Canada’s federal cannabis fees ‘make industry unsustainable,’ group says

Be at the forefront of cannabis and psychedelics science and innovation. Register by March 14 & Save $100 on tickets to The Emerald Conference by MJBiz Science, April 1-3 in San Diego.


Image of Canadian money flying in the sky

(Photo by selensergen/stock.adobe.com)

Canadian cannabis executives are pleading with the federal government to offer relief to the fee and excise regime it imposes on the industry amid mounting job and financial losses.

The executives warned during a Wednesday news conference that without meaningful reform, more communities in Canada would face job losses such as those recently announced by Canopy Growth Corp. and others.

So far this year, Canadian cannabis producers have announced almost 1,000 job cuts, including:

  • 800 employees by Canopy in Smiths Falls, Ontario.
  • 85 jobs in Olds, Alberta, by Calgary-based producer and retailer SNDL.
  • 40 positions by Ontario-headquartered Aleafia Health.
  • 40 staff by Winnipeg, Manitoba-based Delta 9 Cannabis.

“We’ve seen in Smiths Falls, Ontario, and Olds, Alberta, the consequences of an administration of fees and taxes which makes our industry largely unsustainable,” George Smitherman, CEO of the industry group Cannabis Council of Canada, said during the news conference in Ottawa.

“Everywhere you look, someone’s put up a fee or a regulatory barrier or burden that in the collective sense is making it impossible for our sector to make the progress that was expected and sustainable in the long run.”

He would like to see an easing in the regulatory fee, which currently charges standard cultivation licensees 2.3% of their annual gross revenue from cannabis, or 23,000 Canadian dollars ($17,200), whichever is higher.

“The budget presents an opportunity for the government of Canada to send a message about its commitment to the sustainability of our sector,” Smitherman said.

“That certainly needs to involve reform to excise, which of course the national government would need to do in concert with provinces and territories.

“We would also say the regulatory fee stands as a very good example of something the federal government can easily eliminate. It’s within their reach.”

Smitherman was joined by six executives representing large and small cannabis companies from across Canada.

Companies being squeezed

Mandesh Dosanjh, CEO of Pure Sunfarms in British Columbia, said the federal government hasn’t held up its end of the bargain.

“We are an industry consistently overlooked,” he said.

“A sector subject to crushing taxes and enormous regulatory burdens, and for producers who can afford to pay these taxes and fees, there’s nothing left over to invest back in our businesses.”

Dosanjh said that, for every dollar of revenue, producers start with being able to collect only 28 cents.

He said 72 cents of each dollar is sent to a government or agency in one form or another, be it excise tax, other fees or provincial markups.

“What’s happening and continuing to unfold is not consolidation. It’s carnage. It has massive implications,” Dosanjh said.

“Those operation conditions favor the proliferation of illegal operators, who have no reason to come over to the regulated market. Vendors and suppliers will begin to face their own bankruptcy and closures.

Dosanjh said that “it’s OK to admit that we, as a country, were wrong with our basic assumption on how legalization would roll out. The government has made cannabis a business that is very difficult to be in.”

“We don’t stand a chance,” he added. “But we have an opportunity to make a course correction in the next budget.

“We’ve been asking for excise reform for years. Now is the time.”

Margaret Brodie, acting CEO and chief financial officer of Rubicon Organics, based in British Columbia, warned that Canada is losing its international advantage.

“Most of our top line goes right to the government, and it’s making it uneconomic for businesses to continue,” she said during the news conference.

Industry objectives at risk

Canada took a public health and safely approach when it legalized cannabis in 2018, with some of the main objectives being to keep cannabis out of the hands of youth and profits out of the hands of criminals.

Jonathan Wilson, CEO of New Brunswick-based cannabis producer Crystal Cure, said those objectives are at risk.

“Without urgent action … the main objectives (of legalization) are in jeopardy,” he said.

Wilson called for the government to eliminate the “extravagant” annual regulatory fee.

Lennie Walser, president of Truro Cannabis in Nova Scotia, said even well-run businesses such as his struggle under the current regulatory burden.

“We’re small, we’re lean, we grew with scale,” Walser said, “but am I going to be here in three years if I’m fighting for break-even, or marginal profit, and no return for shareholders? Not likely.

“And remember inflation: Our costs keep going up, and the value of our product keeps going down,”

Smitherman, citing MJBizDaily data, said a disproportionate amount of cannabis producers are late in paying the Canadian government their excise fees.

“If ever there was a canary in the coal mine … the default rate is an indicator of how tough it is out there,” he added.

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.