Glass Half Empty or Half Full? Switzerland’s New Cannabis Legalization
Last Friday, the Swiss Parliament issued a press release approving the legalization of adult use cannabis.
Consider the draft Swiss model, Canada 2.0.
This is a cause for celebration, but ‘how’ the legalization unfolds is what truly matters to operators and investors.
HERE IS WHAT WE KNOW:
> Adults (18+) will be able to consume, possess and purchase cannabis. A 3-plant home grow is permitted.
> Products to be sourced from Swiss producers; there are provisions for the importation of certain value-add products.
> Vertical integration is not allowed i.e. producers can’t own retailers.
> A government-run entity will oversee distribution and take a mark-up (TBD).
> Cannabis retailers will be licensed; online sales will be through the govt reseller.
> Tax levels (TBD) will be based on THC levels. Rates will be less for low dose products.
> There will be strict (TBD) regulations around advertising & promotion, labels, and packaging (must be child proof). Consumption limits are planned.
> All cannabis firms must employ digital seed-to-sale tracking
> Selling to minors is prohibited. There will be zero tolerance for driving high.
MY TAKE:
The govt said many of the right things in their press release but actions always speak louder than words. We shall see but the Canadian experience is instructive.
Like Canada, there are 3 levels of govt (federal, canton, municipal) who will want their tax vig. And a not-for-profit govt reseller isn’t a not-for-revenue entity. Expect a hefty resale toll plus a fair amount of paperwork.
The govt pledged to combat the illicit market. Without additional resources and priority, this will turn into a hollow promise. The illicit market is a formidable competitor to a high tax, onerously regulated industry.
The ‘devil is in the details’ - and we don’t have them. For example, the govt says tax revenues will pay for addiction support and harm reduction. But unless these taxes are earmarked for specific programs, they will end up in the general coffers and be spent on other things.
Finally, we don’t know the tax levels and reseller mark ups. Depending on where they land, the rates can be the difference between a sustainable and a financially sick industry.
Tax rates will also need to set early on so companies can refine their financial models. In Canada, the final rates were agreed on literally weeks before legalization.
Protecting domestic producers will ensure that consumers pay more for inferior quality product.
‘Perfect is the enemy of good’
I agree. Nevertheless, the Swiss took regulatory baby steps, shunned consumers and ignored the hard financial & policy lessons from Canada.
FYI, Canada has a ~$5B weed industry, generating ~$1.5B in taxes (not all paid) and supporting just a handful of profitable firms.
Take note, operators, entrepreneurs, and investors.
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