Navigating Risks on the Road to Cannabis Legalization

The implications of bringing recreational cannabis to the market raises significant risk and regulatory concerns according to a recent PwC Canada report. Navigating risks on the road to cannabis legalization examines how licensed producers (LPs) and different levels of governments can ensure a smooth transition for both business operators and regulators into this new market. This report comes at a time when announcements on distribution plans for some jurisdictions in Canada, including province of Ontario are on the horizon.

“Despite seeing developments in government regulation, many unanswered questions and outstanding issues remain. Applying a risk lens to this process will facilitate cross sector collaboration. We are all striving towards the common goal of increasing public education and ensuring the safe and responsible distribution of recreational cannabis,” says Tara McCarville, Partner, National Health Industries Lead, Risk Assurance Services.

According to the report, the objectives of curbing underage consumption, promoting moderation, preventing impaired driving, in addition to ensuring addiction control, are complicated. It will require collaboration across the public and private ecosystems to establish and maintain a solid set of regulations that focuses on long-term health and safety of consumers. Striking the right balance is important as the potential for overregulation may fuel black market players by allowing them to undercut prices and copy products. Legislation should foster a legal market where products improve on the black market in terms of price, quality, availability and safety

The report suggests that consumers will be drawn to the safety of the legal market provided it is similarly priced and easy to access. LP retail prices on average range from $2.50 to more than $15 per gram, with price variations attributed to product quality, discounts provided and the customer segment served. Success will depend on getting the price right from the start, adjusting it when necessary, and ensuring that the pricing strategy is consistent across the country.

The report also identifies seven areas of focus for marijuana businesses and governments to consider:

Assurance from seed to sale: LPs have made significant investments in processes, systems and controls. All levels of government will need to be mindful of these investments while designing a system which enables regulators to have appropriate checks and balances.

Marketing and advertising restrictions: Government legislation restrictions cannabis marketing and advertising in an effort to minimize the promotion of recreational cannabis use. Packaging should be used for educational purposes, advertising areas such as proper usage tactics for consumers.

Distribution channels and the supply chain: The retail distribution channels will likely differ by region and may piggyback alcohol sales, with some provinces being government-controlled and others market-controlled.

Regulating pricing considering the industry’s long-term viability: Taxes imposed by the government need to take into account the industry as a whole. Legal market price and consumption taxes with a large margin could result in commercial failures and capacity issues, opening the door once more to the black market.

Public health and safety through consumer education: Providing training to ensure that specialized skill requirements are met and implementing dependable methods to identify cannabis impairment are essential. Additionally, there will be a need for alignment across all levels of federal, provincial and municipal law enforcement.

Long-term health effects: The physical and mental health effects of cannabis remain under debate; scientific studies will need to be continuously carried out to determine the long-term impacts. It is therefore essential that a research infrastructure be established as part of the legalization effort, along with the appropriate budget and resources.

Potentially under-supplied market: There is a pressing concern in the market that as legalization approaches, the regulated market will not be able to meet demand. Producers are trying to increase capacity to address the expected demand but all of those consulted felt there would still be a significant gap.

To read the full report, please click here.

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About PwC Canada
At PwC, our purpose is to build trust in society and solve important problems. More than 6,500 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with more than 208,000 people in 157 countries. Find out more and tell us what matters to you by visiting us at www.pwc.com/ca.

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SOURCE PwC (PricewaterhouseCoopers)

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