At a press conference last Monday, October 17th, in Ottawa, members of the Cannabis Council of Canada – chaired by George Smitherman, former Ontario health minister – outlined the problems facing producers and processors in the legal cannabis market.
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‘Canada’s legal cannabis market falters’
“It’s not an overstatement to say, unfortunately, that all businesses of all sizes in the cannabis production and processing industry are systematically short of income today,” stated Dan Sutton, the CEO of BC’s Tantalus Labs. “This is an industry that cannot pay its own bills and cannot pull its strings.”
According to Smitherman, there are two main problems in Canada’s legal marijuana industry. First, an excise tax rate that does not match the reality of cannabis prices in the “real world,” and second, an unregulated illegal cannabis market “that is largely free of enforcement.
This week in Ottawa, members of the Cannabis Council of Canada will pitch enlightening measures to their local elected representatives and to the relevant ministries, with the goal of ensuring that cannabis producers and processors can keep their heads above water.
60% of cannabis businesses won’t last another year
Dan Sutton of BC’s Tantalus Labs is also the founder of Stand for Craft, an organization representing 40 small and medium-sized, independent cannabis businesses in Canada. He stated that a survey in March of this year found that 60% (!) of these businesses believe they can’t last another 12 months. “This is nothing less than a distress call from the small business community in Canadian cannabis,” he said.
Health Canada is the government organization in charge of regulation. Of course, they are not blind to criticism there and are also willing to review the status of the Cannabis Act, but that could just take another 18 months. Too long, according to Smitherman, who therefore calls on the state to speed up this process and complete the review as soon as possible.
Actual selling price was nowhere near what was expected
Meanwhile, he said Ottawa is placing a moratorium on the 2.3% excise tax imposed by Health Canada to pay for the cost of regulating the cannabis industry. Currently, there is also a sales tax of $1 per gram or 10% of the retail price on dried cannabis, whichever rate is higher.
But that idea is based on an estimated sales price of $10 per gram, Smitherman said. And the current price of a gram of legal marijuana in Canada is about $4, according to the Canada Cannabis Spot index. That means producers are paying about 25% of their sales in excise tax/tax instead of that 10%.
“The sad thing is that now that companies have found their way into this industry and are doing everything correctly, they are in a position – I speak for my own company as well – that they are ready to throw in the towel,” says Mark Ripa of AB Laboratories. “We can’t make a profit or even have a livelihood with the current taxes.”
Changing excise and tax rates, however, is no easy matter for Health Canada. Partly because revenue is split between the federal government and provincial governments, with the latter getting 75 percent.
‘Government needs to fight black market much more’
While Smitherman recognizes that legal weed generates a lot of money for governments, he insists the original (public health) goal of legalization in Canada is to reduce the black market. In any case, legal producers believe the state should do more work to combat the illegal cannabis market.
“The illegal cannabis trade has flourished in the last few years,” he said. “This is a competitor that has no costs with respect to lab tests or quality guarantees. It can deliver within 20 minutes to any town and village across the country.”
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