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A Patchwork of Municipal Licensing

As a nation, Canada faced an added level of complexity as lawmakers took action to move our country from cannabis prohibition to a legal framework for recreational sales.

Rather than having to create one set of rules to govern the retail sale of non-medical cannabis, we have had to create rules at the federal, provincial, and municipal levels. Through the process, each level of government has sought to maximize its opportunity to benefit from potential revenue while at the same time minimizing its exposure to political risk. Political risk in this case grows from the friction between those who favour cannabis legalization and those groups who hold deep concerns about the social implications of such a shift in our laws. While there is majority level support for legalization nationally, this support is not evenly distributed, meaning some areas of the country are more receptive than others; no government wants to be seen as forcing cannabis on an unwilling community.

A Wide Range of Fees

As legalization rolled out, there was widely voiced concern about the danger of a confusing patchwork of laws across the country, with neighbouring provinces potentially having widely divergent regulations around retail cannabis sales. This is indeed the case, but beyond that, we also see a patchwork within provinces. For example, in BC, an entrepreneur can face vastly different start-up costs depending on where the store is located. In the extreme, the difference in obtaining licences is between $33,000 and $100.

The difference in obtaining licences is between $33,000 and $100.

To demonstrate the variety of fee levels across the province, we looked at a sample including Vancouver, Kamloops, Kelowna, Prince George, Nelson, Castlegar, and Kimberley. On the high end of the scale are Vancouver and Kelowna. In Vancouver, the per annum business licence alone costs $33,097 (compared to $418 for retail liquor) and new start-ups also need a change of use permit, which costs $900 per 100 square meter. An initial business licence in Kelowna will cost you $9465 (pro-rated for the first year) with an $8000 annual renewal; you will also need to pay a $9495 re-zoning fee and a non-refundable $1000 application fee. On the other end of the spectrum you have Kimberley, with no cannabis specific application fees or licences, all you need is your provincial approval and a $100 business licence. Castlegar requires a $1500 application fee to cover the cost of public consultation, but when it comes to the business licence, a standard retail version costing $85-$105 based on floor space will cover you. Neighbour city Nelson requires a $2500 per year business licence with a $3000 application fee and potential zoning application fee of $3500. Kamloops is more affordable than Kelowna, but does require a $1600 application fee and $5000 business licence. In the north, Prince George had set a business licence price at $5000 initially, but has since rethought that and brought the price down to $1000, more in line with liquor retail costs. It is important to keep in mind that in all these cases one also requires a provincial licence that costs $7500 to apply for and $1500 per year to renew.

Why the Disparities?

What are the reasons behind these disparities? Each level of government has its own areas of jurisdiction, and from that its own set of levers to pull in order to meet policy goals; this applies to cannabis retail as it does to all other sectors. When it comes to municipal level governments, the levers relate to zoning restrictions, business licence and application fees, and ultimately, the ability to prohibit recreational cannabis retail altogether. Many municipalities have feared that they may not benefit from legal cannabis in proportion to their costs and risks; this partly explains why we see high licensing costs in some communities. Other towns, especially smaller or more economically depressed centres, are eager to attract commerce of any kind, and have made a point of keeping the cost of entry low, or at least comparable to other similar businesses.

How are High Fees Justified?

The imposition of higher fees could be motivated by several factors. One explanation, which seems particularly relevant to Vancouver, is historical. The $33,097 fee is a carry-over from the days of grey market dispensaries. These businesses were highly profitable since access to unregulated supply allowed for high margins, which is not the case in the new legal framework. In the case of dispensaries, the city was also taking on the task of regulating a sector operating outside of the law, so this could justify the higher fee. Now, with all retailers in BC only able to access a single wholesale source (BCLDB), operators have little flexibility to compete on price or set themselves apart with the variety or quality of their product.

Taxing vice is often politically advantageous.

Another explanation, a more simple one, is that local governments see a chance to put some money in the bank from what they perceive as highly lucrative businesses; taxing vice is often politically advantageous. It does, however, remain to be seen if these predicted profits will materialize as private stores begin to open. A third explanation is political. Not all communities hold wide support for cannabis retail, and some of those opposed are vocal, so high fees and tight regulations can be a way for local government to signal to citizens that they are serious about limiting the feared potential harm without blocking access completely.

We will have to wait to see if over the coming months and years business licence fees in BC begin to converge. For now, perhaps it is no surprise that the first private store in the province was opened in Kimberley.

Photo courtesy of Raul Cacho Oses.

Tags: Canadian Cannabis (63), Cannabis retail stores (33), Fees (1), Municipal Licences (1), Provincial Disparities (1), taxes (1)