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Feb 04, 2016

Legalizing marijuana? That’s the easy part. How to regulate it is the bigger challenge

February 4, 2016

Legalizing marijuana in Canada could be both a regulatory minefield and a revenue bonanza for governments. Prime Minister Trudeau has given the Ministers of Justice, Public Safety and Health mandates to “create a federal-provincial-territorial process that will lead to the legalization and regulation of marijuana”.

But between the provinces and the federal government who will ultimately bear the burden of regulating marijuana and reap its revenue potential?

The easy part of legalizing marijuana is decriminalization. It is relatively straightforward, can be done unilaterally by the federal government and won’t require provincial involvement. It merely requires amendments to Criminal Code, and the Controlled Drugs and Substances Act. Canada’s international treaty obligations could complicate things slightly, but they’re unlikely to ultimately stop the federal government from moving forward with decriminalization.


Regulation – putting controls on who can buy what, and from whom – is a more complicated process likely requiring provincial engagement. The federal government has jurisdiction to regulate the sale of marijuana, based on its constitutional mandate to govern public health and safety. But the provinces are responsible for property rights, including buying and selling goods. This almost certainly includes marijuana. They will have some jurisdiction to regulate marijuana, provided their regulation does not run counter to the federal government’s legislative intentions.

Liberal MP and former Toronto Police Chief Bill Blair will have to understand the finer points of jurisdiction as the head of the federal government’s marijuana taskforce. He will be looking at the ways in which this overlapping jurisdiction has already played out in how federal and provincial governments regulate tobacco and alcohol. Based upon those experiences, there are three main models for how the federal and provincial governments might ultimately divide responsibility.

Revenue Implications

If international precedents are any indication, taxes from marijuana, along with licensing fees, represent a significant revenue stream, available to both the federal and provincial governments. In addition to normal federal and provincial sales taxes, we could see special marijuana taxes. As with tobacco and alcohol these would be incorporated into the consumer purchase price before. If Canada follows Colorado’s example, this could include an excise tax, paid upon the first transfer to the retailer, as well as a special marijuana-specific sales tax. Taken together, these represent a 25% tax in Colorado.

In Colorado these taxes are payable only to the state, as marijuana has not been legalized federally in the US. In Canada, the federal government could choose to impose an additional federal marijuana tax – indeed the Liberal platform promised a federal excise tax.

Prime Minister Trudeau has said that revenue from marijuana sales should go to addiction treatment, mental health support and education programs. The Prime Minister can’t dictate how the provinces use their marijuana revenue. This could be the subject of federal-provincial regulation.

Colorado’s income from tax and licensing of marijuana has surpassed targets, and is expected to bring in $125 million (USD) by the end of 2015 , a significant jump from $44 million in 2014 (the first year of legalization). CIBC World Markets estimates that in Canada the combined federal and provincial tax revenue could be $5 billion per year.

The Tobacco Model

How Marijuana is Sold

  • Consumers buy marijuana products from private retailers.* (In the case of tobacco this includes corner stores).
  • It is open to the provinces to create a licensing regime for retailers.

*The federal government could consider a federal marijuana control board, but this may open constitutional questions about federal jurisdiction to govern sales in the provinces.

Who’s in Charge

  • The federal legislation lays out a complete framework, encompassing how products are labelled, displayed in stores and to whom they can be sold. It also sets standards for labelling and quality testing.
  • The provinces may impose additional restrictions, provided that they support rather than contradict the federal legislation. These may be further restrictions on labelling or who can buy and sell marijuana, but can also include restrictions on where products can be consumed (i.e. in bars or on patios).

What’s Been Said

The Regulated Private Retailer Model

How Marijuana is Sold

  • Consumers buy from private retailers which are licensed and regulated by the province. This is how alcohol is sold in Alberta.

Who’s in Charge

  • The province enforces its own standards on who can purchase marijuana, where they can buy it, and who can sell it, and what it costs.
  • The federal government retains responsibility in some areas, for instance for labelling and quality testing.

What’s Been Said

  • Existing private marijuana retailers, who currently operate illegally, argue that they should be permitted to continue to do business in their communities, and should be included in a legalized marijuana regime.

Although the main focus of any regulatory scheme will be health and safety, it’s also clear that the revenue potential from marijuana sales could be substantial.

The Provincial Monopoly Model

How Marijuana is Sold

  • Consumers may only buy from a Cannabis Control Board retail outlet (similar to an LCBO store) or possibly select private retailers (similar to the Beer Store or Wine Rack).

Who’s in Charge

  • The province enforces its own standards on who can purchase marijuana, where they can buy it, and who can sell it, and what it costs.
  • In the most complete version of the monopoly, the government runs the only retailer. In the less complete version, the government is the primary retailer, and there are some private retailers.
  • As in the Regulated Private Retailer Model, the federal government retains some responsibility for labelling and quality testing.

What’s Been Said

  • This model is favoured by CAMH, which says that more restricted access is important to public health. Premier Wynne and some of the public service unions which currently staff provincial liquor control boards have suggested that marijuana should be sold and regulated alongside liquor.
  • Before being elected, Prime Minister Trudeau said that he would not necessarily propose a state-run monopoly on marijuana. Newly appointed marijuana Czar Bill Blair has praised the liquor control board model for its ability to exclude minors, but has not committed to any one model of regulation.

Although the federal government will take the lead on decriminalizing marijuana, the provinces will be paying careful attention to the regulatory model. Although the main focus of any regulatory scheme will be health and safety, it’s also clear that the revenue potential from marijuana sales could be substantial. By putting a stake in the ground now, provinces can seek to ensure revenue – and important policy discretion – stay within their control.


Adrienne Lipsey

Release Date

Feb 4, 2016

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