How Does Canada's Legalization of Marijuana Work?

On October 17, 2018, Canada officially legalized marijuana use by adults for recreational purposes. While marijuana legalization has been a headline-grabbing topic throughout the United States as well, the U.S. has so far not made a similar move at the federal level. Already, analysts in the burgeoning legal cannabis industry have speculated that Canada's legalization proceedings will place it at a distinct advantage when it comes to the possibility of reaping financial rewards. Indeed, many of the most promising new companies in the space are headquartered in Canada. However, it's important to recognize that the Canadian legalization process is not without its complexities. Because of this, Canadian companies focused on cannabis will still have to strategize in some of the same ways that U.S. companies in regions that have legalized cannabis do, too. Below, we'll explore some of the details of the Canadian legalization process.

One of the most important stipulations of the Canadian marijuana legalization procedure is that, while certain rules are set at the national level, the country's 13 provinces also retain a great degree of autonomy to set their own regulations. This means that details as significant as where customers can buy marijuana are determined differently depending upon where those customers are throughout the country.

As an example, Ontario, which is Canada's most populous province, will allow for privately run cannabis stores to open on April 1 of 2019, according to the New York Times. Customers in British Columbia, on the other hand, will only have a single store in the city of Kamloops on which to rely for their in-person cannabis purchases. Saskatchewan has taken a contrasting approach, allowing for 51 privately-run stores. Quebec is limiting in-person sales to government-run dispensaries.

All of this means that customers cannot assume that the process of obtaining cannabis products will be the same when they travel or move from one province to the next. This will also have a significant impact on the companies which develop in each of the provinces; it's difficult to imagine a retailer focusing on an area in which only government-run stores are permitted to operate, for instance.

As of legalization day, only oils, seeds, flowers, and marijuana plants themselves were available. Edibles, concentrates, and other related products will be rolled out later on, in 2019. Still, other products which have been in development, including creams and cosmetic products, may never meet legalization regulations in Canada.

A significant consideration for Canadian cannabis companies of all types as well as investors in those companies is the role that Canada's government will play. In addition to in-person sales at licensed provider (LP) stores, the regulations allow for online sales. In most provinces, government-run dispensaries will facilitate online sales. Additionally, some provinces allow for government dispensaries to regulate the distribution of cannabis products, acting as a middleman between LPs and the consumer. Expect that the government will play a significant role in regulating the price of cannabis, the availability of particular strains, and other related factors as well.

There are many other legal questions to be sorted out surrounding cannabis use in Canada. First, it's unclear how individuals previously convicted of cannabis-related crimes will be treated post-legalization. It's possible that the government will eventually pardon some or all of these individuals, but that has not been addressed as of this writing.

Other questions remain as well: the age required to legally purchase cannabis varies from province to province, for instance, and it's unclear where exactly consumers will be allowed to smoke marijuana, as some areas are looking to enact smoking bans in response to legalization.

The legal cannabis industry in Canada shows tremendous promise, but investors should be mindful that there are likely many kinks which will need to be worked out along the way. In the meantime, caution is perhaps the best approach.