Introduction
International and domestic trade in cannabis is nascent yet continues to grow. Internationally, over the last few years, jurisdictions such as Colombia, Poland, and several Africa countries, among others, have made significant progress in developing local cannabis production capabilities. At the same time, truly global cannabis trade remains hampered by prohibitions set out in the international drug treaties which are in turn implemented in highly restrictive domestic laws, regulations and policies. Within this evolving landscape, several developments are noteworthy for international and domestic trade in cannabis for Canada, including the Commission on Narcotic Drugs’ (CND) vote to reject amendments to the international drug treaty framework that would have liberalized trade in cannabis products,[1] the beginning of negotiations on cannabis under the Canada Free Trade Agreement, and the liberalization of cannabis in Mexico, including the imminent legalisation of recreational cannabis. We summarize these developments below, along with an overview of import/export trends.
Canadian import/export trends
The Canadian cannabis market has grown significantly in the past years. Estimates show that the Canadian cannabis market was worth CA $2.6 billion in 2020, compared to CA $1.2 billion in 2019.[2] By the end of 2020, there were 1,369 licensed retailers across Canada, a 100% increase within a one-year period and representing an average monthly growth rate of 6%.[3] Projections show that the number of licensed retailers could be 2,540 by the end of 2021.[4]
Generally, international trade of cannabis is still limited to trade for medical and scientific purposes and even this limited trade is subject to strict regulatory requirements.[5] Nonetheless, there has been significant growth in export of cannabis from Canada, even within the limited medical and scientific purposes. In 2020, producers in Canada exported 15.6 tons of dried cannabis flower and approximately 7.3 kilolitres of cannabis oils and extracts, making Canada one of the largest exporters in the world, with Israel overtaking Germany as the main export destination in 2020.[6] Medical cannabis exports from Canada in 2020 were valued at CA $53 million (US $43 million), representing a 229% increase from 2019.[7] A significant portion of this value (83%) originates from cannabis flower sales, although it is likely that cannabis oil sales may be underreported due to inconsistencies in data submitted by exporters.[8]
Interestingly, less than 8 kilograms of dried cannabis flower were imported to Canada during 2020, according to Health Canada data, compared to the approximately 15.6 tons exported.[9] This disparity has not gone unnoticed. The Jamaican Minister of Industry, Commerce, Agriculture and Fisheries has noted the refusal of the Canadian government to allow importation of commercial quantities of cannabis to Canada.[10] Similarly, other producers from Colombia, and Australia have noted Canada’s restrictive approach to imports, highlighting that this approach has a negative impact on patients who are being denied access to cheaper cannabis.[11] This is indicative of possible non-tariff trade barriers, potentially contrary to Canada’s trade obligations.
On the export side, and to further bolster trade, as of January 2020, the federal government through Canada’s Trade Commissioner Service extended trade commissioner services for Canadian cannabis companies exporting cannabis for medical and scientific purposes.[12] Additional business support would be provided through the Trade Accelerator Program, which provides eligible Canadian companies with strategic advice and resources to activate and scale their exports.[13]
December 2020 Commission on Narcotic Drugs vote
In December 2020, the CND, the drug policy-making body of the United Nations (UN), faced a significant vote on several recommendations by the World Health Organization’s Expert Committee on Drug Dependence. If adopted, the recommendations would have liberalized cannabis trade under the UN Drug Treaties.[14] If all recommendations were passed, further liberalization in domestic laws would likely have followed. Governments often rely on international conventions while crafting their approach to cannabis legislation and while these international conventions do not determine domestic regulatory developments, they can serve as a prompt to encourage liberalisation of cannabis legislation in domestic markets.
However, only one recommendation passed. Cannabis and cannabis resin were removed from Schedule IV of the 1961 Convention. In doing so, the CND recognized their medicinal value. Prior to December 2020, cannabis and cannabis resin were included in Schedules I and IV of the 1961 convention, meaning that they were classified along dangerous and highly addictive opioids like heroin and fentanyl which are not known to have medicinal or therapeutic purposes.[15] Following the CND vote, cannabis and cannabis resin would instead be included in Schedule I of the 1961 Convention, along other medicines like morphine and oxycodone. This rescheduling means that cannabis is no longer classified with deadly and addictive opioids. The CND retained cannabis and cannabis resin in Schedule I of the 1961 Convention. Hence, it remains controlled for the purposes of trade to medicinal and scientific purposes.
The CND refused other recommendations from the WHO.[16] Tetrahydrocannabinol and delta-9-tetrahydrocannabinol (known as THC) remain in Schedules I and II of the 1971 Convention respectively. The CND refused approve the WHO’s recommendation to reclassify these substances into Schedule I of the 1961 Convention, which would have given them similar treatment as cannabis and cannabis resin. The CND also refused to delete extracts and tinctures of cannabis from Schedule I of the 1961 Convention, thereby still restricting their use to medicinal and scientific purposes. Furthermore, the CND rejected the recommendation to remove preparations containing predominantly cannabidiol and not more than 0.2 percent of THC from international control.[17] In this regard, in Canada, they remain heavily regulated and trade is limited to medical and scientific purposes.
