Provincial governments double dipping into both taxation and distribution of cannabis has increased costs of these products across Canada. The inflated prices are a significant reason why the cannabis black market is still prevalent. Many Canadians cannot afford to purchase their cannabis legally due to the greed of their own government; which allows illicit products to sell much cheaper.
It’s important to understand how Cannabis retailers are regulated and how cannabis is moved from suppliers to dispensaries to identify how the system is flawed. Currently there are roughly 3 retail licensing processes adopted by different provinces. The table below illustrates this:
|Government controlled licensing and distribution
(New Brunswick, Nova Scotia, Prince Edward Island, Quebec, North West Territories)
|The provincial government regulates and operates the cannabis dispensaries.
Effectively creating a government run monopoly with no competition to incentivise innovation and reduce cannabis pricing.
|Government restricted licensing (Ontario, Manitoba, Saskatewan)||The provincial government will open the application process to its citizens for a limited amount of time. The applications are reviewed, and a select few are awarded retail licenses.
This process has its flaws. For example, Ontario opted to use a lottery system which resulted in unqualified individuals being awarded licenses. Not surprisingly, many of the license winners in Ontario had to forfeit their license due to a myriad of reasons, such as not having the financial funds to even start a business.
|Government unrestricted licensing (Alberta, British Columbia)||The provincial government sets strict requirements to obtain a cannabis retail license. Anyone who can meet those requirements will obtain a license. There are no restrictions to the number of licenses that can be issued.|
There are advantages and disadvantages to each licensing model however there is a clear winner. The unrestricted cannabis licensing of Alberta and British Columbia creates fierce competition between retailers to drive innovation and reduce pricing of their products. Ideally, a balanced approach where the provincial government ensures that dispensaries are run safely without overstepping and getting greedy is the best option but unfortunately, this is not the case. Every province (except for Saskatchewan) also operates as the designated wholesaler of cannabis for retail dispensaries. This means the provincial government purchases the cannabis from suppliers and then sells it at an up-charge to dispensaries. To break it down simply, the provincial government dips their hands into your pockets at least 4 times:
- The government taxes cannabis suppliers
- The government operates as wholesaler, making profit selling cannabis to retail dispensaries
- The government taxes the dispensaries
- The government taxes the customer buying cannabis
It’s eye-watering to see how many times the government taxes it’s citizens. There is no reason for provincial governments to run as a monopolistic wholesaler taxing every step in the cycle until cannabis becomes too expensive to purchase. The black-market is thriving because it undercuts the inflated prices of legal cannabis. Eliminating the over reaching “middleman” a.k.a provincial government wholesaler will be a key move to solving this issue.