An Economic Analysis of Legal Cannabis in British Columbia

The legalization of cannabis represents a significant economic opportunity for Canada, with the market worth up to $7.17 billion in 2019, according to Deloitte.

And while not even the most optimistic of lawmakers is expecting Canada to transition to a wholly-legal cannabis market overnight, more than half of sales - $4.34 billion - are expected to come from legal channels in the first full year of legalization. New Frontier Data predicts that Canada’s adult-use market will be worth $9.2 billion by 2025, with the legal industry growing in size to $5.2 billion in 2022 and $7.7 billion by 2025.

With its thriving cannabis black market, BC is uniquely positioned to capitalize on the opportunities of legalization - and yet, paradoxically, it also has the most to lose.

A successful legal industry could generate tens of thousands of jobs, hundreds of millions in tax revenue, and a potential economic upside of billions of dollars for BC.

However, BC’s current model of cannabis distribution and retail risks stunting the growth of the nascent new industry while undermining the incentives for consumers to purchase through legal channels. The following article will examine the provincial opportunities that legalization offers, followed by the extent to which provincial regulation imposes roadblocks to the adoption of a vibrant, legal industry.

Let a Thousand Flowers Bloom

BC’s long association with cannabis and its powerful combination of climate, culture, activism and entrepreneurialism stand it in good stead to reap the opportunities of a legal cannabis industry.

Taking the current black market as a base, an estimated 15,000 jobs could be created in year one of the legal provincial industry, with taxable wages in excess of $620 million. Yet with the legal cannabis industry estimated to create 150,000 cannabis jobs across the whole of Canada, the total number of BC jobs could easily exceed these black-market benchmarks.

Evidence of the interest in - and opportunity within - the legal market is clear: the job site Indeed report that cannabis industry hires now account for 1 in every 400 job postings on the site, with BC ranking top for relative job seeker interest, and second only to Ontario for the number of cannabis-related jobs available.

More so than any other province, BC also stands to gain from the introduction of federal micro-licences, which offer growers a route into the legal industry with less demanding capital and operational requirements than those of a standard licence, as well as a one-time genetics transfer of black-market and unlicenced strains into the regulated system. With over 10,000 illicit grow-ops estimated across BC, even a small percentage of cultivators and processors transitioning to the legal industry would result in a significant uplift to the number of licenced producers in BC, and with it a commensurate increase in legal output and opportunity.

There’s likely to be plenty of consumer-driven activity, too - the number of BC cannabis users is expected to rise from 750,000 to 816,000 thanks to legalization, with consumption growing to over 100 tons per year and total cannabis spend increasing by up to 58%. With two-thirds of current cannabis users looking to purchase in the legal market, BC represents a large and lucrative market for LPs as well as potential retailers.

The Social Network

But a healthy cannabis ecosystem is so much more than a roll-call of LPs or a competition for retail square footage.

A legal, regulated industry generates opportunity for a diverse range of ancillary and tangential businesses across the province - from testing labs to genomics and software development to higher education, compliance, security, construction, tourism, and law. As Silicon Valley and other regional powerhouses show, this clustering of industries promotes collaboration, accelerates innovation, facilitates knowledge creation and forms the foundation of a diverse, competitive ecosystem.

Deloitte suggests that Canada’s ancillary cannabis market alone could be worth upwards of $20 billion. If BC can leverage its assets, harness the entrepreneurialism of its population and create the right conditions for growth, the province could be home to a new, fully-legal industry worth several billion dollars a year.

Tax Take

Although frequently underplayed in Canada’s public discourse, legalization also represents a significant new revenue stream for government - especially so for the provinces, who are expected to capture up to 70% of industry profits. It might seem gauche in the Great White North to covet the revenue-generating abilities of cannabis (though widely accepted for tobacco and alcohol), but it would be a huge mistake to overlook a successful cannabis industry's contribution to public coffers.

Under a revenue-sharing agreement with Ottawa, the provincial government will receive a 75% share of the excise tax levied on cannabis production in BC. From this, the province expects to receive revenue of $75 million in the first full year of legalization.

In addition to this, the provincial government collects 7% PST on retail sales, a 15% markup on wholesale cannabis sales, license application and renewal fees, and net revenue from the publicly-owned online and retail stores. In all, total provincial revenue from the legalization of cannabis is expected to reach upwards of $110 million annually.

A vibrant legal industry will also bring in secondary tax revenues by way of provincial payroll and corporation tax, as well as a wider uplift in general tax receipts from ancillary business activity, new migration to the province, and spending on goods and services across the board.

The BC government is yet to announce how it will use its new revenue stream, or the cost of establishing the province’s regulatory regime. However, cannabis tax take can be used to cover the regulatory costs of the industry and to support public health and educational initiatives, as in the case of Oregon and other US states with legal cannabis industries.

BC Cannabis: The New BC VQA?

In time, a legal, regulated cannabis industry could - and should - become an integral part of BC’s identity, as celebrated as other provincial industries like forestry, mining, tech - and craft beverages.

Current cannabis sales already surpass those of spirits in Canada and approach the $7 billion spent annually on wine, while BC’s cannabis sector is already comparable in size to that of the province’s wine industry, which contributes $2.8 billion a year to the BC economy.

BC’s wineries today produce over 80 varieties of grape, with the 900+ vineyards across the province’s nine official wine regions welcoming more than one million visitors annually. Just as the Okanagan Valley terroir is celebrated across Canada and beyond, why should not, with the right regulatory environment and support, the Fraser Valley or Vancouver Island also be celebrated for the production of a premium, recreational, plant-derived product?

BC Trailblazer

Legalization has given BC the chance to foster regions of cannabis-infused creativity and entrepreneurialism - and in doing so generate thousands of secure, well-paying jobs, hundreds of millions in tax revenue and billions of dollars of wider economic activity.

BC has the opportunity to lead Canada, and the world, in the production of regulated, high-quality cannabis - an opportunity that provincial politicians, policymakers and regulators should help the province embrace wholeheartedly.

Charlotte Bowyer of Hanway Associates

Tantalus Labs

Tantalus Labs

Tantalus Labs is leading Sungrown, BC cannabis. We created SunLab¹, a facility using natural inputs to grow elite cannabis products.