Impact of Legalization of Marijuana on the Canadian Economy

By: Burhanuddin S. Naib, Yash Vardhan Jagnani

Research Head: Ong Guan Da Editor: Akshat Daga

Illustration by Jasmine Abstract

In this article, we aim to bring to light the legalization of marijuana in Canada. We will be discussing the topic by giving a brief background of the event, covering the reasons behind such legalization. The impacts that marijuana legalization has on the Canadian economy will also be discussed in detail, giving statistics on the various benefits received by Canada in terms of GDP and other economic indicators. We would also analyse the possibility of black-market retention and the causes behind such a phenomenon. Lastly, we will discuss the overall impacts that such legalization has on the global economy.

1. Background: What was the need to legalize Marijuana in Canada? The legalization of Marijuana fulfils President Justin Trudeau’s campaign promise of legalizing marijuana. The government’s main motive to legalize marijuana was to keep drugs out of the hands of minors and prevent criminals from profiting from it as the federal government predicted a tax revenue of $400 million in a year on the sales of cannabis. The government argued that old laws criminalizing marijuana has been unproductive given the fact that a lot of Canadians use marijuana (“Canada becomes second country to legalize recreational cannabis”, 2018). 2. Impact of Legalization on the Canadian Economy 2.1 Negative Impacts It’s been more than a year since Canada legalized Marijuana. Canada became the second country after Uruguay and the first major G7 country to do so. The main purpose of legalization was to transform the whole black market into white. After the legalization of Marijuana in 2018, there was a heavy inflow of investments by people as they believed that they would receive a heavy profit on these investments. However, a year later, the jubilation is gone.This is because the investors have generally lost money as the value of shares in Canada’s six largest marijuana companies fell by 56% according to stock price data. However, the marijuana companies reassured that a turnaround is inevitable and only a matter of time when marijuana-laced foods and drinks enter the market. The major reason for the fall in stock price has been because, firstly, shops in Quebec and Ontario have opened at an extremely slow pace despite there being clear demand. There are only 24 legal marijuana shops for Ontario’s 17.5 million residents. Therefore, this has caused an excess in demand for marijuana because of which the customers are still relying on the black market. Secondly, marijuana on the black market is free from taxation which is why it is a lot cheaper and hence the customers turn to black market to buy cannabis. Thirdly, the highly sophisticated structure for legal cannabis has been a hindrance to sales. This is because Canada’s regulations were aimed not to only to necessarily encourage marijuana usage as a result of which it has blocked marketing and advertising (Austen, 2019). 2.2 Positive Impacts There have been a lot of positive impacts of legalization on the economy as well. Firstly, cannabis sales contributed $8.26 billion to Canada’s economy and increased the number of jobs in the industry. As of July 2019, 9,200 people were currently working in the sector. Secondly, the legalization has

also enabled researchers to gather funds in order to conduct research on various matters such as how can cannabis plant’s various cannabinoids be used to treat pain, anxiety, and cancer, among other ailments. Thirdly, it has helped the government to collect tax revenues on sales of cannabis and keep it out of the hands of the children. Lastly, by making sure that manufacturers adhere to the standards set on how to produce cannabis, the government has prevented the addition of unknown additives and has made is safe for legal pot users to consume the drug (George-Cosh, 2019). 3. Black market retention Canada’s move to legalize the use of both medical and recreational marijuana seems to face certain obstacles which the regulated market will face in the form of a thriving black market. The lower prices and the easy availability of illegal marijuana in the black market will serve as little incentive for consumers to shift towards the legal means of obtaining marijuana. Furthermore, the strict regulations on prices and sales along with the exorbitant taxes would sway the consumers further away from legalized marijuana. “Canada’s been brave enough to take the step to make cannabis fully legal, but they’ve also taken the stance that they don’t want to promote it,” said Steve Ottaway, managing director for investment banking at GMP Securities. “I can appreciate their intent, but at the same time; this is an adult-use market” (Saminather, 2018). This statement clearly illustrates the entirety of the issue. Even though Canada shows signs in favour of marijuana consumption and trade, the stringent policies depict a different picture. Nonetheless, it is believed that such strictness is only temporary, and regulations will be liberalised as operations become smoother. 4. Global impacts of marijuana legalization “My belief is that today’s political hunger for the billions in taxes that cannabis can deliver will ultimately win over,” says Newmaster. “Whatever happens in Canada will help move the U.S. in the right direction. We can look at them as a test market” (Peckenpaugh, 2019). We observe from such kind of statements that this step of legalizing marijuana is not only risky but also potential for many future opportunities like cross-border trading. With the WHO gearing up to re-categorizing cannabis out of “potentially dangerous products”, trends like cross-border trade between countries like Canada and the U.S seem to be right around the corner. If Canada pulls this off, it could provide a model for other countries to relax their drug laws — and particularly their marijuana laws — without violating international treaty obligations or, at the very least, without getting punished for disobeying the treaties. Thus, legalization of marijuana is an indication to the other countries to change their treaties even if it violates international drug laws as the whole world will eventually open up to legalizing marijuana (Johnson, 2018).

Conclusion

It can be said that the government did not achieve its target in terms of growth rate, but it is still too early to tell the true impacts. With more shops opening in the future and the introduction of cannabis infused edibles, consumers will have more choices to purchase and thus give the market a boost in sales.

References

1.Austen, I. (2019, December 15). From Canada's Legal High, a Business Letdown. Retrieved from https://www.nytimes.com/2019/12/15/world/canada/marijuana-cannabis-legalization.html

2.Canada becomes second country to legalise recreational cannabis. (2018, October 17). Retrieved from https://www.bbc.com/news/world-us-canada-45806255

3.George-Cosh, D. (2019, October 11). The good, the bad and the ugly from Canada's first year of legal pot - Article. Retrieved from https://www.bnnbloomberg.ca/the-good-the-bad-and-the-ugly- from-canada-s-first-year-of-legal-pot-1.1330342

4.Johnson, A. (2018, June 20). Cannabis Legalization in Canada has Global Implications. Retrieved from https://internationalcbc.com/cannabis-legalization-in-canada-has-global-implications/

5.Peckenpaugh, D. (2019, March 9). The global implications of Canadian cannabis legalization.

Retrieved from https://www.foodsafetystrategies.com/articles/690-the-global-implications-of- canadian-cannabis-legalization

6.Saminather, N. (2018, June 8). Insight- Why Canada’s pot legalisation wont stop black-market sales. Retrieved from https://www.reuters.com/article/canada-cannabis-blackmarket-idCNL1N1SH15S