Front Burner - After 5 years of legal weed, what's changed?

Episode Date: October 17, 2023

In October 2018, Canada legalized cannabis after decades of prohibition. The goals were to improve safety, public health and curb the illegal market. There were great expectations for a thriving cannabis industry. What’s changed in the industry since legalization? What challenges does it still face? And where does it go next? Solomon Israel, a journalist covering the cannabis industry for MJBizDaily, explains. For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts Transcripts of each episode will be made available by the next workday.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Damon Fairless. Five years ago today, Canada legalized weed. Cannabis had been criminalized since 1923 under Mackenzie King's Liberal government. 95 years later, the first legal recreational marijuana was sold at midnight in St. John's, Newfoundland, after a New Year's Eve-like countdown.

Three, two, one. Here we go. We did it. Coast to coast, the mood was jubilant. I feel great. I just take my hands tight. It's a big moment for a stoner like me. Like it's a it's like Christmas and New Year's and all in one day. Giddy even. I went for one of everything. Literally I got one of everything so I'm pretty excited about it. I'm hoping to get maybe I don't know 15 grams of some Snoop Dogg approved kush or something. But the high didn't last. On Legalization Day, there were supply issues across the country, and the reviews of what legalization looked like in practice were mixed.

I don't believe Canada's ready. Now that I can purchase it legally, my money will go to the government instead of going somewhere else. It was really expensive, and it's really unorganized in there. It's not going to meet the needs of British Columbians and it's going to keep the black market driving. And the comedowns continued. The hopes and expectations for a thriving cannabis industry

in the country mostly fell short. The town's largest employer, Canopy Growth, announced it would lay off 800 workers on Thursday. Canopy Growth says the decision to scale down operations here is essential to the future of the company, saying the Canadian cannabis market had not materialized like they had hoped. Today, Solomon Israel is back on the show.

He covers the cannabis industry for MJBizDaily. We're going to look back on five years of legalization, what it accomplished, what challenges it's come up against, and where it goes from here. Hey Solomon, thanks again for coming on FrontBur. Hey, my pleasure, Damon. So five years after legalization, how have Canadians' cannabis consumption habits changed?

I think one of the themes of our conversation today that we're going to keep coming back to is we don't know for sure, but according to Statistics Canada, some figures published in a recent government report that's part of this review of cannabis legalization, the rate of cannabis use in 2021 amounts to about 22% of Canadians aged 15 or older. And to be clear, when I say the rate of cannabis use there, we're talking about past year use. So if you smoked weed just once in the year, you fit into that category. That takes us to about 6.9 million Canadians who smoked weed in a 12-month period in 2021. And that's up since 2017, 2017 being a year before legalization. That's definitely increasing over then. But the kind of complicating factor here is that the trend in cannabis use was rising ahead of legalization already in October, 2018, and it continued rising after. So there's

this question of to what degree was legalization the cause of the increase or how much would the trend have increased even if legalization hadn't happened? And we know that people are more likely to be open about admitting to using cannabis as it became less stigmatized and particularly as it became legal. So that kind of increasingly open attitude to just admitting cannabis use could also play into the survey results, which isn't to say that the stigma is not still there. Okay. Yeah. So what you're saying, if I'm understanding is that as the legalization makes people more comfortable, people who are more comfortable are more likely to admit they're using it. So there's a bit of a potential effect. So cannabis for medical purposes was

already legal prior to the cannabis act coming into effect in 2018. But how did the legislation expand that? Yeah. So as you said, legalization of medical cannabis had been around for a while in Canada around the turn of the millennium. So there were several different iterations of these medical marijuana regulations, but we eventually got to this point ahead of recreational legalization. We were at this place where multiple private sector companies were allowed to produce cannabis. They sold it to people directly. You have to have a doctor's or a nurse practitioner's authorization to get it. And that did pave the way for recreational legalization because it created, first of all, created a government apparatus around regulating commercial cannabis production and also personal medical marijuana production.

