OTTAWA—Canada became the largest country to legalize the recreational use of marijuana on Wednesday, a potentially watershed moment for a nascent cannabis industry that is banking on showing the drug can be safely regulated.
The first Group of Seven country to embrace legalization, Canada is joining eight U.S. states, Washington, D.C. and the small South American country of Uruguay. Its implementation here will likely serve as a test case for other Western governments considering an alternate approach to cannabis.
The country’s big push hasn’t been without some hiccups. There are widespread worries that a patchwork of retail regulations and a shortage of legal supply means the black market won’t likely disappear soon.
Canada is “in the driver’s seat now, but it is up to us to take advantage of the policy in place that lets us be world leaders—because that won’t last forever,” said Jay Wilgar, chief executive of Newstrike Brands Ltd. , a licensed cannabis producer based in Oakville, Ontario.
Before Wednesday, legalization had already started to reshape Canada’s financial markets. There are more than 120 marijuana companies listed on Canadian stock exchanges, but the market is overshadowed by five companies whose total stock market value has ballooned from less than $4 billion to more than $40 billion in the past year.
Canada’s cannabis regime has also attracted the attention of global consumer-goods firms, who are keen not to miss out on the next big trend. Corona brewer Constellation Brands acquired last year a 10% stake in Canopy Growth Corp. , one of Canada’s largest, government-approved marijuana producers, and in August invested an additional $4 billion in the Smith Falls, Ontario grower and seller. Molson Coors Brewing Co. is also in a joint venture with Hexo Corp. , a Quebec-based cannabis company, to make nonalcoholic, cannabis-infused beverages for the Canadian market.
One of the bigger risks for Canada is how the U.S. reacts. In the U.S., the use, sale or possession of marijuana is illegal under federal law. Attorney-General Jeff Sessions is also a longtime critic of marijuana.
Officials from the U.S. Customs Border and Protection agency reiterated Wednesday Canadians were prohibited from bringing marijuana from their country into the U.S. The agency added employees of Canadian cannabis firms could be turned back from the U.S. border if their visit is tied to cultivating marijuana business.
“They can establish their own rules,” Ralph Goodale, Canada’s public safety minister, told reporters in Ottawa on Wednesday. He said he was confident U.S. border agents would treat Canadians in a respectful manner.
Canadian Prime Minister Justin Trudeau, who made legalization a campaign promise back in 2015, has argued it is the best way to keep marijuana out of the hands of youth and eliminate criminal organizations from the cannabis trade.
Others have expressed concerns. “Given the known and unknown health hazards of cannabis, any increase in use of recreational cannabis after legalization, whether by adults or youth, should be viewed as a failure” of legalization, the Canadian Medical Association Journal said in an editorial this week.
Cannabis spending in the fourth quarter is projected to reach up to 1.34 billion Canadian dollars ($1.03 billion), or C$6.30 billion on an annual basis, according to Statistics Canada, the national data-gathering agency. It also forecasts the number of users to top seven million, or 20% of the total population.
Despite the enthusiasm, Canadian marijuana producers and sellers could get off to a slow start because of supply problems, limited retail locations and a mixed bag of regulations across the country’s provinces and territories. For instance, the province of Nova Scotia warned it won’t have as many cannabis products as initially anticipated due to nationwide supply problems.
A spokesman for Canada’s Health Minister said Wednesday the government believes the 66 authorized cannabis suppliers are in a good position to provide products as consumers transition to the legal market.
Lines were the norm at government-licensed cannabis outlets that opened for business in some pockets of the country. On a chilly morning in Montreal, a few hundred hopeful consumers stretched around the block of one of the city’s busiest downtown intersections. The crowd cheered as a man and a woman with a cannabis-inspired Maple Leaf rode past the queue.
Zack Kik said he showed up early to make sure he got inside the store on Montreal’s famed St. Catherine Street. After acquiring several joints, he emerged to say he was impressed with the government-approved service. “It was very professional, with no stigma about it,” Mr. Kik said.
Not everyone was pleased. Rosanne Kelloway watched the customer line grow from across the street. She said it reminded her of Black Friday lines for new cellphones. “Selling the marijuana legally, I think it’s ridiculous. It’s our government’s way of trying to buy votes,” she said.
Prices for legal cannabis depend on the province, with starting prices of C$6.33 per gram in Nova Scotia, C$7.95 in Ontario and C$8.50 in Quebec. Statistics Canada estimates Canadians paid C$7.43 a gram on the black market in 2017.
Under the Canadian regime, all licensed growers and suppliers will need federal approval. In turn, Ottawa has given the country’s provinces and territories control over the wholesale and retail distribution.
In Ontario, consumers can purchase cannabis only through a government-run online store, and wait one to three days for delivery from the country’s postal service. The newly elected Conservative government in Ontario plans to issue store licenses for cannabis, but the earliest they will open is April.
Complicating matters was a strike notice issued Tuesday by the union representing Canada Post employees. Labor disruptions could begin next week, the union said, and potentially affect distribution of recreational and medicinal cannabis across the country.
In British Columbia, Canada’s third-biggest province, there will be only one outlet, run by the province, until private-sector retail licenses are issued. In the meantime, online sales are available through the government’s liquor-distribution branch.
Bill Blair, the Canadian minister responsible for cannabis legalization, said cannabis legalization “is a process not an event,” adding it will take time to displace the black market and may require government fine-tuning.
“For the first time the local drug dealer will have competition,” said Mr. Blair, the former Toronto police chief. “Adult Canadians will have a choice, and it will be healthier,” he added, noting buyers who purchase legally made cannabis will know the source and be aware of the product’s potency.
—Jacquie McNish in Toronto and Robert Hiltz in Montreal contributed to this article.
Write to Paul Vieira at paul.vieira@wsj.com
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