Despite cannabis legalization being six months in the rear mirror, some industry players say Canadian cannabis companies are still struggling with a restrictive policy framework that is limiting the sector’s growth and helping the black market to flourish.

“There isn’t a lot of sympathy from government on what some of these challenges are,” says Ryan Greer, the Canadian Chamber of Commerce’s senior director of transportation and infrastructure policy, who also handles the chamber’s cannabis file.

“It’s sort of like, ‘Well, we legalized, so you should be happy and we’ve done our job’” Greer says.

Lawmakers are acting to address industry issues. Effective May 8, Health Canada updated its process for issuing cannabis licences in what the department notes is an effort to reduce wait times and alleviate cannabis supply issues nationwide.

To companies in the sector, however, the work of lawmakers is far from over. Cannabis companies that hold licences under the Cannabis Act need to pay a prerequisite “annual regulatory fee” to the government—meant to recover Ottawa’s aggregate costs of administering the cannabis regulatory program not covered by transactional fees—that for a standard cultivation or processing licence, as well as a sale for medical purposes licence, starts at $23,000 per licensed site. (In general, the fee is calculated based on the greater of the minimum fee as set out in the Cannabis Fees Order or cannabis revenue multiplied by the annual regulatory fee rate.)

There are, of course, other factors that chamber members regard as impediments to industry growth, Greer says, including restrictions on branding that make it difficult for licensed producers to establish a recognizable brand among consumers; and packaging requirements, which include large health and safety warnings, that all but force LPs to use sometimes unnecessarily large (and expensive) plastic containers.

Greer says changing the three policies are a priority for cannabis companies working with the chamber, viewed as unnecessary regulatory burdens that are driving up costs.

Cannabis subjected to heavier regulatory load than like industries

“Why is the plant being treated as if it was plutonium?” says Ivan Ross Vrána, national director of the cannabis practice at Hill+Knowlton Strategies (H+K). “It’s very interesting how high that regulatory burden is when you compare it to other industries,” Vrána says.

Alcohol, for example, is far easier to access and can be directly marketed to consumers.

Vrána takes the view that persisting stigma has played a role in the creation of Canada’s cannabis framework and continues to influence lawmakers. The expectation is that will likely change as the industry matures, he says, as lawmakers become more familiar with cannabis and whether or not it poses any threat.

Alcohol, for example, is far easier to access and can be directly marketed to consumers.

In the meantime, Vrána and Greer say, federal regulations related to production and packaging are driving up costs for cannabis companies that are passed directly onto consumers. Legal cannabis is nearly 57 percent more expensive than black market marijuana, notes data from Statistics Canada.

Vrána says a cheaper version of a similar product is always more desirable, one of the main reasons why he believes the black market continues to flourish in Canada. That, and the selection of products illegal dispensaries are able to offer.

Walk into an illegal dispensary and customers can purchase things like cannabis capsules, oils and edibles, all in recognizable and likely branded packaging. Legal cannabis retailers don’t enjoy the same privileges.

Changes could help combat the black market

“If the government’s goal is to defeat the black market, great,” says Ginny Roth, Crestview Strategy’s national practice lead for government relations. “Some of that will come with loosening up some of the branding and promotion restrictions.”

Recognizing trusted brands and well-tested products will turn consumers to legal dispensaries, Roth believes, instead of unregulated black market alternatives.

While Vrána expects that lingering stigma is a factor behind restrictions on marketing cannabis products, Roth suggests it’s just a matter of educating lawmakers on the actual use habits of marijuana.

Fortunately, edibles are scheduled to become available online and in licensed retail stores by October, at the latest, which is expected to be a major boon to the sector.

Beyond branding are availability challenges. For example, consider the lack of access to edibles and extracts in the legal cannabis sector. “You get a bit hamstrung if you’re not able to provide some of the same products that exist on the black market,” Roth says.

Fortunately, edibles are scheduled to become available online and in licensed retail stores by October, at the latest, which is expected to be a major boon to the sector.

But the proposed draft regulations on edibles, released late last year, have some industry players worried about another unnecessarily restrictive framework. For example, under the proposed policies, edible producers would need to make their cannabis-infused products in an entirely different facility from other food items, creating a huge barrier for existing food producers to enter the cannabis market.

If the policies on edibles, extracts and topicals end up being highly restrictive, however, Roth, Vrána and Greer may see another hurdle to overcome for the cannabis industry.

Worse still, as U.S. states and other nations explore how to bring cannabis online, regulatory changes to existing challenges will need to unfold quickly to avoid Canada losing its first-mover advantages on legal cannabis and the related economic benefits.

“Our fear is that five or 10 years from now, Canada still will be seen as something in the sector, but maybe not what we could have been if we had gotten a few more things right,” Greer says.