Alison Gordon is the former chief executive officer and founder of 48North Cannabis Corp., and co-founder of boutique sales agency Other People’s Pot.
The legal Canadian cannabis industry is about to turn 3, but don’t expect to see a lot of celebration among retailers and producers.
Legal marijuana has not turned out to be the big money maker investors were promised, neither has it produced consistently good products. Every aspect of the cannabis supply chain is a struggle: paper-thin margins; oversaturated retail; limited product innovation; lack of manufacturing efficiencies; and low brand loyalty are just a few of many problems.
Three years in we have enough data to disprove many of what some believed were risk factors associated with cannabis that informed the extremely restrictive Cannabis Act. If the government doesn’t make changes quickly, we will lose many of the companies, jobs and tax dollars that the industry currently provides. Canadian consumers will be left with a homogenous oligopoly producing low-grade cannabis products.
When the federal government revisits the Cannabis Act, here are 10 steps that would revitalize the domestic industry:
1. Reduce the excise taxes
One of the industry’s biggest challenges is the heavy taxation on licensed cannabis producers (LPs). LPs pay the federal government $1 for every gram of cannabis sold, along with provincial taxes and other duties. Producing cannabis in the legal market is much more expensive as a result of growing regulations, packaging, provincial board distribution costs, secure shipping and a work force with limited experience. The taxes were designed to be 10 per cent of MSRP (retail price), but the reality is that taxes are on average 20 per cent to 30 per cent of a producer’s top-line revenue. This is not sustainable for a vast majority of LPs, most of which have zero margin left for their bottom lines.
2. Revisit provincial distribution
The Cannabis Act delegates all manners of distribution to provincial governments. Most provincial boards have chosen to run distribution themselves, and therefore the government agencies have a monopoly on buying and pricing. On average, provincial distributors take a markup of 35 per cent to 45 per cent on products, even though they do not engage in many of traditional functions of a distributor, such as helping to secure shelf space in retail outlets. Therefore, cannabis companies must find another way to compete for shelf space, such as hiring sales agencies or beefing up the in-house sales team, which is another cut from the pie of a producer’s limited profits.
3. Stop taxing medical cannabis.
Health Canada approved medicinal cannabis more than 20 years ago, yet patients still struggle to get access to affordable, quality products, which are becoming useful for treating opioid addiction, PTSD, cancer treatment side effects and more. The taxing of medical cannabis puts an onerous cost on the patient, who may turn to the unregulated market – which cannot guarantee the safety or quality of products – to access affordable cannabis. As such, many LPs have pivoted entirely to the recreational market.
4. Let us brand (a little)
Without the standard tools of branding, consumers have no way to identify the differences between products, and their only available criteria is THC percentage and price. This is creating a race to the bottom of per-gram pricing, and there is little incentive for LPs to grow and manufacture quality cannabis. A successful and diverse industry requires consumers who can make educated decisions.
5. Revisit labelling requirements
Current packaging regulations require standardized health warning messages, which means even the smallest product must be placed in large packaging to accommodate all of the labelling rules. There is no ease of use for the cannabis consumer, and overpackaging is a top consumer complaint. Simple changes could be made to the labelling requirements to provide clarity for cannabis consumers and stop the wasteful packaging.
6. Increase THC limits
One of the main reasons that many consumers are not transitioning into the legal market is the THC limit of 30 grams for each purchase. Regular cannabis consumers buy in quantity and do not want to visit a retail store several times a week. Additionally, edible and beverage limits are so restrictive that consumers who purchase four cannabis drinks are not able to buy anything else in that visit. We can’t lose sight that the elimination of the illicit market was one of the key objectives of legalization. Cannabis consumers are just as capable as alcohol consumers at regulating their consumption.
7. Allow retailers and licensed producers to sell
With the inability to curate stores with unique or differentiated products, most retailers will not survive in this oversaturated market. Provincial boards need to revisit their policy that “all products must be offered equally to all retailers” to allow for LPs and retailers to work together to supply stores with products that their customers cannot purchase elsewhere.
8. Open-consumption lounges
The stalling on provincial licensing of cannabis consumption lounges is detrimental to the growth of a safe and accessible legal cannabis culture. Alcohol consumption is part of mainstream Canadian culture (restaurants, concerts, bars, grocery stores etc.). We need to move away from the “Reefer Madness” misinformation about cannabis. The ability for of-age consumers to purchase and enjoy legal cannabis products in age-restricted environments should be a key component of legalization.
9. Allow THC-free products to be sold outside of dispensaries
The cannabis plant has more than 100 components known as cannabinoids, only one of which is responsible for creating a “high.” Others are used in a wide range of products and medical preparations. Canada’s tight regulations on all cannabinoids (THC, CBD, CBN) means all legal cannabinoid products must be sold in dispensaries. Unregulated CBD products are widespread in Canada and being sold in convenience stores, fashion boutiques and salons across the country, with some retailers unaware that this is illegal. Additionally, “wellness” consumers of CBDs are expected to go into recreational dispensaries to buy products such as vaginal suppositories, gummies and creams. Sales data show many products in this large category are not reaching their revenue potential (and customers), owing to lack of availability in non-cannabis retail spaces.
10. Reinvest a portion of cannabis tax proceeds back in the industry
Cannabis is one of the only highly regulated industries in Canada that does not receive a percentage of taxes invested back in the industry. The provincial and federal governments do not allocate tax dollars (for job creation or small-business development) or any grants or financial assistance to the industry, which would assist in the survival of independent businesses and the industry itself.
I’ve spent eight years working in pot and significantly longer as a cannabis advocate and consumer. I’m worried that we will lose the incredible energy, momentum, jobs and tax dollars that the cannabis industry provides to Canadians if federal and provincial governments don’t take action, and fast.
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