
Lack of commercial sales options
The Uruguayan government wanted to keep the price of legal marijuana incredibly affordable to avoid competition from the illegal market. It currently sells at about $1.30 per gram. But between the lack of financing options and the extremely low price tag, some pharmacies have decided it just doesn’t make business sense to carry cannabis. As a result, many people who would like to purchase marijuana on the legal market aren’t in proximity of a local pharmacy that sells it. The Uruguayan government is already planning a new form of dispensary, as the pharmacy-only approach is clearly not sufficient.
Canada will have a more diverse sales market than Uruguay from the get-go, and it will leave the details of the sales regulation to the provinces. The result will be a mix of sales through commercial dispensaries, government-run stores, cannabis lounges, and even the online marketplace.
In Uruguay, all buyers, club members, and home growers have to register with the government. Every time customers buy marijuana at a pharmacy, they have to scan their fingerprint to track the purchase back to their accounts. Many consumers dislike the idea of their consumption habits being stored in a government database, so they are sticking with the illegal market.
Canada’s Cannabis Act allows for possession of 30 grams and up to 4 plants at the home. Provinces could further restrict possession, sale, and use. It’s not yet clear if the government plans to proactively monitor people’s purchasing activities, but so far it seems unlikely due to the scope and decentralization of the market.
International diplomatic tensions
In their moves to legalize recreational marijuana, Uruguay and Canada are technically violating international treaties on drug policy. Uruguay has taken the approach of rejecting the idea that the legal market violates the treaty agreements, despite warnings from the UN Office on Drugs and Crime. Perhaps because Uruguay is a relatively small economic player, no official action has been taken against the country.
Canada arguably has more at stake in these international relationships than Uruguay. At the same time, it also has more power to shift the global attitudes towards marijuana legalization. If the process goes well in Canada, it’s likely that other countries will get on board too. Canada can become a moderator and champion for improvements to outdated international agreements, rather than ignoring the fact that they are violating them.