Canada’s Cannabis Industry Faces Economic Challenges, Says Health Canada Report

OTTAWA — A recent report by the Canadian government suggests the nation’s legal cannabis industry is encountering significant economic challenges, shedding light on the realities faced by businesses after the 2018 legalization. The report, titled “What We Heard Report,” was published by Health Canada on October 10th, detailing the findings of a legislative review of the Cannabis Act, Canada’s adult-use cannabis legalization law from 2018.

The study indicates that legal cannabis operators are grappling with financial hurdles primarily due to the weighty costs associated with taxes, regulatory fees, distributor mark-ups, and stringent compliance requirements. Despite these challenges, the legal cannabis market has grown significantly, with sales nearing $5 billion annually, capturing an impressive 60 percent market share.

However, Beena Goldenberg, CEO of licensed producer Organigram, warns of lingering issues threatening the sustainability of Canada’s cannabis businesses. “As we reach this pivotal five-year mark, it is imperative that our government takes swift action to address the issues that threaten the sustainability of our evolving sector,” Goldenberg emphasized in a public statement. She called for tax and regulatory fee reductions, adjustments to the edible THC cap, and relaxed restrictions on consumer communication.

Health Canada had initiated the review in September 2022 to assess the Cannabis Act’s effects on various sectors, including youth, indigenous communities, the economy, and the illicit market. The review was led by an Expert Panel chaired by Morris Rosenberg, an experienced public servant with roles in the Department of Justice and the Department of Consumer and Corporate Affairs.

Public health stakeholders, during the review, supported the advertising restrictions set by the Cannabis Act and even proposed stricter age limits for cannabis purchase and possession. The panel’s report also highlighted that while legal sales have grown, indicating a shift from the illicit market, concerns about illegal sales persist.

A notable point of contention is the product availability in the legal cannabis market. Some consumers express a demand for products, such as higher-potency edibles, which remain unavailable in the legal market. In contrast, public health stakeholders express reservations about high-potency extracts and flavored edibles available in the legal market.

While the number of legal cannabis retail outlets has grown since 2018, their distribution remains uneven. Urban areas see a concentration of these outlets, with rural and remote areas often lacking access.

The Expert Panel, acknowledging the feedback from the cannabis business community, highlighted the financial strain many operators face. Industry representatives have expressed concerns over the economic state of the legal cannabis market. Despite its growth, many companies struggle to maintain profitability, largely due to the hyper-competitive nature of the industry and the high costs associated with various fees and taxes.

The Expert Panel’s efforts represent the initial phase of a broader review process. The second phase, as outlined by the panel, will involve further stakeholder engagement and discussions to deepen their understanding of the industry. A final report, presenting advice and recommendations, is slated for tabling in Parliament by March 2024.