O Canna-da

On October 17, Canada became the world’s first first-world nation to legalize the possession, growth and sale of cannabis at the federal level. To paraphrase Vincent Vega from Pulp Fiction, you still can’t walk into a Rush concert, roll a joint inside a maple leaf, bum a lighter off a Mountie, pretend that ham is bacon and start puffin’ away. Edible sales aren’t even legal there yet, but as far as the Canadian government is concerned, responsible adult use and properly licensed sales and growth are no longer considered federal crimes.

That stands in stark contrast to the United States, Canada’s main trading partner and only border buddy, a country with a chaotic patchwork map of contrasting cannabis laws. With recent ballot proposal victories in Michigan, Missouri and Utah, the United States currently boasts 10 states (plus the District of Columbia) that have legalized recreational marijuana use for adults, as well as 33 states that permit some form of medical-related use, according to the National Conference of State Legislatures.

Yet even though most Americans support the full decriminalization of cannabis, the drug remains illegal at the federal level, with a hostile administration holding firm in favor of prohibition. That federal prohibition cuts off growers, dispensary owners and other cannabis-related business owners from obtaining bank loans and other forms of credit, even in recreational-use states like California. However, the emerging Canadian market has created new opportunities for American companies looking to strike it rich in the Great Green North.

McGeorge Law School professor Mike Vitiello believes that Canadian legalization could eventually force the American federal government’s hand.

“I think it adds pressure to get a national solution in the United States,” says Vitiello, who co-authored a marijuana law casebook that will be published in February by West Academic. “When you have a significant trading partner that has legal marijuana, it’s hard for the prohibitionists to say that the demon weed is destroying society.”

“You get another experiment on the benefits and harms of marijuana,” he says. “It’s the international equivalent to legalization in states like Washington, Colorado, California, Oregon and the like, one more piece of the picture where you can look for data.”

The results of that “experiment” might be too lucrative to resist.

“It puts more pressure on banks that are going to want to do international transactions, and right now banking law is in total disarray because banks that use the FDIC cannot deal with illegal sellers of drugs,” Vitiello says. “Dispensaries are cash-only businesses, so you’ll increase the pressure to get some kind of banking solution at the national level. For marijuana producers, it would be ideal if we could develop markets elsewhere.”

When it comes to financing issues, local dispensary owner and cannabis expert Kimberly Cargile believes that Canadian legalization has already affected the California cannabis industry.

“One of the main hurdles we had in California transitioning into our regulated market was obtaining financing, getting the money that’s needed to comply with all the regulations,” says Cargile, who serves as CEO of A Therapeutic Alternative in Midtown.

“What I’ve seen in the last few months is a number of companies from Canada funding companies here in California, and so that has actually been an advantage to certain people in our industry here over the last few months.”

Indeed, the financial pages are littered with news of major mergers and acquisitions in the cannabis sphere, such as international beverage conglomerate Constellation Brands purchasing Canadian cannabis company Canopy, or Molson Coors buying Hydropothecary Corporation. The Canadian stock exchange has become an increasingly lucrative way for American companies to court investors.

Unfortunately, Cargile feels that the money has not trickled down to the state’s small growers and business owners.

“It’s mostly benefitted larger companies because they’re looking for a large ROI,” she says. “It hasn’t really helped our small, mom-and-pop industry that we used to have here in California.”

Cargile views Canada as a possible model for eventual federal legalization in the United States.

“Just as California kind of looked at Colorado, Washington and Oregon when we wrote our regulations, the United States can do that with Canada,” she says. “As time goes by, we’ll see that a lot of the negative ideas of what could happen here in the U.S. didn’t really happen.”

Unfortunately, there have been myriad issues in the first month of Canadian legalization, with reports of severe shortages, shop closures, inconsistent local regulations and a re-energized black market, not to mention a bare-bones legalization bill that didn’t account for alternative products like vapes, edibles and beverages. The bull market for pot stocks has also begun to turn bearish, especially with reports that Canadian cannabis farmers may not grow enough to fully meet market demand for another 18 months.

There are lessons to be learned from Canada’s poorly planned federal legalization rollout, but Cargile still anticipates issues when and if the American government legalizes cannabis.

“There’s going to be lots of pros and cons that come with that, just like when we transitioned to the adult-use market here in California,” Cargile says. “One of the pros is that we’ll be able to have banking, we’ll be able to get financing, we’ll be able to get the money that we need to scale up and transition into a larger company.”

However, that access to money might only accelerate the process of large corporations taking over the market.

“The other side of the coin is that larger companies in other industries—like the alcohol industry, the coffee industry, other industries—are currently preparing for this legalization also, and we anticipate there’s going to be a lot of buyouts, and a lot of consolidation and conglomeration of our industry in this nation after it’s legalized federally.”

According to Vitiello, market share is only one of many undecided issues in the cannabis “experiment” occurring north of the border. He also cites a potential pushback from Canadian law enforcement groups, pressure to comply with international treaties, overzealous border enforcement and unknown effects on public health and crime (especially regarding driving under the influence) as possible stumbling blocks moving forward, but he believes that it is too early in the process to pass judgment.

“We are in a completely new territory,” Vitiello says. “We don’t know these answers, and it’s hard to anticipate everything that’s happening.”