Legal marijuana has set Canada ablaze. Cannabis stocks are on the rise and Canadian cannabis investors are keeping a lookout for the next great Canadian cannabis company. For many in the cannabis industry, watching the roll-out of national legalization in Canada has been eye-opening. This is especially so for cannabis entrepreneurs and investors in the United States, who are watching Canadian cannabis companies with a bit of envy. And it’s not just about stock prices.
In addition to legal marijuana nationwide and delivery service via post, Canadians are also paying less for cannabis. But why is marijuana cheaper in Canada? And what impact may it have on the market?
Comparing Costs: Canadian Marijuana vs. U.S. Marijuana
Following the recent midterm elections in the United States, 3 ballot measures passed to approve either recreational marijuana (Michigan) or medical marijuana (Missouri and Utah). While patchwork legalization continues in the U.S., consumers face a mixed market with varied prices.
In Canada, which saw the rollout of national legalization in October 2018 following 17 years of legal medical marijuana, there is a slightly more unified market and a cohesive infrastructure that is affected by regulatory differences at the provincial level.
Forbes, using info from Wikileaf, estimates that Canadian marijuana costs 30% less than U.S. marijuana. An eighth of cannabis can cost a U.S. consumer $40 (USD) while the same amount can be purchased for $27.90 (USD) in Canada.
One reason that Canadian marijuana is cheaper than U.S. marijuana is by design. Part of the goal of the Cannabis Act is to reduce the black market around the drug, and the best way to do this is to offer competitive pricing. However, that’s not the only reason.
Analyzing Canadian Cannabis Costs: Supply and Demand
Another reason that Canadians are paying less for marijuana is that there is just more marijuana in Canada. Canada’s history with medical marijuana has helped ensure it was prepared for recreational use, though there are reports of a shortage. This may mean prices will change soon.
In the U.S., while demand may be high, the supply is lower, leading to higher costs for consumers.
Additional Constraints on U.S. Cannabis Industry
Because marijuana is still classified as a Schedule I drug at the national level in the United States, it is technically illegal nationwide. This poses unique challenges for U.S. cannabis companies and can create additional operating costs.
For example, U.S. marijuana companies may face difficulty with banking or acquiring financing because of federal prohibitions. While some banks are still backing cannabis companies despite the possibility of federal sanctions, many dispensaries and other cannabis industry companies are having to get more creative. This difficulty—and the expenses that cannabis companies incur as they figure out a workaround—can lead to higher prices for consumers.
The Effects of Taxation on Marijuana Prices
Of course, taxes are another reason that marijuana prices vary.
In Canada, the Canadian Revenue Agency (CRA) requires an excise tax be paid on licensed cannabis producers deliver their products to a distributor or retailer. This tax can be 5%, 13%, or 15%. In addition, provinces may require an additional tax to cover the costs of marijuana education programs and public safety measures.
In the U.S., cannabis consumers can be hit with an excise tax, a sales tax, and additional taxes on particular marijuana products depending on where it’s purchased. And while marijuana is illegal at the federal level, cannabis business must still pay federal taxes, which are much higher than the generous corporate tax rate. Consumers in California, the nation’s largest marijuana market, face a 15% excise tax and a 7.25% state tax. Plus, wholesalers face additional taxes on products that they may pass on to consumers. It’s no surprise, then, that some of the most expensive marijuana can be found in San Francisco. The least expensive? Vancouver.
There are plenty of different reasons why marijuana is cheaper in Canada. And while Canadian consumers will hopefully continue to enjoy this competitive pricing, it will be interesting to see what kind of effect the high demand for cannabis products has on future pricing.
