Canada legalizes recreational cannabis
As part of the campaign pledges which led to his election victory in 2015, Justin Trudeau promised to legalize cannabis for recreational use (1).
On October 17th 2018, Prime Minister Trudeau followed through on that eagerly awaited promise as Canada passed the C-45 (Cannabis Act) (2) to become only the second country in the world, after Uruguay, to legalize cannabis for recreational purposes.
It is now possible for Canadians to cultivate, possess, purchase and consume cannabis and its by-products, within certain limits defined by the federal government and subject to provincial or territorial restrictions.
According to Minister of Health, The Honorable Ginette Petitpas Taylor, the aim of the Cannabis Act is to “better protect our youth, displace the illegal market, and provide adults with a legal source of quality-controlled cannabis”.
To achieve this, a comprehensive regulatory framework was introduced. It aims to limit home growing, regulate distribution, impose taxation or define consumption areas and sale times for example.
So, whilst recreational cannabis is now legal in Canada, businesses wishing to take advantage of the new financial opportunities which accompany legalization must comply with strict regulations.
The Canadian cannabis market: an economic boon
Cannabis legalization is expected to create a strong and vibrant new sector poised to provide jobs and generate income for thousands of Canadians.
According to The Canada Cannabis Report: Industry Outlook 2018 by New Frontier Data, the legal Canadian domestic market is set to grow to a mind-blowing CAD$7.7 billion (US$6.0 billion) by 2025 (3).
Moreover, at the time of writing (May 2019), only the sale of cannabis flower is legal. New rules proposed by the government of Canada outline how cannabis edibles, cannabis infused drinks and cannabis oils and topicals are to be produced and distributed across Canada as of October 17th 2019. The introduction of these new product categories is expected to spur market growth even further.
Lured by the prospects of this lucrative Canadian “green rush”, a new generation of cannabis entrepreneurs, backed by forward-thinking investors, is emerging. Their aim is to capitalize on the ever-increasing demand by growing, processing, distributing and selling cannabis products in Canada and exporting them further afield.
One way to take part in the booming legal cannabis industry is to become part of Canada’s strictly regulated network of authorized retailers who sell cannabis directly to the public, either via brick-and-mortar stores or online stores.
Selling cannabis online in Canada
Whilst data shows that a majority of Canadians still prefer to buy their cannabis in-store rather than online (in-store purchases accounted for 80% of sales in Québec, 94% in Nova Scotia or 95% in New Brunswick for example) (4), selling cannabis online still represents a huge opportunity for Canadian “ganjapreneurs”.
Indeed, whilst it’s understandable that inexperienced consumers wish to receive face-to-face advice from shop-owners and feel the need to actually see, smell and feel cannabis before buying, it’s likely that some of their purchasing will shift online as their understanding of the category grows and as novelty wears off.
Then, there’s also the fact that legalization was received as a pivotal moment in Canadian history. It’s likely that many Canadians wanted to physically be part of the “celebration” by visiting cannabis stores with their family and friends. However, as cannabis gradually becomes a commodity, the purchasing thereof will likely follow similar trends to other commodities, i.e. shift online.
Also, certain consumers already prefer purchasing their cannabis from online retailers for a number of reasons.
Indeed, certain consumers perhaps don’t want to be seen purchasing cannabis in their local community. Years of stigma cannot be dissipated overnight!
This holds true especially for those who have a large distance to travel to get to their local cannabis store for example. With many online retailers now offering free express shipping, this trend is likely to grow.
- Wider selection of products
Finally, purchasing cannabis online offers a larger selection of products as consumers can shop through the online catalogues of multiple e-commerce stores and are not bound by the limited catalogue of their local store. There’s also the fact that they can take their time to compare product specifications and prices from the comfort of their home.
So, if you think that starting an online cannabis business is the right route for you, what exactly do you need to do to get started?
How to start an online cannabis business in Canada
Important: Please also note that at the time of writing, only the provinces of Manitoba and Saskatchewan will allow private entities to sell cannabis online. In all other provinces, online sales will be under the exclusive remit of the provincial government. Check out this great little infographic from Lift & Co for a visual guide to provincial guidelines.
Rather than focus on aspects of starting a business which hold true for any online business, we’ve focused on the 3 main areas which we believe are specific to the cannabis industry in Canada.
- Seek the advice of specialized cannabis experts
As the legal cannabis industry is relatively young, the rules and regulations governing the field are still widely ill-understood.
Moreover, rules vary from one province to another and new rules are yet to be implemented. As a result, understanding the implications of running a business that operates across provincial lines can be overwhelmingly complicated.
With this in mind, if you are planning to start an online cannabis venture, we recommend that you seek expert advice from a specialized cannabis lawyer or consultancy. They will likely be best placed to provide you with the sound legal advice you need to get your business off on the right footing. In particular, they will be able to advise and assist you with the application for your retail licence.
- Apply for a retail licence
As outlined at the beginning of this section, Manitoba and Saskatchewan are the only two provinces in which a private entity may apply for a retail licence to sell cannabis online. If you’re planning to start your venture in either province, you’re in luck!
Manitoba took the approach of an all private retail market. The Liquor, Gaming & Cannabis Authority of Manitoba (LGGA) licenses, regulates and monitors the industry to ensure compliance.
Saskatchewan has a private model for the distribution and sale of cannabis within the province. It is managed by the Saskatchewan Liquor and Gaming Authority (SLGA) which awarded the opportunity to apply for the first retail store permits via a Request for Proposal (RFP). A random lottery system process is in place for new applications.
Whilst the number of licences in both provinces is limited and early applicants with solid applications are already likely to have secured all of the available licences, there are waiting lists for those who still wish to engage in cannabis retailing.
Tip: To maximize your chances of success in receiving a licence, you should provide a well-structured application which demonstrates your good character, knowledge of security and inventory management requirements and ability to operate an online cannabis retail store.
- Find a cannabis-friendly payment processor
Whilst legalization has removed many, if not most of the hurdles previously associated with operating a cannabis related business, it has not removed them all.
In particular, taking payments from your customers can still provide to be difficult – especially if you operate online and cannot take cash payments. Indeed, the mainstream payment processors such as PayPal or Stripe for example will have nothing to do with cannabis businesses.
It is therefore imperative to build a strong business relationship with a cannabis-friendly merchant account and payment gateway provider. When applying, make sure to find out about their their sign-up fee, rolling reserves, settling times and transaction fees. InclusivePay offers low rates for cannabis merchants in Canada. Click here for a free quote