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Reflections on the Cannabis Act Legislative Review’s Final Report, Part 2

Love for smaller businesses?

Following the Final Report’s release owners of smaller cannabis businesses have expressed gratitude that their pain is finally being acknowledged. The Panel admits that operators’ concerns are “well-founded” but before dancing ensues it would be wise to unpack the Panel’s priorities.  Reading further, it’s clear that mostly minor measures to alleviate business’ concerns are advocated, so as not to challenge the “overarching public health and public safety objectives of the Act.”

In practice that means no major overhaul of federal taxes, even for smaller producers, since that could lead to lower wholesale and perhaps retail prices to boost consumer demand.

The declining viability of micros and other small businesses is raised, but only because the Panel worries they will return to the legacy sector while illicit operators pass on joining the legal market.

The Panel does point out that provincial distributors hold too much leverage under the current scheme but doesn’t mention that the federal government set up provincial authorities under the current framework. With that barn door open and substantial provincial profits the norm, good luck herding the provinces back in. The Report observes that distributors may not want to deal with larger numbers of small processors, or to add cultivators to the mix as the Panel further recommends. Micro-cultivators might also lack the capacity to meet Quality Assurance requirements needed to deal directly with provincial wholesalers.

Asking the provinces to review their fees, markups, purchasing policies and shelf space allocations are also noble suggestions, but since this is a federal exercise with limited influence over distributors’ operations, these changes won’t happen anytime soon.

A possible solution would be to allow direct marketing by growers and processors to consumers, in addition to on-site farmgate sales.

That option would likely require provincial support as well, but in the meantime expect buck passing between senior levels of government. The feds could decide that direct sales would violate public health goals by proving too stimulative. It’s possible that some provinces will extend their farmgate model to expand producers’ reach, but this will be confined to a few markets with B.C., Ontario, Saskatchewan and perhaps New Brunswick being the most likely to adopt such measures.

Modest administrative and regulatory streamlining is more likely to occur. The Report advocates pulling back unneeded site security measures, simplifying record keeping and reducing reporting requirements, all of which would be desirable but will not make a major difference.

What about social equity?

Unlike U.S. states that have legalized cannabis for adult use the Cannabis Act mostly excludes equity-promoting measures. The Expert Panel calls this a “missed opportunity to address the harms of prohibition,” and encourages participation of racialized and marginalized persons through pre- and post-licensing supports. The Panel calls for supports beyond cultivation and processing activities to include industrial hemp and ancillary cannabis businesses. It also asks Health Canada to consider whether it might waive its requirement for pre-built sites in licensing equity-deserving and small business applicants.

The Report cites two briefs submitted during the process which elaborate on what they may have in mind, which are worth reading for a sense of the ideas in play. I have reported previously on the Competition Bureau’s submission, but not on the brief by the Centre on Drug Policy Evaluation which presses the Panel to endorse not-for-profit business models as an equity pathway into the legal industry. These include member-based sales organizations such as co-ops and ‘compassion clubs’, potentially involving existing producers and ‘in-house’ LPs.

Criteria for participation would address “over-criminalized,” low-income and unrepresented groups, as well as persons from neighbourhoods or areas “disproportionately impacted” by drug laws. Proposed measures feature set targets for industry participation by specific groups, endorse waivers and reduced transactional fees and corporate income taxes, recommend grants and micro-loans, and priority processing of license applications for equity applicants. CDPE’s brief also mentions measures to influence more diverse governance and employment in existing companies, which would mean adding Diversity, Equity, and Inclusion (DEI) programs at firms.

Before jumping into this world with both feet, the government might think carefully about the impact such measures will have on cannabis businesses, especially those struggling to survive in the current market conditions.

The three case studies cited in the submission do not reflect a business perspective, nor detail the experiences of the 12 other states that have appended equity requirements to their cannabis regulations. For example, licensees could be obliged to develop impact and diversity plans and keep statistics on racial and demographic representation within the company for regular monitoring, perhaps reversing some of the red tape cutting benefits advocated in other sections of the Report.

It would be wise to observe how equity policies, many of which are still quite recent, play out in U.S. markets before introducing similar measures here. There is also the question of how relatable America’s history, including its War on Drugs is to Canada. 

Medical Cannabis, harm reduction and research gaps

These topics are interrelated: it’s difficult to review the situation with medical issues and not hear about the lack of credible research. That observation applies whether one is looking for guidance on therapeutic uses of cannabis or seeking information on harms and ways to address them. The Panel heard much about the gaps including the limited clinical evidence and research funding, and constrained access which involves the difficulty of finding medical professionals to consult.

The panel recognizes the upending of the Medical Access Program resulting from the wide availability of recreational cannabis, which makes the product easier to buy and credible guidance more difficult to obtain.

Not discussed is the rampant stigma towards cannabis use within some parts of the public health system. For example, the Centre for Addiction and Mental Health posts information heavily slanted to an abolitionist perspective. According to current online guidelines on reducing health risks, CAMH states, “The only way to completely avoid these risks is by choosing not to use cannabis.”

Statements such as these are unhelpful to the 200,000+ registered medical patients who depend on cannabis for a range of reasons such as pain management, lessening dependence on opioids, relief from trauma symptoms, and dealing with the ill effects of cancer treatments. And despite the gaps, recent studies report many promising findings, such as the potential to reduce risk of developing type 2 diabetes, and evidence that cannabis may be used in future for treating fibromyalgia, autism, and skin disorders.

