Cannabis producers say ‘crushing’ taxes, fees have made legal industry ‘uneconomic’

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OTTAWA — Onerous taxes and regulatory fees have made Canada’s legal cannabis sector unsustainable, industry representatives said Wednesday as they urged the Liberal government to make changes in the upcoming federal budget.

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“Most of our most of our top line goes right to the government and it’s making it uneconomic for businesses to continue,” said Margaret Brodie, acting CEO of Rubicon Organics, at a press conference on Parliament Hill organized by the Cannabis Council of Canada, which represents licensed producers and processors.

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“The government has made cannabis a businesses that is very difficult to be in. We don’t stand a chance, but we have the opportunity to make a course correction,” said Mandesh Dosanjh, CEO of Pure Sun Farms.

A week ago Canopy Growth announced it would lay off 800 workers and close its headquarters in Smiths Falls, Ont.

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George Smitherman, president of the Cannabis Council and former deputy premier of Ontario, pointed to the Canopy Growth cuts and the layoffs announced Tuesday by SNDL of 85 people in Olds, Alta., as the “consequences of an administration of fees and taxes, which makes our industry largely unsustainable.”

The producers want the Liberal government to eliminate a 2.3 per cent regulatory fee, which Smitherman pointed out alcohol and tobacco industries don’t have to pay. Dosanjh said his company paid an effective excise tax rate of 37 per cent last year. “We are an industry consistently overlooked, a sector subject to crushing taxes, and enormous regulatory burdens,” he said.

Smitherman said the federal budget is a chance “to send a message about its commitment to the sustainability of our sector.” The federal government would need to work with provinces and territories to reform the excise tax, but could eliminate the regulatory fee on its own, he said.

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In the election campaign that saw the Liberal government first elected in 2015, then-Liberal candidate Justin Trudeau said legalization help would “remove the criminal element” linked to marijuana. The Liberal Party pitch was that legalization would make it more difficult for kids to get access to marijuana, while keeping “millions of dollars from going into the pockets of criminal organizations and street gangs.”

But four years after cannabis was legalized, the illegal market is still thriving in Canada. The current rules make it very difficult for legacy producers to move into the legal market, the National Post reported in October. Smitherman told reporters that at this point, “we’ve only captured about half of all of the cannabis marketplace in Canada in the legal realm.”

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Dosanjh said even producers who can afford to pay the taxes and fees then have nothing to invest back into the business. “Those operating conditions favour the proliferation of illegal operators who have no reason to come over to the regulated market.”

Brodie acknowledged “there was oversupply and overbuilding in the industry, but that was on the basis that more consumers would move into the legal channels.”

She said there has been “no crackdown or impact on the illegal sector and the black market.”

“It’s very frustrating when you can go and type in ‘weed near me’ and have it delivered very quickly for a quarter or half of the price.”