How Does Canada's Legalization of Marijuana Work?

On October 17, 2018, Canada officially legalized the possession and recreational use of marijuana use by adults. It was only the second country in the world to do so (the first country was Uruguay, which legalized marijuana use in 2013). Other countries where marijuana has been legalized include Georgia and South Africa. 

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. However, 15 states (Washington, Oregon, California, Nevada, Montana, Arizona, Colorado, South Dakota, Michigan, Illinois, New Jersey, Massachusetts, Vermont, Maine, and Alaska) and the District of Columbia have fully legalized marijuana in the U.S.

In countries and states where marijuana has been legalized, it's been demonstrated that there are substantial benefits for the economy. In fact, many of the most successful businesses in the legal cannabis space are based in Canada. At the outset of legalization, many analysts in the legal cannabis industry speculated that Canada's legalization proceedings would place it at a distinct advantage in terms of reaping financial rewards, and these predictions ended up materializing for the country.

However, it's important to recognize that the Canadian legalization process was not without its complexities. Below, we'll explore some of the details of the Canadian legalization process.

Multiple Sets of Rules

One of the most important stipulations of the Canadian marijuana legalization procedure was 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.

For example, Ontario, which is Canada's most populous province, allowed for privately-run cannabis stores to open on April 1, 2019. Initially, customers in British Columbia only had a single, government-run store in the city of Kamloops on which to rely for their in-person cannabis purchases, but more than 100 private retailers also applied for licenses. Now, there are over 200 private-sector stores in British Columbia, after municipal consent further defined how cannabis could be bought and sold.

Saskatchewan took a contrasting approach, allowing for 51 privately-run stores from the outset of legalization. Quebec initially limited in-person sales to government-run dispensaries, although Quebec's government-owned Société québécoise du cannabis (SQDC) still maintains a monopoly on regulated recreational cannabis sales in the province. While most provinces have allowed new, private-sector cannabis retailers to open, by province, Quebec has one of the lowest cannabis stores per capita in Canada.

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.

Product Roll-Out

As of legalization day, only oils, seeds, flowers, and marijuana plants themselves were available. Edibles, concentrates, and other related products were rolled out later, in 2019. Still, other products that have been in development, including creams and cosmetic products, are still restricted by regulations in Canada.

Government's Role

A significant consideration for Canadian cannabis companies of all types, as well as investors in those companies, is the role of Canada's government in the various regulatory measures that govern legalization. In addition to in-person sales at licensed provider (LP) stores, the regulations also allow for online sales. In most provinces, government-run dispensaries 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.

As to be expected, over time the way that the government has regulated cannabis sales in Canada (and in each separate province) has changed. For example, in 2020, the provincial government of British Columbia amended regulations so that private cannabis stores could sell non-medical cannabis products online for pickup in-store. Previously, customers could reserve products online, but they had to pay in person.

Separate Legal Questions

There are many other legal questions that have been raised surrounding cannabis use in Canada. At the outset of legalization, it was unclear how individuals previously convicted of cannabis-related crimes would be treated post-legalization. The government rejected a proposal for records for possession to be expunged, or completely erased. Instead, they passed a version of the pardon—called a “record suspension."

This process is also available for other crimes, but, in the case of cannabis-related crimes, there is no waiting period and applicants are not required to pay the $631 fee. Approximately 250,000 Canadians are thought to have records for simple possession of marijuana.

The age required to legally purchase cannabis also varies from province to province, which poses legal challenges. While the legal age for marijuana use is 19 in most provinces, there are exceptions. As of January 1, 2020, the legal age in Quebec is 21. (Prior to this date, it was 18.) In Alberta, the legal age is 18 years old.

Similarly, depending on the province, there are different legal restrictions that regulate where exactly consumers are allowed to smoke marijuana. In many of the provinces, marijuana consumption in public is banned. Still, other provinces allow cannabis to be consumed in areas where tobacco can be smoked.

The Bottom Line

The legal cannabis industry in Canada has shown tremendous promise. The past few years have seen huge growth for marijuana companies across the country. In some cases, investors should be wary of the hype, and caution may be the best approach. However, just like any other company, cannabis companies publish their financial results. Beyond the hype, this is where the real proof of their success can be found. And in the past several years, many of the early kinks of the industry have been worked out.