Tax and regulation combine to crush cannabis innovation and jobs

For some time now, I’ve been telling anyone that asks that the Canadian cannabis sector is not for the faint of heart. Sadly, just recently 800 Canadians, their kids, and the people who love them shared in the heartbreak of job loss as the promise of economic renewal from legal cannabis came crashing down in a pattern taking shape in towns and communities across the land. The picture after more than four years of legal cannabis is clear: the tax and regulatory structure conceived for cannabis has made it nearly impossible for any company of any size to have a consistently positive cash flow. After rolling up impressive GDP and job creation statistics captured by Deloitte in a 2021 study and driving growth through investment including during COVID, cannabis companies now top the charts of those seeking Companies' Creditors Arrangement Act protection. Meanwhile, over at the Canada Revenue Agency, the list of cannabis companies defaulting on the payment of excise taxes grows and grows. How did we get here? Considering that Canada’s move to legalize recreational cannabis lacked a global precedent to serve as a roadmap, perhaps it’s understandable that our industry faces taxes, fees, and regulations conceived under the failed premise of profitability. George Smitherman is the president and CEO of the Cannabis Council of Canada. Photograph courtesy of George Smitherman The hubris of those times produced an excise tax of $1 per gram on the premise that cannabis would be $10 per gram or 10 per cent, seemingly without considering what would happen if (or predictably when) the price of cannabis falls to, say, $3.50 or $4 per gram. Since the $1 per gram tax remains fixed no matter how much the price of the cannabis paid to the producer is degraded, cannabis products routinely begin their journey with a tax greater than 30 per cent, while some formats attract rates of excise higher than 50 per cent. Sadly, the overly aggressive excise tax is just the first stop on the journey that will see a succession of regulatory fees, provincial monopoly markups, special provincial excise taxes, and HST applied. By the time the Canadian cannabis consumer purchases their product, close to 50 cents of every dollar will go into the pocket of governments. Beyond these tax and regulatory burdens, our licensed cannabis sector is engaged in a public health-inspired competition to eliminate the illicit market and transition consumers to safer, tested cannabis products. The illicit market is really the big winner when legal cannabis companies fall by the wayside with no pathway to profitability and no platform to offer innovative cannabis products to consumers. But there are solutions and at the Cannabis Council of Canada, we’ve been highlighting them to government. Since 2020, we’ve indicated to our regulator, Health Canada, that we suffer paying regulatory fees that oddly neither alcohol nor tobacco are obliged to pay. We funded a study from EY, and with many others, we’ve highlighted the troubling outcomes inspired by the current excise tax model. Twice last year, our industry came to Ottawa and pressed key decision-makers about the risks of economic viability faced by us. In the coming weeks, Finance Minister Chrystia Freeland has an opportunity to put her stamp on an initiative that is one of the most memorable in the life of the Trudeau government. We’ve offered up solutions that will help to preserve the impressively diverse array of 900 licensed cannabis producers scattered across Canada. Those include immediate elimination of the regulatory fee and federal taxes on medicinal cannabis while initiating changes to the excise tax with provinces and territories. Recalling that cannabis legalization was inspired by public health objectives is a good place to start in developing a necessary recalibration of the regulatory and tax structure for our sector. That would force recognition that only a healthy cannabis sector, with producers and processors who can pay their bills, is the one capable of creating the products that can attract and maintain loyalty from the cannabis consumer. From that, restart our sector and governments can combine efforts to grow the pie and attract more than the estimated 50 per cent of the overall cannabis market currently captured. Alternatively, the status-quo approach will reflect the pain of loss etched in the faces of Canadian cannabis workers and in the landscape of cities, towns, and villages throughout Canada who embraced the promise of legalization. George Smitherman is the president and CEO of the Cannabis Council of Canada, the national industry association for the cannabis industry. Smitherman has spent an active life in and around politics including 10 years of elected service in the Ontario legislature, where he served as minister of health, energy and infrastructure as well as deputy premier. The Hill Times

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Tax and regulation combine to crush cannabis innovation and jobs

The illicit market is really the big winner when legal cannabis companies fall by the wayside with no pathway to profitability and no platform to offer innovative cannabis products to consumers.

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