And it also created this small but growing constellation of companies that already existed growing medical cannabis and selling it to people. And then those companies could go to investors and say, hey, look, we already know how to do this. We're already doing this. We already have medical clients buying from us in Canada. And if you invest in us, then we can take your money and apply our expertise to growing weed for the recreational market. It sounds like it kind of created the initial foundation or infrastructure that was built on, but then the law comes into effect. Before we get into that, tell me what the goals of legalizing cannabis in Canada were beyond the medical purposes. Yeah. So the, the goals, uh,

they're quite explicit in the legislation itself. Uh, and I, I would put them into kind of two main connected categories. There are public health goals. Um, and then there are kind of, uh, like criminal justice and control goals. So, you know, the, the biggest objective of the law, uh, and we heard the liberals talking about this lot, was to protect young people by keeping them from getting access to cannabis and also from what they would call inducements to use cannabis, so like advertisements or promotions or something like that. We're approaching it purely from a public health and safety standpoint. All the question of revenue and taxation is secondary to the fact that

we want to make sure we're keeping our community safe and not hurting Canadians. We are committed to legalization, restricting access and strictly regulating marijuana to achieve the ultimate objective of keeping it out of the hands of kids and the proceeds out of the hands of criminals. And then how do we do that? Well we do that by providing for a legal system to produce cannabis that therefore the concept was that will reduce illegal cannabis production. We will also put some new criminal laws on the books to further deter illegal cannabis production and illegal cannabis sales. And then a bit lower down in the kind of list of priorities here, we're putting less of a burden on the criminal justice system as it relates to this

drug. You know, for people who do use cannabis, we're giving them access to a regulated and, you know, high quality source of cannabis. Let's talk about how effective this legislation was, though, in terms of these two things you've talked about, the legal issues and the public health issues. So first of all, I guess let's go into the goal of reducing the amount of resources spent on the criminal justice system. How's the legislation panned out as far as that's concerned? Yeah, so I don't have any actual data that speaks to spending. We do, however, have data that really looks at police reported cannabis crimes. And that suggests that indeed, you know, the rate of cannabis criminalization among adults did decrease as a result of legalization.

They didn't find any association either between legalization and property crime or violent crime. Okay, so let's turn to the public health goals. I remember in the early days of legalization talks, there were a lot of fears that kids would get their hands on things like gummies or weed-infused chocolates. So how's that panned out? Yeah, important to note. I think that the government was very, very sensitive, um, to this question around, you know, the safety of edibles, um, so much so that they didn't even include legalization of commercially produced edibles in the first wave of legalization in late 2018, there was the second wave of legalization, uh, in the cannabis industry,

they call this Cannabis 2.0, where these new government regulations came out, the government took a bit more time to develop them. Edible cannabis products will carry a maximum of 10 milligrams of THC per package. As well, edibles are not allowed to contain sugar or come in shapes, colors, or flavors that appeal to children. So unless companies- You know, the question is, did this result in more cannabis poisonings for kids? Right. And the evidence on that is limited. There was one good study. It did look at unintentional cannabis poisonings of children

between 2015, so well ahead of legalization, and then 2021. And this study did find, and I'm just quoting here, quote, large increases in hospitalizations for unintentional cannabis poisonings among children following legalization of recreational cannabis use by adults, end quote. The complicating factor here is that, A, the study didn't tell us. We don't know whether the cannabis edibles involved in these poisonings came from legal or illegal sources. And that matters for two reasons. A, because the legal

stuff, it must come in childproof packaging. And B, because the legal stuff, it has a hard limit on how much THC it can have per package. And that limit was instituted, I mean, I think in part to maybe to protect adults from taking too much, but I think especially to protect children. So there's this limit, a package of cannabis edibles can only have 10 milligrams of THC. So even if a kid does get into that, I mean, that certainly wouldn't be good, but it hopefully would reduce the amount of harm. Another factor in this study was that the launch of legal edibles overlapped with COVID-19 to a certain degree in 2020. And there was some other research suggesting that there were just more pediatric emergency room visits for child poisoning overall

