By Steve McKinley Mon., Oct. 17, 2022
On the fourth anniversary of legalization, Canada’s cannabis producers are proclaiming a state of emergency and calling on the federal government for relief before, they say, many of their businesses are forced to go under.
At an Ottawa press conference Monday, members of the Cannabis Council of Canada — headlined by CEO and former Ontario health minister George Smitherman — producers and processors outlined the problems they’re facing as the market continues to falter.
“It’s no exaggeration to say that, unfortunately, all businesses of any size in the production and processing side of the cannabis industry today are systemically absent income,” said Dan Sutton, the CEO of BC’s Tantalus Labs. “This is an industry that cannot pay its own bills and cannot make ends meet.”
The problems, Smitherman said, are primarily twofold: an excise tax that doesn’t match the realities of the real-world price of cannabis, and an unregulated illegal cannabis market largely free of enforcement.
According to Smitherman, members of the council will spend the next few days in Ottawa meeting with their local MPs and ministries to pitch relief measures to help keep cannabis producers and processors heads above water.
Sutton, who’s also the founder of Stand for Craft — an organization representing 40 small and medium cannabis enterprises, micro-cultivators and independently owned and operated small businesses across Canada — said that in a March 2022 survey of those businesses, 60 per cent didn’t believe they would last another 12 months.
“This is nothing short of an emergency in small business in Canadian cannabis,” he said.
Health Canada is about to embark upon a statutory review of the Cannabis Act, which could take as long as 18 months to complete.
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Smitherman said that’s too long for many businesses. He’s asking Ottawa to streamline that process and complete the review as fast as possible.
In the meantime, he said he wants Ottawa to place a moratorium on a 2.3 per cent tax levied by Health Canada to cover its costs of the regulation of the cannabis industry.
And, as part of that review, he wants Ottawa to look at updating the excise tax — the tax placed on cannabis at the point of manufacture.
Currently that tax stands at $1 per gram or 10 per cent of the sale price on dried cannabis, whichever is higher. That was premised, said Smitherman, on the idea that weed would sell for about $10 per gram.
In fact, according to the Canada Cannabis Spot index, the average selling price is now hovering around $4, meaning producers pay about 25 per cent of their revenue in excise tax, as opposed to 10 per cent.
“The sad part about this is now companies that have found their way in this industry and are doing everything right are in a position where — I’ll speak for my company — I’m prepared to throw in the towel,” said Mark Ripa, of Hamilton-based AB Laboratories. “We can’t make a profit or even make a living with the current excise taxes.”
Smitherman wants Health Canada to update that excise tax to reflect real-world pricing, but he knows that won’t be an easy task.
Further complicating matters is the fact that that excise tax revenue is split between the federal government and the provincial ones, with the latter receiving 75 per cent.
“That’s going to take work with numerous governments,” said Smitherman. “Our eyes are wide open about the fact that the excise is very much a shared revenue tool with provincial governments and the like. But we’ve got to get back to the public health mission of elimination of the illicit market, and that helps to bring these things into clearer focus.”
That, said Sutton, is the other thing they’re calling on the government to do: crack down on the illegal market.
“The illicit cannabis industry has thrived in Canada for the last few years,” he said. “This is a competitor that does not bear costs associated with lab testing or quality assurance. It can deliver within 20 minutes to any city and town across the country.”
For its part, Health Canada on the day marked the passing of the fourth anniversary of legalization by noting in a release that the Cannabis Act’s purpose was not only to protect the health and safety of Canadians consuming marijuana, but also to establish a competitive legal industry to displace the illicit market.
Statistics Canada revealed in its National Cannabis Survey that one in five people in the country’s provinces reported using cannabis in the past three months, an increase of 14 per cent over pre-legalization.
The legal cannabis industry has, thus far, contributed some $43.5 billion to Canada’s GDP since legalization in 2018, according to Deloitte Canada.