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Excise Tax Hindering Cannabis Industry

The cannabis industry in Canada is celebrating the fourth anniversary of legalization in the country today, and the growth and achievements of many people have made it a success. However, to mark the important milestone, George Smitherman, President and CEO of the Cannabis Council of Canada (C3), brought together cannabis leaders from coast-to-coast to gather in Ottawa and call on immediate action from government to address what’s being called a “crisis” that is threatening the current and future health of the industry in Canada.

Excessive Excise Tax

The crisis that’s referred to is rooted firmly in an excessive excise tax that was placed on licenced producers upon legalization. It’s a tax that, in some cases, is equating to more than a third of some licensed producer’s annual revenue, resulting in a debilitating barrier to their success and growth. And, the significance of the impact, says Dan Sutton, CEO of British Columbia-based Tantalus Labs and a C3 Member, extends far beyond the producers themselves.

“Cannabis job creators are under threat from the systemic failure of small and medium sized businesses that cannot sustain themselves while paying excise taxes, government mark-ups, and regulatory fees,” he asserts.

Dire Consequences

They are sentiments that are echoed by Mark Ripa, CEO of Ontario-based A B Laboratories, another C3 Member, adding that the issue of excessive excise taxes could have grave consequences for many Canadian cannabis players operating in provinces and territories across the country.

“If government does not intervene now with emergency relief on the way to broader reform, expect the continued failure of cannabis firms of all sizes and the consequences—lost jobs, lost investments, and lost rural economic renewal.”

Continued Illicit Market

Smitherman and C3, along with representatives from the industry, will attend a series

Canadian cannabis leaders will gather in Ottawa to call on immediate action from government to address a “crisis” threatening the health of the industry.
Courtesy of Tantalus Labs

of meetings with government officials in the nation’s capital this week as part of its ‘Grass on the Hill’ initiative in efforts to engage decision-makers concerning the very real challenges faced by the sector and to request immediate relief in order to address them.

“Four years since legalization in Canada, the cannabis industry is at a crossroads and is calling on the federal government to enact changes that will enable it to compete with the unbridled, untaxed, and unregulated illicit market,” says Smitherman.

Negative Ripple Effect

He goes on to explain that the issue of the excessive excise tax helps to sustain the existence of the illegal cannabis market by way of the cumulative impact of effects that ripple through the entire industry, impeding progress for all.

“The cannabis industry in Canada is an industry that’s contributed more than $45 billion in gross domestic product and supported at least 150,000 jobs which has included a lot of rural economic development,” he says. “We’re super-proud of the work that many licence holders have done to offer the Canadian cannabis consumer an array of products. However, there are some obvious product format limitations, like the 10-milligram limit on edibles, that make it extremely difficult for producers or retailers to win in that particular category against the black market. But when we come out of the box with an extremely high tax, mark-ups at the provincial distribution level, and a regulatory burden that everyone knows is pretty intense, how is the industry supposed to compete with those operating in the illicit market that aren’t faced with any of those barriers?”

Focus on Eliminating Illegal Market

Smitherman adds that when viewed holistically, the current and future success of the industry is very much dependent on government’s willingness to take action. And, he says, it also presents its officials with the opportunity to refocus on the objective of the Cannabis Act, tweaking and adjusting where necessary.

“The public health objective of legalization, which is to offer Canadian consumers safe products that have been tested and to get business out of the hands of criminal elements, is at risk,” he notes. “It’s clear that it’s a priority that needs to be put to more urgent attention because our capacity to eliminate the illegal market in a circumstance where we’re up against it from a fees, taxes, and regulatory burden perspective is pretty much impossible.”

Action Required

In order to properly and effectively address this issue and others, the industry is requesting that the Government of Canada work with its provincial counterparts to restore the cannabis excise tax to its original premise of 10%. In addition, Health Canada is being asked to immediately suspend collection of the Annual Regulatory Fee (2.3% of topline revenues), pending advice from the Statutory Review of the Cannabis Act announced in the federal government’s Budget 2022.

Image courtesy of C3.

Tags: A B Laboratories (1), Canadian cannabis industry (18), Cannabis Council of Canada (21), cannabis excise tax (1), cannabis regulation (5), Dan Sutton (2), George Smitherman (19), Government of Canada (3), Mark Ripa (1), Tantalus Labs (2)