The Panel advocates maintaining and improving access for medical purposes and lays out a number of helpful recommendations including greater use of Good Manufacturing Practices (GMP) for cannabis products, enhanced medical access through pharmacies, increasing the involvement of nurse practitioners, and forming educational partnerships with health professions. Development of clinical guidance documents similar to those used by Israel’s national cannabis authority is offered as a strategy for informing medical practices across the country. The suggestion to have medicinal cannabis follow the same pathway as other drugs by obtaining Drug Identification Numbers for products would be a practical way to support the safety and effectiveness of cannabis medications, facilitate their sale and standardize the submission of insurance claims.

Cost of medicinal cannabis is cited as an access issue.  It’s a major reason for the sharp decline in registered patients due to the lower prices of recreational products for those lacking insurance, with only 4 per cent of surveyed users reporting access to full or partial coverage. The good news is that patients say they want cannabis for medical purposes to be treated like prescription drugs, which are often covered by insurance or benefit programs and exempt from excise and sales taxes.

The Panel recommends that Finance Canada should re-examine the excise tax as it relates to medical cannabis, especially if access through pharmacies is to be implemented.

What the Panel thinks about the quality of research into cannabis harms is less clear. There is no shortage of issues worth further investigation with the uptick in child poisonings a chief concern. The report also mentions significant knowledge gaps relating to dosing, high-potency and novel products, mental health and substance abuse, effects on specific populations (e.g., First Nations, Inuit, Métis, and life-stage segments), the prevalence of cannabis use disorders, and the long-term impacts of legalization. The Panel notes that the Canadian Centre on Substance Use and Addiction (yes, the same folks that bequeathed the Guidelines on Low-Risk Alcohol Consumption) will be convening a session of experts later this year — something to watch carefully. 

My sense is that medical access could be approaching a crossroads given the lack of available funds.

Researchers could focus on elaboration of harms and publishing alarmist guidance documents, as we’ve seen recently with beverage alcohol, or it could be used to discover new therapies and medical supports. My fear is that funding may be diverted more toward the harms side because that is a well-worn path for public money.

To its credit, the Panel recognizes the lack of clinical medical research during the past seven years and advocates more government funding for this purpose. A recommendation that could cut both ways is to establish a scientific advisory panel to consider the emerging evidence on THC for both medical purposes and health risks. There could be carrots for the cannabis industry on both sides: i.e., research as a focus for jointly addressing harms, and clinical studies to strengthen the case for cannabis’ use in medical practice. Progress in advancing both objectives is probably needed to move past the skepticism of conventional practitioners.

Photo: Adobe Stock

Where to from here?

That’s the $64,000 question.

It’s important to remember that the Final Report is advice to Health Canada. Yes, it’s the government’s lead department, but cannabis interests are also managed by the Department of Finance; Innovation, Science and Economic Development (ISED); Agriculture and Agri-Business and other agencies including the Privy Council Office and PMO.

Some industry commentators are overly optimistic about the likelihood of the Panel’s “observations” involving the provinces. These issues are not only outside Health Canada’s mandate but seem to downplay the different financial interests. The federal government has little leverage and perhaps less inclination to tackle the extra-jurisdictional issues raised given the greater urgency and political importance of housing and environmental policy, to name just two prominent files.

Speaking of environment, the Final Report barely touches on this area and provides one meek albeit needed recommendation — that government “establish indicators related to the environmental impacts of the cannabis industry, collect baseline data and … monitor [and report on] these indicators and their trends.” Apparently no presenters to the Panel’s review discussed environmental impacts apart from wasteful packaging. I suspect that’s because the government didn’t invite the right people to their listening exercise (there’s no mention of environment stakeholders in the engagement process).

However, there is data on the size of the cannabis industry’s carbon footprint (quite large) and much about the impact of energy costs on indoor growing in particular. That said, climate change represents an opportunity for greenhouse and outdoor growing in Canada, as well as an imperative to act.

The Report is largely silent on the role, contributions, and further prospects of Canada’s educational institutions. There are important links between scientific and medical research, mental health care, business education, horticulture, environmental management, and other fields with cannabis. Granted, education is not part of the Legislative Review’s terms of reference, but it is an important contributor to the economy, public health, and social development.

Depressed market conditions and the industry’s early-stage status may be understating the demand for skilled labour, but this was intended to be a forward-looking exercise. Perhaps this area deserves a more focused effort?

Two other federal departments may yet play a consequential role in future developments. One is Agriculture, which oversees the $3.5 billion Canadian Agricultural Partnership program in concert with the provinces. The government recognizes cannabis as an agricultural crop and a large number of programs across the country are open to cannabis businesses.

ISED is the second department that’s stepping forward. A month before the Legislative Review’s Final Report was released the Department announced it was establishing a Cannabis Industry Forum to provide advice to the government on the next steps for the industry.

While some have quibbled about its membership, the Forum provides an explicit business focus for policy and advocacy. If managed well, the Forum could facilitate more in-depth deliberation on issues such as competitiveness, technology, access to capital, trade promotion, labour market issues and help raise the industry’s profile in Cabinet.

My inquiries to ISED only revealed that the Forum “provides a platform to discuss the economic and business context of this sector” and an opportunity to better inform other arms of government.

Time will tell how effective this new government intervention turns out to be, but it’s a move in the right direction.

Another possible benefit of the industry forum is that it’s a development that might survive a change in government. It’s unlikely that all the Legislative Review’s final recommendations will be acted on, but the document marks a watershed in the early years of legalization to help inform what comes next.