The historic policy shift remains Trudeau’s most significant feat, but the onerous excise tax has marred the journey to sunny days
A few weeks after Canada’s fifth anniversary of cannabis legalization, industry executives gathered in the Crystal Ballroom of the Omni King Edward Hotel in downtown Toronto.
They had travelled from across the country to attend the two-day, invite-only event, with tickets going for $1,800. Now in its third iteration, the room was humming a much different tune than it was in 2021, its inaugural year.
In 2023, just a few years removed from the pump-and-dump stock heights that saw some of the largest publicly traded companies’ valuations plummet by 99 per cent, the conversation is still centred around cash, but now it’s about how to find and preserve it.
“It’s very, very tough out there to raise capital right now,” said Darwin Fletcher, the event’s founder. “I think that’s one of the biggest challenges that people are facing.”
But it’s far from the only one. A half-decade into legalization — Prime Minister Justin Trudeau declared cannabis was legal as of Oct. 17, 2018 — the industry stands at an inflection point. On one hand, it has made substantial economic contributions — the sector’s GDP contributions are on par with the dairy industry — and it has carved out a global footprint, particularly in the growing medical cannabis export market.
On the other, it is grappling with financial strains, the need for clearer advocacy and education, and a regulatory framework that has been stuck in a state of inertia for years.
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One of the conversations happening on the 14th floor of the hotel is a topic that has implications that extend far beyond the walls of the room — the sector’s onerous excise tax.
The back-of-the-napkin calculation is out of line with the realities of the industry, critics say, impacting not only the large corporate behemoths but also the numerous mid and small-scale businesses that make up the majority of the sector.
Although other long-standing industry concerns, like the 10mg THC edible limit and regulatory fees, are also regularly raised, opposition to the excise tax seems to be a rare unifying factor in an otherwise wildly complex and varied industry.
On average, the excise tax generates close to $1.5 billion annually for the federal, provincial and municipal governments.
“Everybody can say the excise is too high because it unequivocally is,” Barry Katzman, CEO of Peak Processing, a manufacturer of cannabis-infused beverages, told the room during a panel discussion. “The excise model was formulated based on $10 a gram and they haven’t altered it yet,” he added, as those in attendance nodded along.
Everybody can say the excise is too high because it unequivocally is
Barry Katzman
Under the excise structure, licensed producers are obligated to pay the tax when they package cannabis and related products for sale to provincially-approved distributors and retailers.
The tax was crafted by policymakers who erroneously forecasted that cannabis prices would stay around $10 a gram. In some instances, prices have compressed to little more than a dollar a gram, leaving razor-thin margins for producers, who say they are losing about 30 per cent of top-line revenue to excise. The fixed excise tax of $1 per gram of dried flower does not scale up and down with the selling price.
In October, the Cannabis Council of Canada (C3) published survey data from 122 licensed producers across Canada. It revealed that respondents paid 20 to 35 per cent of their 2022 gross sales in excise taxes, with over 70 per cent noting an increase in this rate from 2021 to 2022.
“This is unsustainable, not to mention illogical as it’s based on a price-per-gram formula, and prices have been steadily compressing,” they said.
The cannabis industry is also subject to a unique regulatory fee structure, which is not currently mirrored in the tobacco and alcohol sectors.
According to figures from C3, Health Canada collected about $75.7 million from its 2.3 per cent regulatory fee from cannabis companies in the fiscal year 2020-2021, and collected exactly zero in regulatory fees from tobacco or alcohol ventures across the same period.
But it’s not just the large-scale producers who are reeling from the excise tax and other regulatory missteps. Consumers pay a price, too.
Earlier this year, a report from Ernst & Young found that nearly 50 per cent of the price of a basket of legal cannabis products is due to government taxes and provincial markups. According to that report, the price of legal cannabis in Ontario is dictated by the original cost from the producer (27.1 per cent), the markup from the provincial distributor (18.8 per cent), the retail markup (26.3 per cent) and government taxes (27.8 per cent).
Everyone’s waking up and realizing that the government can’t just keep milking it
Owen Allerton, CEO of Highland Cannabis in Kitchener, Ont., a retail store, is involved in a new initiative from retailers aimed at educating consumers on the tax structure by placing stickers at the checkout with a breakdown of the prices, illustrating how much tax is included. He says it’s akin to the stickers found on gas pumps.
A former director at BlackBerry, Allerton opened Highland in 2021. He entered the regulated sector with an expectation that it would “operate like a legal industry.”
“Everyone’s waking up and realizing that the government can’t just keep milking it,” he said.
