Most Canadian municipalities are wondering how they will cover the costs of enforcing cannabis rules. They need modern funding tools to work with.
Legalizing nonmedical cannabis across Canada — safely and systematically — is a significant challenge for all orders of government. That challenge starts with the local governments on the front lines of the communities where cannabis will be legally produced, sold and consumed.
The Federation of Canadian Municipalities (FCM) serves more than 2,000 local governments representing 90 percent of all Canadians. Our members are the governments Canadians count on to keep their communities livable and secure, and they’re the first place people go to voice concerns. Noise complaints, illegal parking, noxious odours — we hear about it all. Certainly, people are expecting their municipal leaders to keep them safe and well-served in a world of legal cannabis.
Even with provincial regulatory frameworks still in flux, local governments have been working hard to get ready for legalization day. They are reviewing, amending and preparing to enforce zoning and density by-laws, along with rules around smoking restrictions, public nuisance and safety concerns related to building codes. They are anticipating tough issues ranging from keeping cannabis retailing and production away from schools, to enforcing restrictions on home cultivation, to protecting people from second-hand smoke. In some provinces, municipalities may also share responsibilities in areas such as minimum age of purchase, enforcing public consumption and possession limits, and undertaking public education campaigns.
All of this will require process or capacity changes across as many as 17 municipal departments, such as building services, community standards, fire services, transit, finance, human resources and customer service. Municipalities are also preparing local police — the bulk of Canada’s police forces — to enforce new cannabis rules, alongside their already proliferating responsibilities that now range from cybercrime to border security.
Come October 17, municipalities will be ready for legalization. We’ll be ready because we have to be, and because we make the most of the resources available to us. But protecting Canadians — reliably, everywhere, long-term — will require modernized financial tools that we’re still working hard to shape.
Local solutions to national challenges
A generational change at the federal level — such as cannabis legalization — is a challenge that municipalities are ready and willing to take on. But a shift of this scale does not happen without monumental impacts at the local level that are not always easy to see from Ottawa.
The good news is that this understanding has been growing for some time. Federal governments are learning to engage municipalities early, often through FCM. And there’s a consensus emerging — slowly but surely — that empowering municipalities with new financial tools is a vital step in tackling major national challenges. To illustrate that point, consider the design and roll-out of the federal government’s unprecedented 10-year infrastructure plan.
We know that local governments manage 60 percent of Canada’s public infrastructure and an expanding set of public services. And they fund this work with a property tax base that doesn’t grow with the economy — and that now amounts to just 10 cents of each dollar Canadians pay in taxes overall. Today’s outdated fiscal frameworks don’t come close to supporting the major projects — with national impacts — that local governments have the expertise to deliver.
The federal infrastructure plan is medium-term medicine for that imbalance. Allocating $20 billion to cities for transit expansions will help Canada recover billions of dollars in productivity that we’re losing to congestion. Investing $12 billion in green infrastructure, from landfill gas capture systems to sewer retrofits, will reduce national greenhouse gas emissions and boost Canada’s resilience to climate change. Repairing and building new affordable housing fosters more inclusive, livable communities — the kinds of communities than can compete for the talent and investment Canada’s economy needs.
Financial tools for effective legalization
Just like with major infrastructure projects, implementing cannabis legalization nationwide imposes real costs on municipal governments. FCM’s preliminary estimates pin these new annual costs at $3 million to $4.75 million per 500,000 residents. Extrapolated to the full Canadian population, this represents $210 million to $335 million in new annual costs to municipalities.
FCM has identified two main cost drivers. Municipal administration costs ($0.75 million to $1.5 million per 500,000 residents) includes land use regulation, business licensing, administrative enforcement, fire prevention, and health and education. Local policing costs ($2.25 million to $3.25 million per 500,000 residents) start with essentials like drug recognition training, roadside screening equipment and new staff capacity for road safety and law enforcement regarding production and distribution.
With no means to raise funds on this scale, municipalities need new financial tools to keep Canadians safe and well-served after October 17. We simply don’t have the fiscal flexibility of our counterparts in a US state like Colorado. There, local governments collect sales tax directly on cannabis — and receive an additional 15 percent of the state’s Marijuana Tax Cash Fund. We’ve been able to find more realistic inspiration in states like Washington, which allots 30 percent of its cannabis excise tax to counties, cities and towns for law enforcement, public education and administration.
The government of Canada is trying to foster a similar approach. Within days of FCM releasing its municipal cost estimates last December, the Finance Minister announced new terms for Canadian excise tax on cannabis sales. Instead of splitting revenues 50/50 with provinces, Ottawa is releasing an additional 25 points to provinces—for a 75/25 split—specifically to support municipal costs.
In response, Canada’s two largest provinces have now shared their plans to flow revenues through to local governments. In Quebec, municipalities will receive a total of $60 million over the next two years to cover new costs — even if excise tax revenues are lower than forecast. In Ontario, of the $100 million that the province expects to collect on cannabis sales over two years, it will allocate a total of $40 million to municipalities — plus half of any revenues over $100 million. Both provinces will then sit down with the federal government to evaluate what’s working.
Both approaches offer models for other provinces, but issues remain. The federal commitment to legalize implies a federal responsibility to ensure municipalities can implement it effectively. Covering all new municipal costs linked to legal cannabis is the key to keeping Canadians safe and well-served. But with three orders of government involved, what frameworks exist to ensure that we will get full coverage of costs, nationwide? One month out, our members outside Ontario and Quebec are still looking to their provincial and territorial governments for funding approaches they can plan around.
For the FCM, there’s still important work to do. Getting this financial tool right isn’t only the key to effective cannabis legalization; it is also our next opportunity to modernize how governments work together. We don’t need a constitutional debate about jurisdictional powers to do a better job of improving Canadians’ lives. From infrastructure to cannabis legalization, orders of government are innovating within the Constitution to unlock more of the potential that each brings to the table.
In the case of municipalities, our strength has never been fiscal. Our strength is our local expertise, our closeness to the people, our ability to craft cost-effective local solutions that work. And these are the solutions that will build tomorrow’s Canada — safe, livable, competitive and sustainable.
This article is part of The Economics of Canadian Cannabis special feature.