Canada’s experience in legalizing Cannabis

Mike Drouin – Canada Consultant

Following the recent trip by London Mayor Sadiq Khan to the United States to look at what legalization of Cannabis meant for that country — specifically California — FERN consultant Mike Drouin has given us the lowdown on what Canada’s experience with decriminalization and legalization meant for that country.

On October 17, 2018, recreational cannabis use was legalized for all adults over the age of 18 in Canada, across all provinces and cities overnight. Some received warmly that change in law by the Trudeau government but with hesitation by some provinces.

The main reasons behind cannabis legalization were to protect youth and to shrink and eventually eliminate the illicit cannabis market in Canada. How effective has it been? While legal sales continue to erode the black market, surveys suggest 42% of cannabis users continued to purchase from an illegal sources. This number has slowly been decreasing month-after-month as prices have become more competitive in the legal retail market, in part driven by the consolidation of the market by a growing cadre of corporate groups.

From the most recent government survey in 2021, 27% of Canadians have used cannabis in the last year. This is an increase from 22% reported in 2017—however, this does not show an uptick in users. It could suggest that people are becoming more comfortable in admitting they smoked the plant.

Statistics Canada reports that in 2021 CAD3.9 billion was generated by the medical and recreational cannabis industry over that twelve-month period. Compare this to 2020’s total value of CAD2.6 billion.

Cannabis: The New Cash Crop of Canada

Immediately after legalization, licensed producers had difficulty accessing financial services, as traditional lenders did not want to be associated with companies that dealt with the drug for a series of AML and CFT rules. Lenders are often risk averse to the legalization of drugs at first.

Alterna Bank, however, was one the first institutions to provide loans to growing operations and supplied funding for nearly two-thirds of legal cannabis growing operations. This forward thinking financial institution is now one of the leaders in the lending sector targeting the growing industry.

Following legalization, a handful of greenhouse farmer switched overnight to grow cannabis.

These frontier companies include, Les Serres Vert in Mirabel which switched from tomatoes to Marijuana, that move and the background in greenhouse plant growing stood them in good fortune, where a few years later they were acquired by Canopy growth, who at the time were the world’s largest cannabis company.

For many reasons, including security and municipal bylaws, almost all so-called grow operations in Canada are conducted indoors, leading to higher costs of operation. Meanwhile, the number of outdoor cannabis farms in Canada was at least 112 in 2021, a large increase from just 42 the year prior.

As of September 2021, there are 894 hectares of land devoted to outdoor cannabis cultivation in Canada, according to local statistics.

A big challenge has been developing cultivars suited to the specific outdoor environments in different Canadian provinces. Growing quality marijuana outdoors is a long game as the industry continues to develop.

Cannabis has been the leading growth crop of the Canadian agriculture market since legalization. Cannabis receipts grew by 52% in 2020, driven by the introduction of new cannabis products like edibles and drinks as well as in increase in the number of retail cannabis stores in various provinces.

Cannabis seed sales have also had a large increase in the last year as more Canadians are being introduced to home cultivation with weed growing kits. This growth in legal home growth has spurred the industry and helped the industry mature since legalization in 2017.

Cannabis and carbon capture

Outdoor hemp and cannabis farms can be twice as effective at carbon capture than regular forestry.
“Numerous studies estimate that hemp is one of the best CO2-to-biomass converters,” according to Cambridge University researcher Darshil Shah. Like for like, in comparison with the typical forests, cannabis and hemp growth capture 2 to 6 tons of CO2 per hectare per year, depending on the number of years of growth, differences in climate and types of tree, the researcher noted in his studies.

On the other hand, indoor cannabis growing operations can be a significant source of CO2 emissions. Running lights, heating and ventilation have a large impact on energy consumption.

Some greenhouse farms are reducing energy consumption by running hybrid operations. Grow space roofs are open to sunlight during the day. During darker hours growth continues by using high efficiency LED grow lights.

He added, “Agricultural land in the UK, on average, emits around 3 tons of CO2 per hectare per year.” While, “Hemp offers an incredible scope to grow a better future.” In addition, hemp produces more usable fibers her hectare than forestry.

Going Beyond The “High”

Hemp and cannabis are the same family of plant. Hemp is defined as a cannabis plant with less than 0.3% THC; the major compound responsible for the “high” that comes from consumption.

At least 113 cannabinoids have been isolated from the cannabis plant. The four most well-known are THC, CBD, CBN, and CBG. THC gets the biggest spotlight because of its psychoactive properties, while the other cannabinoids can help alleviate many medical conditions without leaving the user feeling “high”.

Researchers have also discovered medical benefits from the plants, including many available terpenes and essential oils. Extraction of these terpenes have led to products with very specific medical uses. As more research is done regarding the “entourage effect” of these compounds, additional therapeutic treatments will be discovered.

Moreover, in late 2019, many new cannabis products were made available to Canadians, including beverages and edibles. Topical creams, lip balm, bath bombs, lubricants and other therapeutic products without psychoactive THC have been launched since that time.

These therapeutic items only make up a small fraction of the retail market but have taken a big chunk out of the illicit online market for similar CBD focused products. Dried flower and concentrates are still the top selling items at Canadian cannabis retailers.

The Future is Cannabis

South of the border in the United States, a majority of 37 states have access to medical marijuana as of 2022. There are 18 states where recreational cannabis is available, including Colorado, which has become a leader in cannabis since passing laws on legal, medical use in 2000 and recreational use in 2012.

Cannabis is still very much illegal on a federal level, which complicates many operations like banking, taxes, insurance, and exportation for growers and associated industries in the US and with Canadian exporters for related industries.
Despite the legal restrictions on the plant at the federal level, US cannabis sales were a USD21 billion industry in 2021 and are expected to reach USD33 billion by the end of 2022.

Legalization on the federal level in the United States would open the floodgates for investors to get into the growing cannabis industry as well as remove many roadblocks to cannabis operation in both Canada and the United States. The question is on the federal level, will the US have the ability to update its laws and eliminate the stigma associated with a growing responsible and maturing industry.