Dear Minister,
I am writing to you as Chair of the Cannabis Cultivators of British Columbia (CCBC) to draw your attention to the challenges that our sector is facing ahead of the anticipated publication of the Cannabis Act’s legislative review and next month’s Budget 2024.
To date legalization has achieved important gains, with the cannabis sector contributing over $43 billion to Canada’s GDP in its first three years, during which time the industry produced substantial fiscal returns for the country, generating close to $2 billion annually for federal and provincial governments from sales[1].
Despite this, the underlying economics for regulated producers of cannabis are untenable. A recent survey of more than 120 licensed producers completed by the Cannabis Council of Canada found fewer than 20% of producers are profitable after five years. All producers surveyed reported the largest challenge to their success was paying up to 35% of their gross sales in excise tax, as well as being subject to a unique regulatory fee[2].
While preventing many producers from realizing profits and maintaining financial viability, the current excise duty structure is also contributing to a price disparity between licensed cannabis and an illicit market which continues to thrive. Earlier this year, Deloitte observed lower illicit market prices across all product categories, with a 20% differential between flower products and their legal counterparts, keeping many customers away from licensed retailers[3].
We recently welcomed the establishment of the Cannabis Industry Forum, allowing ISED to engage more meaningfully with industry, but we need the government to go further and faster with reforms. Minister, ahead of Budget 2024 we encourage you to take the following steps:
- Adjust the current excise duty formula for cannabis to establish a fixed rate of 10% of sales.
- Remove the costly operational burdens associated with having different provincial excise tax stamps by introducing a single ‘National Stamp’ across the country.
- Provide relief from the 2.3% regulatory fee charged by Health Canada, representing around $75 million off the industry’s bottom line, to ease cash flow issues.
The long-term sustainability of legal cannabis is at severe risk, presenting a threat to the primary goal of the Cannabis Act – the establishment of a safe, legal industry that keeps profits out the hands of the illicit market.
Without changes to the excise tax, as the Finance Standing Committee of the House of Commons itself recommended just recently, an increasing number of B.C’s licensed producers are expected to exit the regulated cannabis sector in the coming years. A declining legal market across the rest of Canada would see governments at all levels missing out on millions of dollars in tax revenue, as more and more cannabis producers ultimately fail.
The Province of British Columbia, as expressed by Minister Farnworth’s public statements and correspondence to your office, has shown great leadership and support on these issues. With further support being demonstrated by the Greater Vancouver Board of Trade.
Please don’t miss the call to act now at this crucial time for our sector. A viable industry is needed to maintain a safe and legal supply of cannabis products and combat the illicit market, and this viability starts with producers.
[1] Deloitte – An industry makes its mark: The economic and social impact of Canada’s cannabis sector (2021)
[2] Cannabis Council of Canada – Excise Tax survey results (2023)
[3] Deloitte – Clearing the smoke: Insights into Canada’s illicit cannabis market. (2024)