during the pandemic, presumably because kids were just at home more. And so, yeah, one of those situations where we could kind of use some more information on this, but there is some indication that possibly cannabis poisonings did increase after edibles came out. Okay, so let's move on then from the concerns about the legal impact of legalization, the public health impact of legalization, and talk about what's really your kind of area of expertise too, which is the business of it. So the last time you were on the show, we talked about how the cannabis industry had evolved over the last five years. And if we flashback to say 2017 before legalization, what was the mood like in the industry or the prospective industry? What did investors, retailers, folks who wanted to get into it, what were they feeling?

I think there was a lot of, I would call it exuberance in the market. A lot of people who were hoping to make their fortune investing in cannabis companies. We spoke earlier about how there was this kind of blueprint for the recreational industry, which was these existing medical cannabis companies that were gearing up to become recreational. This is Canopy Growth, one of the biggest medicinal cannabis producers in the world. In a former Hershey's chocolate factory, they're growing thousands of kilos of marijuana, much of it to be ready when recreational use becomes legal. You know, a bunch of those companies listed on public markets, they started

gathering a lot of money from investors, and they started building out a lot of production capacity, these really huge production facilities to grow lots of weed. And there was this one popular metric, this kind of jargon phrase that was always getting thrown around, and that was funded capacity, which means we have enough money in our bank account to grow this much weed or to sell this much weed. And the concept, I guess, was that when legalization happened, then the switch would just flip, right? And they would just all of a sudden be able to sell all that weed they were growing to all these people who would want to buy legal weed. Was the excitement, the exuberance you're talking about, basically like if we grow it, they will come, so to speak?

Was there any thinking on the limits of what they could sell or was it just like grow as much as you possibly can? Yeah, I mean, I think there definitely were estimates, various estimates of what they could actually sell. As we saw over the course of the next few years, those estimates were pretty much always too high. the kind of stickiness of the illicit market for cannabis. And they maybe underestimated how hard it would be to get people to switch to the legal market. Okay. So let's talk about that. There were some really promising companies like the juggernaut of the weed industry, Canopy Growth. It had massive cuts.

It closed down production. Tilray Brands and Aurora Cannabis have both lost 99% of their value. And there's Fire and Flower, which is in creditor protection. So where do things turn? What happened to the green rush? Yeah. So, you know, first of all, I just want to be clear. I don't want to paint the entire industry with a single brush.

But if we're talking about the really big publicly traded producers here, first of all, when legalization launched, we did see this initial shortage of cannabis at the retail level. Part of that, you know, it wasn't that the cannabis didn't exist, but there were some early kind of distribution hiccups to be sorted out. So it wasn't always getting to the stores when it needed to. And then speaking of the stores themselves, retail stores were generally pretty scarce across Canada. And we have learned over time that Canadians actually, if Canadians are going to buy legal cannabis, they're probably going to do it in a brick and mortar store. Even though there are online sales, people like to go to a store. So that was at the beginning.

Over time, we got to this point where uh you know because they had built out all this production capacity we very quickly discovered that there was actually too much product um just sitting on shelves not even at stores this product this product that never even got sent to stores so you know what happens when there's too much of something you have to lower the price to start selling it and furthermore cannabis is a plant It doesn't sit around forever and stay good. And so over time, we've seen a lot of these big publicly traded companies destroy a lot of cannabis that they couldn't sell, closing down facilities, laying people off. At this point, five years later, it's not bad all across the sector. There are cannabis companies that are

reporting profits in Canada, maybe not every single quarter, but they're getting there. And right now, those companies that are doing well, they're running really tight ships. I just want to go back for a second. As the industry is starting to take off, we have two issues going on. Too much weed is grown initially, and there are too few retail stores. Now, things have changed. I think one of the amazing things about the past few years is just watching. If you take a road trip for a few hours across Canada, you go through a whole bunch of towns and each of these towns has like multiple, multiple cannabis shops, right? It's just that it's changed the landscape. I'm curious where things are at now. Like you've mentioned that we've maybe gone too far or where's or where are we at now in terms of the industry?

