Skip to content
Join our Newsletter

Kirk LaPointe: Cannabis sector being taxed, restricted, regulated into insolvency

There was a time not so long ago that it was hard to muster any sympathy for cannabis retailers. I would argue – and probably with some of you, I would have to do so quite strenuously – that the time has come.
BC Cannabis Store

There was a time not so long ago that it was hard to muster any sympathy for cannabis retailers. I would argue – and probably with some of you, I would have to do so quite strenuously – that the time has come.

For several years, you will remember, many outlets were fronts for organized crime, most operators turned a blind eye to minors in their stores, and all but a few squatted without business licences in defiance. Some feigned status as outlets for “medicinal” users. The city administration shrugged with indifference, the police were restrained from shuttering the stores, and it was a gold rush of receiptless cash and laundered money.

Those shambles infused public cynicism into the process of creating a legitimized, legalized industry. Count me among those skeptics.

But that was then.

About five years ago, we announced as a country we were getting the Big Boy/Girl pants on and becoming one of the planet’s Grown-Ups in the room. Canada lurched toward legalization in late 2018. The provinces limped toward retail licensing months later. Communities steadily replaced the unsavoury retailers with a crew that could pass a background check. A nascent brigade of eager producers emerged, often nestled in big business, if often underwritten by rapacious investors seizing a quick win. Still, the signs pointed positively.

But that was then, too.

Today, it’s apparent that producers and retailers are paying the price for earlier sluggishness and failures of oversight by government and a collision of their objectives with their strategies. They are regulated, taxed and restricted beyond comprehension.

It recalls Ronald Reagan’s definition of the nine most frightening words in the English language: “I’m from the government, and I’m here to help.”

Governments are killing the goose before it ever lays the golden egg.

Where do we start?

Let’s go to the top-line revenue. The world’s largest excise tax (double anyone’s) skims about 30 per cent from the producers, which contributes to pricing that the black market dealer can easily beat. If one of the objectives was to crush the illicit market, we are most gingerly stepping on the grapes.

It’s a bit of a moot point, because the federal government isn’t collecting much if any in its excise exercise; producers are deferring their payments, with the Canada Revenue Agency’s temporary forbearance, so they can meet their payrolls. It’s anyone’s guess if they’ll ever remit their arrears. If the government called in the debts today, it would send a large number of licensed firms into insolvency.

So, the objective of a revenue stream has been more of a few rivulets of indirect tidings – income tax from thousands of employees, primarily – rather than the expected raging river.

And it’s protected the black market’s price advantage, rather in the way a marketing board for dairy protects the incumbents. Only in this case, it’s protecting the wrong producers.

Let’s go to the store experience, which is a page out of the 1970s liquor store: Shelves glassed and locked, products in the backroom that employees fetch, mandated opaque window to suggest what is on the other side is more menacing to health than, say, the liquor store of baby strollers and children in parents’ tow – or, for that matter, the fast-food outlet and its invitation to occlude the arteries.

It’s not quite Prohibition, more like a speakeasy grudgingly permitted with authorities on the take.

Retailers can’t promote to the general public much more than their locations. I could tell you about the prices and qualities of the products in this column, but it would be illegal for the retailer to tell you the same in an adjacent advertisement. Cannabis is treated like the latest form of the cigarette, not the new version of beer and spirits, which enjoy few marketing restrictions.

Their regulated packaging of small quantities, apart from an environmental waste, is rather like what we recently experienced with alcohol purchasing limits in the public service labour dispute. There are minimum prices of $1 per gram, considered reasonable when legalization launched but now clearly untenable. There are regulatory fees of 2.3 per cent from Health Canada and many provincial tariffs.

So, into our fifth year of legalized cannabis, nearly half the market remains an illegal supply at a seriously cheaper price point. There has been a convulsion of consolidation in the legal industry to preserve a financial runway for the larger players, but for the small- and medium-sized producers, it’s getting pretty dark pretty quickly.

An umbrella group for them has called for emergency excise relief, among other measures. “The data self-evidently demonstrates that initial assumptions of wholesale pricing were miscalculated at the outset of legalization, and intervention with urgent relief is the only hope to stabilize this crashing industry,” says the submission last month by the organization of SMEs, in association with the Cannabis Council of Canada and the Canadian Chamber of Commerce.

The nascent retail industry has done its part in keeping underage consumers from its stores, another of the governmental objectives in legalizing cannabis. I’d suggest you have an easier time drinking, driving and betting underage than you’d ever have buying cannabis.

The same preventive measures to restrict underage consumption of the product – or at least, rapt appreciation and excitement about the prospect of using it – can’t be said for the all-day, all-night shill for sports gambling sites (largely Ontario-based, but nationally broadcast) that have surfaced in recent months across broadcasting. Unlike the United Kingdom, which restricts sports betting from broadcasts that might be seen by young people, ours are hearing in-game gushing about bets on the outcomes and seeing commercials featuring The Great One and a stable of marquee athletes across the major leagues.

The incongruence here is unambiguous.

Governments chose to legalize long after the public had supported the idea, but got too greedy and miserly with the rollout and played into the hands of the criminals. An industry making an $11 billion GDP contribution is experiencing a serious growing pain. A course-correction is in order. •

Kirk LaPointe is publisher and editor-in-chief of BIV and vice-president, editorial, of Glacier Media.