The Experiment of the Canadian Marijuana Market

Editor’s Note: Today’s post comes from contributing editor Dr. Stefano Tijerina, a lecturer in management and the Chris Kobrack Research Fellow in Canandian Business History at the University’s of Maine’s Business School. 

The Canadian marijuana experiment is intertwined with the global market system, the international financial system, the investment world, the entrepreneur, the small business owner, the government regulators, the occasional recreational consumer, and the habitual consumer.  It is at the heart of an incrementally sophisticated world of business, impacting the livelihoods of indirect and direct social, economic, political, and environmental stakeholders, locally and internationally. It is a world of Research and Development, of science, of policy making, and more recently of higher and technical education.  It could be the future miracle of the stock market, of the pharmaceutical world, even of the global market system. Uruguay jumped on the recreational and medical legalization wagon in 2017, but mostly to decriminalize the issue and resolve an internal social problem. Canada, on other hand, acted as a first-mover in 2018 with the intention of developing domestic and international capabilities around the potential rise of a global market.  

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A little more than a year has passed since the legalization of recreational and medical marijuana was implemented in Canada, and the results are less than favorable. Of course, like any new business, time and patience are of essence.  The collective view is that the industry will eventually take off and that investors will see the value of their stocks rise. The truth is that it is a market full of uncertainties, particularly at the international level where there is still a lot of skepticism and taboo surrounding the new emerging commodity.  

The Canadian government knows, and so does the business sector behind the commodity, that the future of the industry may not solely rely on the very limited Canadian market.  Thirty-eight million potential consumers is not a robust market on which to build an industry. The profits, revenues, and high returns may only be found in the global market system.  Just hypothetical sales of the commodity and all its industrial and secondary uses to consumers in Mexico City (21 million) and Sao Paulo (21 million) alone, could surpass the Canadian market, in addition to reducing transportation and other logistical costs.  

The first year of this socio-economic experiment has shown that heavy regulation, the bureaucratization of the commodity, and the inability to leave the destiny of marijuana in the hands of the “free market” have reduced the risk-taking ability of the entrepreneur, leading, among many things, to a shortage of retail outlets and a distorted market price of legal marijuana that has only benefitted the black market.  Last summer, the average legal price of one gram of marijuana was US$7.67 while the black market average price was US$4.19 per gram.[1]

Red tape and heavy regulation has impeded the industry from taking off domestically, cutting the industry’s ability to use marketing and public relations to market the commodity, in a capitalist world heavily dependent on these business strategies in order to capture the audience and reach the potential consumer.  

There is no government-business partnership in place to help advance the industry. On the contrary, the difficulties and blocks imposed seem “to be a new form of prohibition.”[2] There is a lack of national cohesion around the commodity, and at the local and national level there is plenty of opposition.  After one year and three months, it is evident that some local, provincial, and national political stakeholders want to see the business thrive in order to generate tax revenue, while others continue to oppose it based on moral principles.  

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From a business perspective, the outcome has been less than favorable.  From a consumer perspective, it has been great; good product, good prices and good times, without the burden of criminality. Perhaps it is time to revise the strategy and learn a thing or two from their neighbors down south.  Let marijuana be regulated by the “invisible hand of the market,” just like in Washington, Oregon, California, Nevada, Colorado, Illinois, Michigan, Vermont, Massachusetts, Maine, Alaska, and the District of Columbia. Colorado, the first-mover in the American market, reached US$7 billion in total marijuana sales since the year 2014 and total tax revenues of US$302 million dollars.[3] Marijuana in the hands of the market has resulted in close to 400 total dispensaries in Denver alone, compared to the close to 500 stores open for business across the vast Canadian territory.[4]

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If the Canadian government wants to cash in on its first-mover strategy, it must revise it before the Americans jump on the opportunity to federally legalize medical and recreational marijuana. If they do not capitalize on their window of opportunity, the US business sector will, eventually.  For now, it is best to be patient and hope that the industry takes off, ultimately erasing, with its success story, the taboo that has cost the lives of communities and families across the world.  

NOTES:

  1. “One year on, Canada’s legal cannabis market is down but not out,” MarketWatch, October 21, 2019, accessed February 9, 2020. https://www.marketwatch.com/story/one-year-on-canadas-legal-cannabis-market-is-down-but-not-out-2019-10-17
  2. Ibid.
  3. For more on marijuana sales and tax revenues see, for example, Colorado Department of Revenue, “Marijuana sales report,” January 2020, accessed February 8, 2020. https://www.colorado.gov/pacific/revenue/colorado-marijuana-sales-reports
  4. “One year on, Canada’s legal cannabis market is down but not out.”