On a national level, at the end of the summer, I was tracking something in the neighborhood of 3,800 legal marijuana stores and or licenses in Canada. I have seen some slightly lower estimates. There was this really early race, especially in the most populated urban areas, to get those store locations when you could, which makes sense, right? If you're opening a store, you want to do it where there's the most people. That's how we got to this situation where there were multiple stores on one street or in a single strip mall. And we're starting now, or not even starting, we have been seeing this rebalancing where not all of those stores can stay open, can compete with each other. balancing, where not all of those stores can stay open, can compete with each other. The thing I'm really interested in right now is we're seeing the number of stores filling out in those kind of less exciting markets, less populated places like rural areas. I was speaking to a guy

recently who has an independent chain that only focuses on small rural towns in British Columbia. And he said, this isn't the world's most profitable weed store, but we're, we're in business, you know, we're making money, uh, and it's working for us. He was saying that, you know, we can, we found that even a town of just 2000 people can be enough for us to run a store. I'm going to go. Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo. 50 percent. That's

because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. The whole rationalization, the whole rationale for making cannabis legal is that they want, or part of the rationale for making cannabis legal is that they wanted to tamp out the illicit market, right? But data from Canada's Department of Public Safety shows people are still buying weed from their weed guy, right? They're buying black market weed. Why? Yeah, and not just their weed guy. I mean, certainly it could be someone local, but in a lot of cases, people are still buying cannabis from online mail order websites, which are illegal. So yeah, I mean, there's a lot of different explanations for this. My personal take is that people like what they're used to. People tend to be set in their ways unless there's a really good reason to change them. Unless the legal market comes in and offers you something that is more convenient,

products that are at least as good or better and prices that are at least as good or better. These days, the legal market can sell pretty much the same product assortment that the illicit market can. One notable exception that we touched on earlier was that 10 milligram THC limit in edibles. That could certainly be something that keeps people, especially heavy users, keeps them buying from the illicit market, especially if they have a high tolerance.

And another thing is for kids or for teenagers who want to get cannabis, they're never going to be able to get it at the legal store as long as the store is doing their job and checking ID. So they'll always be buying it illegally or getting it some other way, like sneaking it out of their parents' stash. Right, for sure. Let's talk about looking forward then. If the big goals of legislation were taking out illicit trade, maintaining public health, or making sure public health is good, the industry wants to move forward with a stronger foundation for their business. Can we hit all three of those things? Is that possible? I mean, I do think that the industry over time is going to get some of what they wish. I think that the government will ease things, kind of tinker around the edges of the regulation. The thing that always strikes me when I think about this is I see this kind of inherent tension in the legalization law. So there's the public health goal, which is a good goal of keeping kids away from weed. And how do we do that? Well, in part, we do that by transitioning, uh, cannabis users to buying from a legal restricted regulated system. Um, so, you know, enforcement is one thing you can reduce the illicit market for cannabis with enforcement to a certain degree. But really, if you really wanted to do away

with the illicit market as much as possible, you would have to flood the market with stores everywhere selling really cheap weed. And presumably, that would not be great from a public health perspective. And then vice versa, if you wanted to protect public health, you would restrict cannabis sales and cannabis products as much as you possibly could. But then the illicit market, as we already know, would be more than happy to come in and sell those products anyway. I'm not saying that these goals are completely mutually exclusive, but you can't go too far in one direction without risking the other goal here, right?

When you're balancing public health against eliminating the illicit market. Okay, Solomon, it was great talking to you. Thanks so much for coming on. Yeah, I was really happy to be here. Thank you. That's all for today. I'm Damon Fairless. Thanks for listening to FrontBurner. Talk to you tomorrow.