Inclusion of cannabis in the Canada Free Trade Agreement
The Canada Free Trade Agreement (CFTA) came into force on July 1, 2017, and is the successor to the Agreement on Internal Trade. During the CFTA negotiations, cannabis was not legalized in Canada, and the CFTA does not apply to measures adopted with respect to cannabis for non-medical purposes. In December 2019, the Committee on Internal Trade (CIT) launched discussions on incorporating non-medical cannabis into the CFTA. These discussions address both federal and provincial/territorial concerns, including wholesale distribution and retail. Negotiations include the elimination of internal barriers to trade, including but not limited to provincial bans and taxes on products such as vaping devices, as well as business registration and licensing requirements, which may hinder the seamless operations of cannabis companies seeking to expand to other Canadian provinces.[18]
Inclusion within the CFTA would make measures relating to non-medical cannabis subject to CFTA’s core obligations on goods and services. This includes provisions on technical barriers to trade, sanitary and phytosantiary measures, market access, and licensing and qualification. It can also produce stronger regulatory coherence, through work under the Regulatory Reconciliation and Cooperation Table which promotes regulatory cooperation throughout Canada. For example, for alcohol there is there is a specific federal-provincial-territorial action plan for trade.
A timeline was proposed for the incorporation of cannabis into the CFTA at a CIT teleconference in December 2019, and in September 2020. However, these discussions have been delayed in light other priorities, particularly the COVID-19 pandemic.[19]
Mexico’s cannabis liberalization – an opening for cannabis trade?
In 2018, the Mexico Supreme Court declared the prohibition of personal use, possession and private cultivation of cannabis unconstitutional, and in June 2021, a court decision decriminalised recreational use of cannabis in Mexico.[20] Alongside these decisions, Mexico is on the cusp of liberalizing cannabis. In March 2021, the lower house approved a bill legalising the recreational use of cannabis. The bill awaits approval from the senate and then presidential approval.[21] Mexico will be only the third country in the world to fully legalize all aspects of cannabis consumption and production countrywide, after Uruguay and Canada.
Imminent liberalization of recreational cannabis in Mexico, raises questions about the potential of increased trade in cannabis between Canada and Mexico. Although international trade in cannabis remains limited to medical and scientific purposes, even within this ambit, import and export of cannabis could take on a different dimension with a bigger market between Canada and Mexico, and also presents opportunities for backward integration of supply chains. Mexico is better positioned — due to its climate — to produce cannabis outdoors throughout the year, but Canada has a more established ecosystem of producers, distributors, retailers and financial backers, along with related service providers who may see opportunities to export their services, expertise and know-how.
Notably, under the Canada-United States-Mexico Agreement (CUSMA), for both the United States[22] and Canada, only tetrahydrocannabinols (THC) (all isomers) attract zero tariffs.[23] Hence, minor amounts of THC in products, such as hemp or cosmetics, that may not require permits for international trade attract zero customs duties. Canada and the US’ tariff schedule, however, do not include cannabis and other derivatives. Hence, those products, at least at this time, would not benefit from the CUSMA’s tariff reduction, and key obligations of national treatment for such products. On the other hand, Mexico’s tariff schedules show that cannabis sativa, cannabis indica, cannabis indicia mixed with other seeds, cannabis derivatives, tetrahydrocannabinols and cannabis indica-based preparations do not attract tariffs.[24] Goods included in these schedules can be imported into the destination country without paying import duties. Other than tariffs, the CUSMA provides significant intellectual property protections for trademarks and patent terms. Further, cannabis companies can benefit from labour mobility provisions should further liberalization occur.
While Canada and Mexico still face significant hurdles to trading cannabis for recreational purposes, potential opportunities exist for international trade in cannabis for medicinal and scientific purposes.
Conclusion
International and domestic trade in cannabis will continue to evolve for years to come. Import and export trends, along with increased focus on how trading instruments can promote trade in cannabis is just beginning. While international trade in cannabis is highly controlled, teasing out how firms can benefit from agreements such as the CUSMA and other trade agreements is the next step to a further globalization of cannabis. Within Canada, we are seeing these first steps being taken with the start of negotiations to include cannabis within the CFTA.
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We wish to thank Mariam Momodu for her research and drafting assistance.
[1] The core UN drug control treaties are the Single Convention on Narcotic Drugs of 1961, as amended by the 1972 Protocol (1961 Convention), the 1971 Convention on Psychotropic Substances (1971 Convention), and the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988 Convention). These are known as the UN Drug Treaties.
