International Implications Of Canada's Cannabis Legalisation

Fitch Solutions / Commodities / Canada / Tue 13 Nov, 2018

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Key View

  • By voting to legalise recreational marijuana at the national level, Canada is widely considered to be in violation of three key international treaties maintaining the prohibition of marijuana.
  • The Canadian government has the option to either openly violate, exit or attempt to reform the treaties. The government has yet to announce its position but must do so by July 2019.
  • Any of the three options has key international implications for other signatories. We believe that Canada will likely attempt to exit the treaty.

Canada officially legalised recreational marijuana on October 17 2018 after passing the Cannabis Act (Bill C-45) in June 2018 and is now considered to be in violation of three key international treaties enforcing the prohibition of marijuana at the national government level. The treaties include the Single Convention on Narcotic Drugs of 1961, the Convention on Psychotropic Substances of 1971 and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988. The 1961 treaty contains the International Narcotics Control Board (INCB) which was established to '…limit the cultivation, production, manufacture and use of drugs to an adequate amount required for medical and scientific purposes, to ensure their availability for such purposes and to prevent illicit cultivation, production and manufacture of, and illicit trafficking in and use of, drugs.' The INCB is considered to be the main enforcement mechanism of the three treaties.

Treaty Description
The Single Convention on Narcotic Drugs of 1961 Created to prohibit production and supply of specific (nominally narcotic) drugs and of drugs with similar effects except under license for specific purposes.
The Convention on Psychotropic Substances of 1971  Designed to control psychoactive drugs, such as amphetamine-type stimulants, barbiturates, benzodiazepines and psychedelics.
The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988  Provides additional legal mechanisms for enforcing the 1961 Single Convention on Narcotic Drugs and the 1971 Convention on Psychotropic Substances.
Sources: UN, Wikipedia, Fitch Solutions

There is a degree of latitude regarding the INCB’s enforcement mechanisms. For example, the United States is considered in good standing regarding the treaties despite the fact that more than half the country’s states now permit at least legal medicinal marijuana. This is because marijuana remains illegal at the national government level. Countries can also gain exemption from the penalties established in the treaties by declaring that the consumption of certain kinds of drugs is a constitutional right, as is the case with chewing coca leaves in Bolivia. However, most observers believe that the treaties are absolutely clear that the legalisation of recreational marijuana is a clear violation; the INCB declared in June 2018 that Canada is essentially in violation of the treaty by passing Bill C-45.

This leaves the Canadian government with three main options: remain in the treaties but openly violate them, exit the treaties (and then rejoin with reservation) or attempt to reform the treaties - ostensibly by organising a group of like-minded countries to remove marijuana from the list of banned substances. As of mid-November 2018, the Canadian government has yet to signal which route it will take; however, we believe it is unlikely that the government will openly flout the treaties but will instead look at either attempting to reform the treaties or exit them. Below, we list what we consider Canada’s main policy options.

Action Probability Comment Implication
Remain in treaties and acknowledge violation <5% This is the least tenable option, although it has already been pursued by Uruguay, which legalised recreational marijuana in 2014 and has remained party to the treaties by arguing that legalisation doesn't violate the treaties. So far they have yet to face significant action, but the UN Office for Drugs and Crime considers Uruguay to be in violation of the treaties. Other countries, especially those dependent on US financial support or security, are unlikely to follow this course of action. For Canada, this could theoretically expose the country to sanctions. It would also considerably damage Canada's reputation for promoting a rules-based international order.
Withdraw from treaties (and rejoin with reservation 45% This has already been accomplished by Bolivia, which withdrew and rejoined after allowing recreational consumption of coca leaves. Re-entry could have been vetoed one-third of treaty signatories (60 countries) but only 15 opposed re-entry. Canada could pursue a similar course of action, although the circumstances are different as Bolivia enshrined coca leaf consumption in its constitution, which Canada has not.
Reform the treaties 50% Canada could potentially join other like-minded countries and reform the language of the treaties to exclude marijuana. Should Canada successfully pursue this option and remove marijuana as one of the items listed in the 1961 treaty, other countries would be free to liberalise marijuana laws without penalty, which could lead to a wave of legalisation efforts, especially in the Americas.
Source: Fitch Solutions

The long-term outlook is more complex as our long-held view remains that the US federal Government will eventually re-schedule marijuana in a move that would ostensibly legalise its consumption recreationally (see ‘Agriculture Megatrends To 2050: Food Security Challenges And Opportunities', April 18 2015 and ''What Does The Future Hold For Marijuana Legislation In The US?', March 3 2017). Although marijuana has been legalised in some US states for at least four years, the treaties have essentially made an allowance for the US since marijuana remains prohibited at the federal level. Were the US government to remove marijuana from schedule one and move it to schedule five, it could be considered de facto legal, which would raise serious questions about the future of the treaties.  





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