“There’s a significant portion of the population that cares about this industry and about these products. And for the government to be completely turning a blind eye to it is a huge misstep, because I do think this is going to blow up in their face as the industry suffers. And as we all become aware of how it works, and start communicating and sharing this with our customers.”
Allerton said if the government is hesitant to make large-scale regulatory changes, it should at least introduce a tier for micro and craft growers that offers more relief and encourages small and independent businesses.
One of the small and independent businesses recently impacted by Canada’s regulatory framework is Fritz’s Cannabis Company, which operated as a grey market cannabis brand before joining the regulated industry in 2021. The brand was beloved within the cannabis community for its fierce independence and small-batch, handmade edibles.
The brand could recently be seen in ads from the Ontario Cannabis Store, with a focus on its entrepreneurship, a campaign that the husband and wife behind the brand say was at odds with the realities of working within the sector.
“We essentially folded last month,” co-founder Ari Cohen told National Post in October. “It was kind of a long time coming. So much was stacked against us, based on the regulations, based on (Ontario Cannabis Store) royalties, and the restrictions on what we could market and what we couldn’t. We just got pushed out of the market.”
Despite four years of being in the black — the OCS banked $459 million in the last fiscal year — the entity has not paid any dividends to the Ontario government. Of that $459 million, $310 million was excise tax and $148 million was sales tax.
Further complicating matters, the OCS markup is now 25 per cent and this markup is applied on top of the price of the product, which already includes the excise tax. Because the markup is a percentage added to the total cost, it effectively increases the impact of the excise tax.
Tabitha Fritz, the other founder of the brand, was featured on the OCS’s website in a roundup of small businesses that had made the jump from legacy to legal, but she said the support for their business stopped there.
“Within a week they told us they’re not picking up any of our products for the website. They literally said you’re not big enough for us to support you,” she said.
For its part, the government has repeatedly stated the industry is not about generating revenue, but about fixing a failed policy and protecting public health. What they missed, in Fritz’s opinion, is that those aspects are inextricably linked.
“It’s really just basic economics,” she said. “Until Health Canada addresses issues like edibles dosing and making sure budtenders are safe by not having coverings on windows, basic things like this, we’re going to continue to have two markets for weed. We’re going to have a regulated market and we’re going to have an underground market where consumers continue to access products that they want at prices that make sense. Until these things are addressed, you’re not actually addressing public health and safety, and you’re not meeting the claims of the Cannabis Act like you said you were trying to.”
In 2017, the Department of Finance published a backgrounder on the federal, provincial and territorial agreement on the cannabis taxation scheme.
Its first general principle notes that “taxes on cannabis will be kept low to support the objectives of its legalization: keeping it out of the hands of youth, and profits out of the hands of criminals.”
It went on to explain that taxes collected would largely be allocated to provincial and territorial governments, while 25 per cent would be directed to the federal government. It also noted that the federal portion of cannabis excise tax revenue would be capped at $100 million annually.
This year, though, the federal government’s share of excise taxes and estimated sales tax from cannabis sales are expected to exceed $455 million.
Beyond those coffers being stuffed far beyond what was initially planned, there’s also frustration within the industry as it’s not clear where that money, which should have tangible benefits for Canadians, is ending up.
David Brown, a cannabis industry policy analyst, was initially skeptical regarding corporate grievances about the excise tax but he also sees it playing out with the smaller producers. After accounting for the government’s take, some of these mid- and small-scale businesses barely manage to cover payroll and expenses, leaving no room for profit.
“A lot of small businesses haven’t been able to cut through that noise. And policymakers aren’t going to put their neck out on something where the public perception is entirely different. So, in my opinion, the industry needs to show that it’s a bunch of small businesses, they need to be able to tell the story of the struggling small craft farmer, the struggling independent retailer, as opposed to a struggling publicly traded company with all kinds of handsomely compensated C-suite executives.”
He added that the excise tax being built around the $10 a gram assumption is one of the “biggest errors in the legislation.”
He also said that over-regulation was initially understandable as Canada was the first G7 country to legalize the plant but, five years later, any anticipated calamities haven’t come to pass and it’s time to adjust.
Canada’s experience with cannabis regulation is becoming part of a larger global story. To escape the excise, Canadian companies are increasingly turning to the global export market, where Germany, Australia and Israel, among other countries, are taking on more Canadian products.
Germany, in particular, is at a pivotal moment, as its Cannabis Act is currently progressing through the German Parliament.
