Will medical cannabis undermine the recreational market?

The regulations and practices concerning medical cannabis, including interprovincial sales, can undermine the new recreation market.

Much of the recent policy debate on cannabis has focused on ways to develop and praise legal pot to compete with and undermining the illegal black market. But there is another market in this comparison: the medical marijuana market. Will the medical market compete for customers with the leisure market? This is an important question for policy makers, particularly as provincial institutions are in the process of setting retail prices.

The cannabis market is indeed an unusual market, in which the same product is used both recreational and medicinal – the rum-like grove of our age. It will be difficult to determine which buyers are which. We do not think it's a big job to suggest that both types of buyers are looking for the best possible prices and quality. Ideally, but perhaps not realistically, the medical market would only allow people to buy cannabis use because it would be useful for assessing cannabis as a medicine for clinical evaluation and medical testing.

In order to understand how the market for medicinal cannabis could undermine the recreational market, it is useful to look at the specific ways in which it is regulated and how that regime differs from the emerging rules for recreational markets.

There are currently 113 producers of medical cannabis with federal licenses (LPs) and a large part of these can also be sold directly to patients who have received medical authorization from a health care professional. Medical orders are made online via the websites of LP & # 39; s and delivered by the courier mail system. So far, the announcements about recreational markets by provincial and territorial authorities have not made clear how access will take place in regions where there are no stores, but we expect that some online services with home delivery will develop.

There are no federal restrictions on what licensed cannabis producers can ask their customers, and medical cannabis patients can find the best prices and quality across geographical boundaries. On the other hand, provincial-territorial shops will uniformly set their consumer prices for the same product in their jurisdictions, with the exception of Ontario and Saskatchewan, where private shops with provincial licenses can set their own sales prices. Currently the prices of medical marijuana vary greatly, from $ 6 to $ 25 per gram with an average of $ 9 for dried flowers.

To find out how much interprovincial buying of medicinal cannabis is currently in progress, let's look at the most recent available monthly figures on the Health Canada data site for March 2018. Alberta producers report 112,000 customers, Ontario LPs just below the 124,000, and all Canada has 297,000 customers. Alberta, with the dominant LP Aurora, seems to deliver products outside its physical jurisdiction when you look at the high number of customers versus the population size of Alberta. This interprovincial purchase by medical patients emphasizes our central point that the medical market crosses the provincial and territorial boundaries and in a certain sense the Canadian Store & # 39; is.

Medical marijuana patients had to have a doctor's prescription, but getting one was hardly heavy. To facilitate access to the medical market, some LPs refer patients to doctors or clinics. This practice has reduced the barriers that patients must overcome in order to obtain a prescription by enabling them to consult physicians electronically via Skype or similar services. We understand that these contacts consist mainly of informal check-ins that rarely prevent patients from obtaining permission to buy.

In fact, Health Canada has no idea of ​​the number of unique patients currently using medical marijuana. The department keeps customers per province, as reported by all LPs together, but some of these individuals may purchase from multiple producers. Patients are expected to receive a new doctor's approval form for each LP they buy, but there is no mechanism to check if this happens.

In 2018, the number of LPs of medicinal cannabis has increased dramatically, as has that of LPs that have large inventories of ready-to-use cannabis products ready in anticipation of the opening of the recreational market. For those LPs that are excluded from the leisure market (because they have no contractual arrangements with provinces and territories), or even for those LPs that have more products than they can sell on the recreational market, the medical market available and potentially very attractive.

Currently there is no reason to suspect that the medical market in Canada will disappear, despite the Canadian Medical Association's argument that it is no longer necessary. Many still feel that there is a role for the doctor as gatekeeper and that for some patients there is a suitable place for cannabis as a medicine. What Canada has made a world leader in medicinal cannabis is sticking to high standards and monitoring by Health Canada, and we think this path will continue.

With this in mind, the impact of medicinal cannabis on the recreational market must be taken into account. If medicinal cannabis is priced more attractively, with the same quality or even better, customers will want to buy from this market, and we see it as unlikely that doctors will offer much push-back. Our suspicion is that if the price difference is too high and creates disadvantages for local recreational markets, and if the flow of medical online buyers grows, provinces and territories may eventually impose some restrictions. The most obvious are the tightening of physicians' prescribing practices or asking the federal government to intervene with rules aimed at price uniformity.

The federal government has already leveled the playing field in one area by saying that all marijuana will be subject to GST / HST (really an excise tax) paid by consumers at the point of sale, with revenues equally divided by both levels of government . Currently the tax is $ 1 per gram, or 10 percent of the sales price of a product from a producer, regardless of whether the product is purchased for medical or recreational use. Medical patients have complained about taxes for their medication, but governments have insisted on symmetry with the recreational market.

We believe that this symmetry argument has diverted attention from the general issue of the medical market that competes with the leisure market, especially if the government agencies do not offer price reductions for recreational users. The market for medicinal cannabis is the only market (including the black market) where customers or patients outside their provincial or territorial jurisdiction can buy cannabis products if they are looking for the lowest price and the highest quality.

This article is part of the special function The Economics of Canadian Cannabis.

Photo: Shutterstock / Door nhungboon

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