By Dan Kelly
Published in the Financial Post September 29, 2016
My friends from high school and university undoubtedly are laughing at the thought of me writing a column on cannabis. Even my eight-year-old son is beginning to realize I am a bit of a nerd, wondering why daddy never touches a beer like other parents. My personal experience with tobacco, alcohol and drugs consists of one puff of a cigarette at age 13 outside of my Winnipeg junior high (sorry mom) and an average of less than five drinks a year.
Yet, about a month ago, there I was at a Government of Canada consultation on marijuana legalization and regulation led by Anne McLellan, a former deputy prime minister. From the start, it was made clear the consultation was on the “how” not “if” of legalization.
Leading a member-driven organization whose mandate is exclusively business issues, not social policy, I worried I would have little to add. The one survey the Canadian Federation of Independent Business conducted on how recreational marijuana should be sold provided no clear direction. Many of the comments actually suggested there are divisions among business owners on whether legalizing marijuana is a good idea in the first place. For example, many small business owners expressed concern about the workplace safety and health implications of legalizing it.
Still, while we have limited experience with cannabis regulation, CFIB has a wealth of experience on regulation in general – including how to get it right and what not to so. This includes experience with liquor and tobacco regulation, which offers some guidance – albeit imperfect.
Based on CFIB’s 45-year history with regulation making, here’s what I have to offer:
Focus on critical regulatory imperatives: Too often, governments examine a new area where regulation is needed and quickly expand the mandate to include every moving part. This automatically means proper enforcement is near impossible. Choosing a few critical regulatory priorities, such as preventing sales to minors, ensuring proper product safety information and rules, and prohibitions at work or while driving, seems to be a great place to start. Choose the most important aspects to regulate and then do them well. Leave the rest alone.
Do not view it a windfall for governments: While bringing recreational cannabis sales out of the underground economy will no doubt have positive revenue implications for government (excise, sales and corporate income taxes), there will be added costs for inspection regimes and treatment services for those who abuse the product. Proponents of cannabis sales would be wise to resist the temptation to frame this as a giant cash cow.
Get the taxation mix right: If governments slap giant taxes on the industry, particularly in the early days, much of it will remain underground. From decades of experience with tobacco taxation, we know conclusively that punitive tax rates may discourage some users, but pushes lots of sales to the underground economy. Estimates are that close to a third of tobacco sales are underground, often with links to organized crime. Getting the tax mix right is important.
Don’t let regulation impede innovation: If governments confine retail sales to public sector entities such as liquor stores, innovation in serving consumer needs (like the growing edible market) will be stunted. An above-ground private sector can stay much closer to customer preferences and guards against an underground industry. It is a myth that only public sector employees can responsibly handle controlled substances, witnessed by the private sector role in tobacco and pharmaceutical sales, as well as alcohol in some provinces.
Look at comparable regulatory regimes. There are many sectors with specific regulations that may be useful in designing an appropriate environment. For example, the restaurant and food sectors across Canada have regular inspections to ensure sanitary conditions, quality and public information. Employees are often required to take food services handling courses. Other inspection regimes exist to prevent minors from purchasing tobacco products. While the experience of businesses in these sectors is not always positive, the rules may be a good place on which to build.
From a business perspective, it will be very important to get right the workplace implications of legalized recreational marijuana. The oil and gas industry safety association outlines that rules “…must address the obligations of employers to maintain a safe work environment and the workplace safety risks associated with marijuana use and abuse.” This is an important point.
With the government’s decision to legalize recreational cannabis already made, there is significant potential for entrepreneurs to play a key role. I’ve spoken to several independent business owners in the licensed medical marijuana business, and find they have the same passion and business smarts as those in any other sector of our economy.
With an election promise to legalize and Martha Stewart baking brownies alongside Snoop Dogg on national TV, attention is turning to how to do this right. And while most small business owners will stick to traditional baked goods at breakfast, they can offer some important dos and don’ts when it comes to taxation and regulation of an emerging industry.
This story was originally published in the Financial Post.