Regulatory Changes: Neobi/Deloitte Report Highlights

The TDR Three Key Takeaways:

1. Excise Duty Reduction: Lowering excise taxes changes could decrease legal cannabis prices, making it more competitive with the black market, particularly as legal cannabis quality has risen.
2. Possession Limit Cannabis Changes: Amending the 30-gram public possession limit for sealed products may promote legal purchases while respecting local regulations.
3. Extended Retail Hours: Aligning cannabis store hours with those of bars and nightclubs might improve the legal market’s accessibility, challenging the black market’s convenience advantage.

Over half a decade since Canada blazed the trail with the global legalization of cannabis, a recent comprehensive report by Neobi in association with Deloitte reveals the legal market is still being overshadowed by its illicit counterpart and suggest cannabis regulatory changes.

Harrison Jordan, the Founder and Managing Lawyer of Substance Law, who is unaffiliated with Deloitte, Neobi or the report, discusses the state of the industry and what we can do to combat the growing illicit market. 

Despite the initial optimism surrounding Canada’s legalization of cannabis for recreational use, the anticipated economic and social benefits have been dampened by persistent challenges. Key among these is the significant price disparity between legal and illicit cannabis products, which continues to drive consumers towards unregulated sources.

One of the most pressing issues is the impact of excise duty on the competitiveness of legal cannabis. “The current excise duty structure is inadvertently nurturing the illicit market by keeping legal cannabis prices high,” explains Jordan. “This tax, split between provincial (75%) and federal (25%) governments, significantly inflates the cost of legal cannabis, making it less appealing compared to the more affordable options available on the black market.”

Jordan further illuminates the stark pricing contrast, “Ounces in the illicit market go for $50 and sometimes even less, but not lower than $80 on the legal market, with approximately $50 attributable to excise duty and its compounded markup. Reducing that will be the number one thing to move consumers to the legal market, especially since quality in the legal market has caught up. 

Secondly, Jordan suggests revising the 30-gram limit on public possession and purchase of cannabis. He recommends eliminating this limit for products that remain sealed in their original packaging, which would encourage responsible consumption and incentivize compliance with cannabis transportation rules since public possession of opened or unsealed cannabis would still be subject to the limit. This nuanced approach would still allow provinces to enforce their limits, offering a flexible regulatory framework that respects regional preferences and concerns.

“Lastly, we have a significant convenience problem. The legal market isn’t offering a more convenient solution than the illicit. For most people, there’s no problem buying your cannabis before 11 PM. Still, if someone wants to smoke at midnight, their only option is to call the illegal “dial-a-dope line” or go to an illicit dispensary, which further supports the illicit market’s dominance. Bars and nightclubs can sell booze until 2 AM in Ontario generally, but there is no corollary with cannabis. Increasing the hours of operation for Ontario cannabis retail stores, particularly on holidays and special events, would address this problem.” Want to keep up to date with all of TDR’s research, subscribe to our daily Baked In newsletter.  Missed yesterday’s TLDR TDR update, check it out here.