In January, “Pillar 1” of Germany’s cannabis strategy is anticipated to become law. The new legislation will remove cannabis from the Narcotics Act, allow for possession of up to 25 grams for adults, enable home cultivation of up to three plants and foster the establishment of not-for-profit cannabis cultivation clubs.
I think that Germany, and all of Europe, is the next big thing when it comes to cannabis
Niklas Kouparanis, co-founder of a German cannabis company
Niklas Kouparanis, CEO and co-founder of Bloomwell Group, one of Germany’s largest private cannabis companies, said the country is taking a conservative approach after watching Canada’s foray into legalization.
He said the focus on large-scale production of cannabis that far exceeded market demand, along with faulty distribution channels, are partly to blame for the more than 1.5 billion grams in unsold cannabis that’s accumulated across the Canadian sector.
“If the Canadian companies, or at least what is left of them, do not position themselves and form reliable long-term partnerships in Germany, then there will be no future for them. I think that Germany, and all of Europe, is the next big thing when it comes to cannabis.”
Back in the Crystal Ballroom in downtown Toronto, industry executives are taking a long view of the sector from the 14th floor.
Despite the frustrations and complaints, there’s palpable pride in the room as the conversation focuses on the strides Canada has made as the first industry of its kind in the world.
There have been missteps, many of them, but there’s a call for collective unity and a belief that, with time and regulatory evolution, a less volatile and more sustainable picture will take shape.
Fletcher reflected on the current state of the industry optimistically, crediting the people in the room around him. “The people that are still here in this room, they’re in for the long term,” he said. “They’re much more passionate about the industry and about the actual products versus just chasing a quick buck. I think, in 2021, we had a number of bankers, consultants and individuals who were just chasing a hot industry.”
Despite existing for just five years, the obituary of the industry has been written repeatedly as the focus has largely remained on the capital and equity markets.
Fletcher sees a different story, one that still has him brimming with optimism.
“It takes a long time to develop an industry, I think people forget that. And this is not only a new industry, it’s a very novel industry and it’s still growing. Just from a human factor, the people have changed a lot. Now it’s focused on operational excellence. How do we save money? How do we get lean? And then, also, how do we make money?”
VANCOUVER – A re-elected NDP government would scrap British Columbia’s long-standing carbon tax and shift the burden to “big polluters” if the federal government dropped its requirement for the law, Premier David Eby said Thursday.
At a campaign event in Vancouver, Eby said his government would end the provincial carbon tax on consumers if the federal “legal backstop” requiring the province to keep the tax in place is removed.
“Two things will happen. One is we’ll remove the carbon tax for everyday British Columbians, for the farmers, for the truckers, for the average British Columbian,” Eby said Thursday.
“The second thing is we believe that climate change is a real and present threat, unlike (B.C. Conservative Leader) John Rustad who thinks it’s a hoax. “And so we will continue to ensure … that the big polluters are paying their fair share.”
He said the federal Liberal government’s approach to the carbon tax has “badly damaged” what was a political consensus on the issue in the province, which goes to the polls on Oct. 19.
Federal Conservative Leader Pierre Poilievre has meanwhile vowed to end the carbon tax if elected.
British Columbia’s provincial carbon tax has been in place since 2008, when it became the first jurisdiction in North America to put a price on carbon emissions, but Eby said the carbon tax issue has since been “politicized,” something he called “incredibly unfortunate.”
“It’s had an impact right across the country in terms of peoples’ support for this kind of approach,” he said.
“Combine that with rising interest rates, high global inflation, and we need to make sure that we’re supporting British Columbians however we can right now.”
He said the federal government’s “unsustainable hikes” on how much people have to pay, coupled with differential treatment given to certain products and provinces had squeezed consumers at a time they need “support.”
“I believed and still believe that a price on carbon is and can be an effective tool, which is why I think that big polluters need to pay in this province,” he said.
Eby was flanked by Manitoba NDP Premier Wab Kinew at the campaign event.
Kinew said climate change needed action but the politicization of the issue had alienated blue-collar workers and a “generation of Canadians,” something he said the NDP couldn’t afford.
He said there had to be “flexibility” in the face of the affordability crisis.
“Of course, we’re going to be doing all those things to reduce emissions and to incentivize a low carbon economy, but we’ve got to keep a critical mass of Canadians on side with solving the climate crisis,” Kinew said.
B.C. Conservative leader John Rustad said Eby’s “reversal” on the tax was a “desperate attempt to salvage his sinking political ship.”
“Eby has spent years championing this disastrous tax that punishes families and businesses. Now, faced with growing opposition, he’s pretending to care. It’s nothing more than a cynical ploy,” Rustad said in a written statement sent minutes after Eby’s comments.
