Canadian pot producers watch closely as Democrats aim to rewrite U.S. cannabis laws

WASHINGTON — More than three years after legal cannabis arrived in North America on a national scale, Congress is taking another stab at following Canada’s lead by ending long-standing federal prohibitions on marijuana in the United States.

A meeting Wednesday of the House of Representatives rules committee set the stage for debate Thursday and a vote as early as Friday on New York Rep. Jerry Nadler’s Marijuana Opportunity Reinvestment and Expungement Act. 

If passed by both the House and the Senate and signed by President Joe Biden, the bill — known as the MORE Act — would help clear the way for the industry’s expansion by declassifying marijuana as a controlled substance. 

But unlike in Canada, the centrepiece of the effort is criminal justice reform: in addition to imposing taxes on sales and allowing access to financial services, the bill would eliminate criminal penalties and establish a system to expunge cannabis convictions. 

“Today in America, you are over three times more likely to be arrested for cannabis if you’re Black,” committee chairman Rep. Jim McGovern said as Wednesday’s hearing got underway. 

“Black and brown Americans use cannabis at roughly the same rate as everyone else, but if you look like me, you’re far less likely to face the same penalties. None of us should be OK with a system that treats people differently based on the colour of their skin.”

The bill has a long way to go, particularly in the Senate, where Majority Leader Chuck Schumer, another New York Democrat, is likely to prioritize his own bill: the Cannabis Administration and Opportunity Act, expected in the upper chamber next month.

Industry observers in both the U.S. and Canada, however, have seen this movie before. 

“I am skeptical as to whether the Senate is actually going to get on board with that particular legislative agenda, let’s put it that way,” said Jaclynn Pehota, executive director of the Association of Canadian Cannabis Retailers. 

“I remain skeptical about how much of a priority this is, in a meaningful way, for people who are actually making policy agendas.”

Regardless of their chances, both bills have been shaped and informed by Canada’s experience with the legal-pot landscape, said David Culver, vice-president of global government relations for Canopy Growth Corp., based in Smiths Falls, Ont. 

“They are aware of the Canadian model and the pluses and the minuses of the system, because I talk about it all day, every day,” said Culver, who routinely lobbies Capitol Hill for one of the largest players in Canada’s legal cannabis market.

Like smaller state-level markets throughout the U.S., the Canadian market has been a “crystal ball” of sorts for legislators, he said. 

“We can see what’s worked and what hasn’t worked. Some of the lessons within these bills they’ve taken to heart, but others they haven’t.”

One significant problem is taxation, Culver noted: if excise taxes are too high out of the gate, the black market for cannabis will only continue to thrive. “You need look no further than Canada and California to understand that years after legalization, that illicit market is still the dominant force.” 

The U.S. cannabis landscape is an ever-changing patchwork. The drug is legal for medical purposes in 39 states and for recreational use in 19, including D.C. But federal law still considers it a Schedule I controlled substance with high risk of abuse and no accepted medical use, alongside drugs like heroin, LSD and peyote.

That makes it impossible for companies operating in a legal landscape like California or Colorado to make use of institutional banking or financing services, access capital markets or do business outside their respective state lines. Nor can they write off routine business expenses, capital equipment or payroll costs.

Unlike how Canada tackled legalization in 2018, social justice issues like ending criminal penalties and expunging non-violent cannabis offences are a central feature of both U.S. bills. 

“Already, Canada’s kind of falling behind in that regard,” said Samantha McAleese, a PhD candidate at Carleton University in Ottawa who specializes in criminal justice issues around cannabis. 

The government has estimated that only about 10,000 people would be eligible under the system set up in 2019 to fast-track pardons for minor marijuana possession offences. McAleese said it’s likely that the lives of somewhere between 250,000 and 500,000 Canadians have been affected by the same charges, but most are ineligible because of other convictions on their criminal records. 

“‘It would be too hard, it would be too complicated, it would cost too much money, it would take too many resources’” was the standard response to the efforts of advocates who pushed the government for a broader, more comprehensive program, she said.

“But when you compare that to the cost when someone can’t find a job, or when someone can’t find housing — the costs are much larger to taxpayers than a one-time investment in an automatic expungement process.”

For Culver, the criminal justice reform component is the most urgent aspect of the American effort. 

“The unintended consequences of inaction are severe,” he said. 

“If we don’t act on cannabis reform sooner rather than later, we’re going to continue to arrest hundreds of thousands of people — this year, we’ll arrest over 300,000 people, again — unless reform is done.”

If neither bill survives Congress, the Senate still has options, such as the SAFE Banking Act, which has already been passed by the House and would eliminate the federal barriers that deny cannabis businesses access to financial services and capital markets. 

Removing those barriers “would be a real positive, from a Canadian perspective,” said Pehota. 

“It would really accelerate and expand access to basic business services like banking and insurance, which remains very, very challenging for Canadian cannabis businesses to acquire because of the illegality of cannabis at the federal level in the United States.” 

Legalization in the U.S. might be good for Canadian giants like Canopy and Tilray Inc. But for smaller players, the prospect of a legal market nearly 10 times the size of Canada could be a daunting one. 

“The U.S. suddenly becomes both a threat and an opportunity,” said Michael Armstrong, a business professor at Brock University in St. Catharines, Ont., who watches the North American cannabis sector closely. 

“Canadian companies who now have a couple of years of operating experience under a legal regime have learned how to mass produce. (U.S. legalization) would potentially be a big opportunity, a whole new market,” Armstrong said.

“However, it’s also a threat because right now, the Canadian industry doesn’t have to worry about American competitors.”

This report by The Canadian Press was first published March 30, 2022.

James McCarten, The Canadian Press