Lessons Learned from Canada Cannabis Legalization and Risks

More than three years after Canada became the first major economy in North America to legalize marijuana for all uses, the initial sky-high projections of a “green rush” have yet to fully materialize. Instead, the nascent cannabis industry—including, among others, growers, producers, distributors, and retailers—has had to contend with a patchwork of regulations, unforeseen risks and growing pains, many of which were compounded by the COVID-19 pandemic.

The experience can offer useful lessons on some of the critical risk exposures and challenges of an emerging cannabis industry.

Cannabis Legalization and Risks

In this infographic, we explore these risks across each step of the value chain. Choose a graphic below to learn more.

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  Financing

  Limited capital access has proved to be a substantial barrier to entry for new Canadian cannabis companies.

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  Growing

  The nature of the crop exposes growers to additional scrutiny and regulation, and to additional risks arising from intensive indoor operations.

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  Processing

  Quality control and dosage accuracy remain primary challenges for cannabis producers.

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  Distribution

  Getting cannabis products onto the shelves requires producers and distributors to navigate multiple sets of provincial-level regulations.

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  Retail

  Consumer demand for legal cannabis has been lower than expected due to a number of factors.

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  Consumption

  The benefits and long-term health risks of cannabis, especially for heavy users and young people, remain unresolved.

 

Financing

Limited capital access has been a barrier for new Canadian cannabis companies. U.S. legislation effectively prohibits U.S.-affiliated banks from lending to cannabis companies both domestic and abroad, cutting off a vital source of funding.² Insurers have largely resisted providing cover for the industry, and many large cannabis companies have formed captives as alternative coverage vehicles.

 

 

Growing

As an agriculture business, the risk coverage required for growing marijuana is somewhat similar to any other greenhouse operation. However, the crop also exposes growers to additional scrutiny and regulation, and additional risks arising from intensive indoor operations. For example, marijuana growers are required by law to implement stringent and often expensive security measures.³

 

 

Processing

Quality control and dosage accuracy remain a primary challenge for cannabis producers. Compared to substances like alcohol and tobacco, the science of extracting and measuring the exact amount of THC in a cannabis product is still imperfect.⁴ Producers are still refining the techniques required to produce cannabis in mass quantities, resulting in inconsistent quality.⁵

 

 

Distribution

Each province has retained the autonomy to determine how cannabis is bought and sold within its borders, resulting in a patchwork of policies that are subject to frequent change, as well as structural inefficiencies that have added unnecessary complexities to the industry.⁶

 

 

Retail

Consumer demand for legal cannabis has been lower than expected due to a number of factors, including a thriving black market, and the ability to legally grow marijuana in backyards.⁷ There are also restrictions on how companies can market and advertise cannabis products—including prohibitions on health claims, testimonials, and any packaging that might appeal to youth.⁸

 

 

Consumption

The benefits and long-term health risks of cannabis remain unresolved.⁹ Canadian legalization has created both a critical need and a clear opportunity for additional scientific research on the topic. Long term product liability exposures, due to the current claims-made coverages, rest solely with the manufacturers.

 

^{[1] “After ‘Green Rush,’ Canada’s Legal Pot Suppliers Are Stumbling,” New York Times}

^{[2] “U.S. pot sellers stash cash as banks leave them high and dry,” Reuters}

^{[3] “Physical Security Measures for Cannabis: Requirements under Part 4 of the Cannabis Regulations,” Government of Canada}

^{[4] “Faulty THC dosages turning up in legal cannabis: Health Canada,” Calgary Herald}

^{[5] “Stoners cheered when Canada legalised cannabis. How did it go so wrong?” Guardian}

^{[6] “After ‘Green Rush,’ Canada’s Legal Pot Suppliers Are Stumbling,” New York Times}

^{[7] “The legal stuff is garbage’: Why Canada’s cannabis black market is thriving,” Guardian}

^{[8] “The Cannabis Act and Cannabis Regulations – Promotion prohibitions,” Government of Canada}

^{[9] “Weighing the dangers of cannabis,” Nature}