BC Green Party Leader Sonia Furstenau, called Eby’s pledge a “carbon tax flip-flop.”
“It is obvious that the B.C. NDP is making up climate policy on the fly. He now says big emitters should pay for climate change — but his government is giving billions in subsidies to the fossil fuel industry to increase fracking,” she said in a written statement.
“B.C. deserves a clear, coherent plan for climate change and the clean economy, not confusing contradictions.”
This report by The Canadian Press was first published Sept. 12, 2024.
The Canadian Press. All rights reserved.
VICTORIA – The British Columbia government says it is taking steps to ensure tree fruit growers are compensated for past harvests after the closure of a co-operative that had served farmers for almost 90 years.
It says the Investment Agriculture Foundation of BC is “redirecting” about $4 million in provincial funding that will be used to ensure co-op members receive money they are owed.
The province says the foundation will pay growers in the coming weeks and then recoup the funds at the end of the court process involving the BC Tree Fruits Cooperative that filed for creditor protection last month.
In July, the co-op, which processed, stored, packaged and sold fruit for 230 member farms, announced it was shutting down after 88 years of operation.
It says it has more than $58 million in liabilities.
The agriculture ministry says it is has also provided $100,000 to the BC Fruit Growers Association that will go toward food-safety certification that was previously done by the co-op.
This report by The Canadian Press was first published Sept. 12, 2024.
The Canadian Press. All rights reserved.
VANCOUVER – Jesse Marsch issued Canada’s men’s soccer squad a challenge — get physical.
The edict came after the Canadians surprised many at this summer’s Copa America tournament, making it through to the semifinals. As his players departed for their professional clubs, the head coach wanted them thinking about continued growth.
“I challenged them to be more physically present in the matches that they played in,” Marsch said. “I’ve tried to encourage all the players to sprint more, to win more duels, to win more balls, to be more dynamic in matches.”
When Canada reconvened for a pair of friendlies last week, the coach saw some players had already heeded his call, including Vancouver Whitecaps product Ali Ahmed.
The 23-year-old midfielder started in both Canada’s 2-1 victory over the United States on Saturday and Tuesday’s 0-0 draw against Mexico.
“I’m really happy for him,” Marsch said. “I think he’s still young and still has a lot of room and potential to continue to grow.”
Playing under Marsch — who took over as head coach in May — has been a boon for the young athlete, currently in his second full season with Major League Soccer’s Whitecaps.
“Jesse has a very clear way of playing,” Ahmed said. “And I think the way we’ve been training and the way we’ve been growing as a group, it’s been helpful for me.”
The reward of getting minutes for a national team can spur a player’s growth, including Ahmed, said Whitecaps head coach Vanni Sartini.
“Of course that fuels him inside to say ‘Hey, I want to be a better player. I want to get to that stage,'” said Sartini.
Vancouver had six players — including Ahmed — away on international duty during its 0-0 draw against Dallas FC on Saturday. The absences are a good problem to have, Sartini said.
“Because we have players that are close to the national team, we have a lot of players that development is faster, better, bigger than it would have been if they hadn’t been called,” he said.
Born in Toronto, Ahmed came up through the Whitecaps’ academy system and played for Vancouver’s MLS Next Pro side before cementing his spot on the first team in 2023. He put up two goals and two assists across 22 regular-season games, and added another goal and another helper in 19 appearances this year.
Taking the next step will require the five-foot-11, 154-pound Ahmed to push himself physically, Marsch said.
“Tactically, he’s technically gifted,” the coach said. “I’ve told him he’s got to get in the gym more.
“There’s a lot of these little things where too many guys, they still look like kids and we need to help them look like men and play like men. And that’s what the high standards of the game are about.”
Marsch has quickly adjusted to recalibrating standards in his short time with Team Canada. Since taking over the squad in May, the coach said he’s learned the players are smarter and more capable than he originally thought, which forces the coach to constantly recalibrate his standards.
“That’s my job right now, to keep raising the level of the demands,” he said.
The way 40th-ranked Canada is viewed on the international stage is evolving, too.
“I think we’re changing the perception on the way we’re playing now,” he said. “I think beating the U.S. — it would have been nice to beat Mexico as well — the way we did, the way that we performed at Copa, I think teams are starting to look at us differently.
“Right now, I think we’re focused on ourselves. We’re definitely trying to be the best in CONCACAF and we have higher goals as well.”
This report by The Canadian Press was first published Sept. 12, 2024.
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