What does US federal legalization mean for the Canadian cannabis industry?

Since October 18, 2018, Canada has been basking in the sunlight of a federally legal recreational cannabis market. This fortune has given Canadians a vast and varied buffet of products, as well as seemingly endless consumption opportunities.

Equally important, the end of Prohibition spawned a bold new industry that has created businesses and careers across the country and has so far showered the Great White North with $43.5 billion in revenue.

In contrast, we have our neighbor to the south, the United States. Although cannabis is legal in some form in three-quarters of the country, it remains illegal at the federal level.

This has severely hampered growth opportunities for the sector there, as cannabis cannot be exported or imported.

But what if the United States could finally end its marijuana identity crisis by stamping out cannabis prohibition from the top down? How would this affect Canada and its burgeoning pot sector?

The US has toyed with legalizing cannabis at the federal level for some time

First of all, the possibility that the US will legalize at the federal level is real. Even though they’ve been playing the Ross and Rachel, will they or won’t they game for many years, the discussion just keeps getting pushed forward.

Once it finally happens, it will no doubt resonate with Canada in one way or another.

“There have been a number of starts and stops in American legalization over the years, so I won’t hold my breath until it happens or until we get much closer to the actual event,” said Matt Maurer, co-chair of Cannabis Law Group at Torkin Manes, in an interview with Leafly.

At the moment brands in Canada are still struggling to rise to the top in the Canadian market. Add in a lot more competition in the South and the task becomes even more difficult.

Matthew Maurer

Despite his cautious approach, Maurer believes that even then, not much will change for Canada⁠ — at least not right away.

“As long as cross-border cannabis trade between countries remains effectively shut down, I think we will continue to see brands from the United States and Canada infiltrate the cross-border market in the way we’re seeing right now,” he said. “That means American companies are looking for Canadian licensees to manufacture and sell [their] Brands in Canada and vice versa.”

Maurer added that even if the United States legalizes, he doesn’t think the Canadian government would be quick to open up a cross-border cannabis market as it seeks to protect Canadian growers and manufacturers.

“LPs have put so much time and money into their facilities here,” he said, likely due to the onerous licensing requirements. “To allow American produce, or even worse, produce from countries like Mexico and Latin America, where growing costs are even lower, [would be detrimental].”

Other brands such as Cookie, Keef and Bhang on both sides of the border

Maurer believes that without cross-border trade, US legalization could lead to even more product licenses on both sides of the border. “Right now, some LPs are benefiting from partnerships with American companies to make ‘American’ products here in Canada,” he said. “Federal legalization without open cross-border trade could actually lead to more of these relationships taking hold.”

Canada already has a plethora of US brands enjoying strong market share nationwide. These include Bhang chocolate and Wana gummies, two products that have propelled London-based licensee and brand LP Indiva to a 50 percent market share in the edibles category.

Cookies, a California-based product helmed by American rap star Berner, has made its way north, along with infused soda originally made by Keef, a Colorado-based manufacturer.

But if the US legalized cannabis, would Canadian cannabis products enjoy the same fame south of the border?

“I think some Canadian LPs and retailers might be able to carve out a nice little niche for themselves in the US. However, the US market (in terms of population) is 10 times the size of Canada,” said Maurer.

“It’s hard for Canadian products in any industry (in general) to compete in America and I don’t see cannabis being any different. Even now, brands in Canada are still struggling to get to the top, and that’s in the Canadian market. Add in a lot more competition in the South and the task becomes even more difficult.”

Canada’s cannabis sector could gain access to greater banking services

Perhaps one of the most important and pressing issues with legal cannabis in the United States is the banking problem. Most big financial institutions won’t do business with companies in the marijuana sector for fear of violating money laundering laws and angering the federal government in the process.

Maurer believes that the subject of banking will change significantly with federal legalization.

“Federal prohibition has made it very difficult for federally regulated companies to engage in the cannabis industry,” Maurer said. “Even in Canada, where cannabis is legal at the federal level, banking remains a challenge as most large banks have a desire to stay away from cannabis companies. [This is because] Many of these banks also operate outside of Canada (e.g. in the United States).”

Maurer added that banks will feel much more comfortable and protected if the US lifts Prohibition to serve customers in this sector.

“With the legalization of cannabis at the federal level in the United States, cannabis companies on both sides of the border could find that financial services are much more accessible than they are currently.”

The MORE Act would eclipse Canada’s parole process

Right now, the legalization talk in the United States revolves around the Marijuana Opportunity, Reinvestment & Expungement (MORE) Act. This cannabis reform bill, if successful, would end criminal penalties by removing marijuana from the controlled substances list.

On April 1, the US House of Representatives passed the law, and the legislation now has a steep climb in the Senate. If passed, the law would also erase previous arrests, charges and convictions related to cannabis – a move that would leave Canada’s pardon program in the dust.

According to Public Safety Canada, 467 applications have been received and 265 have been approved. Unlike the MORE Act, cannabis pardons in Canada are not automatic. Canadians must pay $644 to apply and wait up to 10 years for a verdict. Many do not have the financial means to continue this process.

The conversation about pardons was reignited with a tweet from Justin Bieber’s father urging people to sign a petition asking the government to reconsider the current requirements. Unfortunately, the tweet came a day too late for the petition to get the required 500 signatures.

A new petition calls for: “A law to provide free, expedited deletion of records for nonviolent cannabis convictions is an essential first step for the federal government to recognize the implications of maintaining criminal records for something that is now legal and.” disproportionately marginalized affects communities trying to get on with their lives.”

At the time of publication, the petition has 495 signatures out of the 500 that must be presented to the House of Commons.

Jon Hilz

Jon Hiltz has been a journalist in the cannabis industry since 2016 and writes for many major publications. He became a published author with his first book, The Wild West: Canada’s Legalization of Marijuana, in 2018 and was Director of Business Development for Indiva, Canada’s leading edibles manufacturer, for over 4 years.

Check out Jon Hiltz’s articles

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