[2] “A Look at Cannabis Store Counts by Province”, (11 January 2021), online: Business of Cannabis <https://businessofcannabis.com/2021/01/11/a-look-at-cannabis-store-counts-by-province/>.
[3] Ibid; World Drug Report 2021. Drug Market Trends: Cannabis, Opioids, by United Nations Office on Drugs and Crime, World Drug Report 3 (Vienna, Austria: United Nations Office on Drugs and Crime, 2021) at 34.
[4] note 2; At the end of July 2021, the number of stores had reached 2,277 “A Look at Cannabis Retail Store Count by Province”, (3 August 2021), online: Business of Cannabis <https://businessofcannabis.com/2021/08/03/a-look-at-cannabis-retail-store-count-by-province/>.
[5] Eric Foster, Paul Lalonde & Sean Stephenson, “Global Cannabis Trade: A Primer on Canadian Import/Export Requirements for Cannabis”, (15 January 2020), online: Dentons Insights <https://www.dentons.com/en/insights/alerts/2020/january/15/global-cannabis-trade-a-primer-on-canadian-import-export-requirements-for-cannabis>.
[6] Conor O’Brien, “Revealed: The Canadian Cannabis Export Market for 2020”, (30 April 2021), online: Prohibition Partners <https://prohibitionpartners.com/2021/04/30/revealed-the-canadian-cannabis-export-market-for-2020/>.
[7] Ibid.
[8] Ibid.
[9] Health Canada, “Data on Cannabis for Medical Purposes”, (15 June 2021), online: <https://www.canada.ca/en/health-canada/services/drugs-medication/cannabis/research-data/medical-purpose.html> Last Modified: 2021-06-15; O’Brien, supra note 6.
[10] Matt Lamers, “Canada Accused of Cannabis ‘Protectionism’ by Blocking Imports – Even as Exports Soar”, (19 August 2020), online: MJBizDaily <https://mjbizdaily.com/canada-accused-of-cannabis-protectionism-by-blocking-imports/>.
[11] Ibid.
[12] “Canadian Medical Cannabis Firms Eligible for Federal Government Funding”, (24 January 2020), online: MJBizDaily <https://mjbizdaily.com/canadian-cannabis-firms-now-eligible-for-trade-commissioner-service-support/>.
[13] “Canada’s Trade Accelerator Program”, online: Greater Vancouver Board of Trade <https://www.boardoftrade.com/wtc/tap>.
[14] Sean Stephenson, “Update: An Opening for Global Trade in Cannabis? What December’s Vote Under the UN Drug Treaties Means for Global Cannabis Trade”, (3 December 2020), online: Canada Regulatory Review <https://www.canadaregulatoryreview.com/update-an-opening-for-global-trade-in-cannabis-what-decembers-vote-under-the-un-drug-treaties-means-for-global-cannabis-trade/>.
[15] Sean Stephenson, “An Opening for Global Trade in Cannabis? What December’s Vote Under the UN Drug Treaties Means for Global Cannabis Trade”, (26 November 2020), online: Canada Regulatory Review <https://www.canadaregulatoryreview.com/an-opening-for-global-trade-in-cannabis-what-decembers-vote-under-the-un-drug-treaties-means-for-global-cannabis-trade/>.
[16] Report on the Reconvened Sixty-Third Session, E/2020/28/Add.1 (United Nations Commission on Narcotic Drugs, 2020).
[17] Ibid.
[18] Matt Lamers, “Talks Underway in Canada to Add Cannabis to Internal Free Trade Deal”, (17 April 2020), online: MJBizDaily <https://mjbizdaily.com/talks-underway-in-canada-to-add-cannabis-to-internal-free-trade-deal/>; “Ministers Meet to Discuss Ongoing Initiatives to Improve Internal Trade”, (17 September 2020), online: Canadian Free Trade Agreement <https://www.cfta-alec.ca/ministers-meet-to-discuss-ongoing-initiatives-to-improve-internal-trade/>.
[19] Lamers, supra note 18.
[20] Sammy Westfall, “Legal Marijuana in Mexico: Top Court Rolls Back Cannabis Prohibition, Opening Door to Legalization”, The Washington Post (29 June 2021), online: <https://www.washingtonpost.com/world/2021/06/29/marijuana-legalization-court-ruling-mexico/>.
[21] “Mexico Marijuana: Lower House Passes Recreational Cannabis Bill”, BBC News (11 March 2021), online: <https://www.bbc.com/news/world-latin-america-56356015>.
[22] https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/US_Tariff_Schedule.pdf
[23] “Canada-United States-Mexico Agreement (CUSMA) – Table of Contents”, (26 November 2020), online: Global Affairs Canada <https://www.international.gc.ca/trade-commerce/trade-agreements-accords-commerciaux/agr-acc/cusma-aceum/text-texte/toc-tdm.aspx?lang=eng> Last Modified: 2020-11-26.
[24] Ibid.
