Within the next few months, most provincial governments across Canada will have tabled legislation outlining their frameworks for the legalization of cannabis. Ontario and New Brunswick were first out of the gate with the Cannabis Act, 2017 and the Cannabis Control Act respectively. The provinces are responding to an obligation imposed on them by the federal government’s approach to fulfilling a campaign promise and legalizing recreational cannabis in Canada.

The federal legislation is divided into two pieces, Bill C-45, the Cannabis Act, and Bill C-46 (relating to drug-impaired driving), but even together they are far from comprehensive. By design, the federal legislation builds a high-level framework and demands that provinces then legislate on a broad range of issues, including impaired driving, workplace safety, public consumption, sales, distribution and age for possession.

One of the Liberal government’s key objectives in legalizing cannabis, as outlined in the 2015 Liberal platform, is to “keep marijuana out of the hands of children, and the profits out of the hands of criminals.” The latter half of this statement has proven central to the government’s ongoing discussion of taxation. The federal government reasons that if it sets the rate of taxation too high, consumers will remain in the lower-cost illicit market. This concern was echoed in the final report of the Task Force on Cannabis Legalization and Regulation, and issues around taxation were studied by Public Safety Canada and described in The Price of Cannabis in Canada. While policy-makers have focused their attention on predicting the interactions between the legal recreational market and the illicit market, it seems they have forgotten the medical market as the third part of this picture.

When Colorado legalized recreational cannabis in 2014, a combined tax rate of nearly 30 percent on recreational cannabis and only 2.9 percent on medical cannabis severely reduced the growth of the fully taxed recreational market. The Canadian Parliamentary Budget Officer estimates that in Colorado’s first full year of legal sale, 80 percent of consumption was through the lower-taxed medical market. Accordingly, “only 5 to 10 per cent of total resident consumption occurred in the fully-taxed, legal recreational market.”

The more you look at the provincial frameworks, the more reasons you can see for consumers to gravitate toward the medical system: greater selection, fewer growing restrictions, income tax deductions, permission to consume in public and even health insurance coverage.

Yet, as provincial legislation rolls out, we are beginning to see a whole host of new areas where recreational and medical cannabis are treated differently by legislation. Ontario’s legislative approach to cannabis includes a prohibition on the public consumption of recreational cannabis, but not of medicinal cannabis. Medical cannabis will be treated similarly to tobacco, but the consumption of recreational cannabis will be limited to private dwellings. New Brunswick drives the wedge further by requiring that those seeking to cultivate recreational cannabis outdoors use a “locked enclosure having a height of at least 1.52 m” or a separate locked space for indoor growing. Quebec, not to be outdone, completely prohibits recreational growing: individuals caught with fewer than four plants will face a fine of between $250 and $750 (growing four or more is a Criminal Code offence). This province-by-province web of laws and regulations contrasts poorly with the much less restrictive national medical cannabis system. This system will continue to operate in parallel to the provincial recreational market.

The more you look at the provincial frameworks, the more reasons you can see for consumers to gravitate toward the medical system: greater selection, fewer growing restrictions, income tax deductions, permission to consume in public and even health insurance coverage. Interestingly, taxation may be the one point of consistency between the two systems. Parliamentary Secretary Bill Blair, the government’s point man on the cannabis file, recently unveiled a proposed tax rate of $1 per gram or 10 percent of the producer’s sale price (whichever is higher), to be applied to both medical and recreational cannabis products. However, the proposal to apply an excise tax (sometimes called a “sin” tax) to a medicine has been met with resistance. The lesson to take away from Colorado isn’t that medical and recreational cannabis have to carry the same price, it is that there shouldn’t be a huge difference between the systems. Yet that is exactly what is being devised here.

So, what’s the harm? In theory, it is better for consumers to buy in the medical market than in the illicit market, but illicit buying in the medical market is worse than legal buying in the recreational market. Participation in the medical market by buyers without legitimate medical needs increases burdens on the system, creates delays in patients receiving grower-registration certificates, increases enforcement challenges and strains doctor-patient relationships.

Governments need to convince a core group of cannabis consumers to use the recreational system. Regular and once-weekly users compose 98 percent of market demand in Canada, smoking more often and with more cannabis per use than other consumers. The recreational system needs to be designed specifically with these people in mind. These consumers continued to buy cannabis through years of prohibition, so why wouldn’t they shop in all three of the markets they will be presented with in July 2018? How many of Quebec’s $500 fines for public consumption of recreational cannabis will they pay before they ring up their local “green doctor”? Odds are that it won’t be very many.

Shutterstock/By Lightspring

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Etienne Rainville
Etienne Rainville is a senior consultant at Earnscliffe Strategy Group and a former press secretary to Canada's minister of public safety. He advises clients on a broad range of political and policy issues.

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