Industry experts say a new industry working group with the federal government may be the next step in combatting the illicit cannabis market.
In its 2022 budget, Ottawa said it is creating a cannabis strategy table to support a continuing dialogue with businesses and stakeholders in the cannabis sector.
“We feel that the creation of this table puts us on equal footing with other sectors,” said Omar Khan, senior vice-president of corporate and public affairs at cannabis retailer High Tide Inc.
Mr. Khan said this is just the first step in developing a long-term growth strategy for the industry. The strategy table will be run by the Department of Industry, Science and Economic Development. The federal ministry already runs strategy tables in a number of industries, including manufacturing, clean technology, agri-food and tourism.
“It says to me that the folks in Ottawa are finally realizing that the cannabis industry, for all its ups and downs, has become a key economic driver,” said Mr. Khan.
Canada’s legal cannabis sector has created 50,000 jobs, contributed $15-billion to government revenue and $45-billion to Canada’s gross domestic profit during the past three years, according to the Cannabis Council of Canada, the national representative of licensed producers and processors of cannabis.
Yet recent estimates have attributed almost half of all cannabis sales in Canada to the illicit market. Some say reducing this proportion should be the priority.
“Without a doubt, I think the first theme that we’ll want to raise with the federal government is what their plan is on improving the situation so that we can compete effectively with the illicit market,” said Rick Savone, senior vice-president of government relations at cannabis producer Aurora Cannabis Inc.
Industry experts have long argued that high taxes and tight restrictions on potency are keeping legal cannabis too expensive and too weak to bring customers of the illicit market to the regulated side.
“The overwhelming regulations that the legal market faces makes it impossible for us to compete with the illicit market,” Mr. Savone said. “While that market continues to exist, Canadian companies are going to struggle.”Additional measures proposed in the budget include streamlining the cannabis excise system, which determines how and when taxes are paid after the product is manufactured, but before going to retailers.
Currently, as laid out by the Excise Act of 2001, the manufacturer or packaging company that completes the packaging process is responsible for applying an excise stamp, and must be the same entity that pays the tax.
According to George Smitherman, president of the Cannabis Council, the system was created when the cannabis industry was expected to remain vertically integrated, owning all the means of manufacturing and producing its own products and therefore completing the product itself.
However, in recent years cannabis companies have started working with outside firms to manufacture their products and packaging. This creates a problem, as that outside firm would then be responsible for applying the stamp and paying the duty in place of the producer.
To get around this, some producers found a workaround, taking back their products when they are nearly finished and performing some nominal final step – like applying a label – in order to “complete the packaging process” themselves. But these strategies increase cost and time to market.
The changes in the budget propose amendments to the Excise Act to make it easier for producers to work with outside companies, streamlining the requirements, tethering packaging with stamp placement and tax payment.
According to the council, these changes will help make the cannabis supply chain more efficient, eliminating the unnecessary movement of cannabis solely for excise compliance.
“These changes will lighten that load a little bit. It’ll make a difference to the bottom line. It just makes the sector a little bit more efficient,” added Aurora’s Mr. Savone.
Industry players said other important issues were not touched on in this budget. One is the promised Cannabis Act Review, a federal-level survey of industry regulation that was supposed to commence last fall. It was pushed back by the election and the Omicron variant in the COVID-19 pandemic, and the government has yet to announce a start date.
Industry leaders hope this review will reconsider some of the taxes currently levied against producers and consumers, such as the tax on medical cannabis. “Medical cannabis is the only medication in Canada that is burdened by excise taxes and sales taxes. And at some point, they have to correct that. We’re eager to see that happen,” Mr. Savone said.