While cannabis legalization was hailed as a progressive step forward in Canada, there are elements of the industry in need of reform. From a lack of research post-legalization, which has been highlighted as a “big disappointment,” to high regulatory fees are impeding profitability in the Canadian cannabis industry. Calls for policy reforms within the industry are now intensifying.
Amid the smoke and haze of cannabis legalization in Canada, a series of unresolved issues have emerged, stagnating an industry that was initially a progressive step forward.
From a lack of scientific research post-legalization to an industry burdened by high taxes, the Canadian cannabis industry is calling attention to critical areas that desperately need reform.
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Lack of Research Benefits Following Cannabis Legalization in Canada
According to the Toronto-based newspaper The Globe and Mail, the former Canadian Minister of Health stated that the lack of research following the legalization of recreational cannabis in 2018 was a “big disappointment.”
“The major disappointment emerging from the legalization project is that governments and researchers did not mobilize as we had hoped after legalization to carry out much of this research,” said Anne McLellan, who was part of the task force responsible for laying the groundwork for legalization.
The Need for More Information
“There are a lot of things we do not know and will need to know,” she added. McLellan hoped that the government would encourage actors in the private sector to conduct research on the effects of cannabis consumption, which had been largely restricted during the prohibition era.
According to the former chair of the task force that laid the groundwork for recreational cannabis legalization in the country, the Canadian federal government could face legal consequences if it does not facilitate research on potential health problems encountered by cannabis smokers.
The last study on cannabis sales and consumption was published by Health Canada in 2013. McLellan stated that the government could “potentially” face a class-action lawsuit.
Time to Rectify the Situation
Despite this, she clarified that such a lawsuit could still take place in several years, giving the government ample time to rectify the situation.
High Taxes Impeding the Canadian Cannabis Industry, According to a Health Canada Report
A new report from Health Canada reveals that the high fees imposed on Canadian cannabis companies are preventing the industry from making profits.
The report, titled “2021-2022 Review of the Cannabis Cost Recovery Framework,” aims to inform about the progress made in achieving the main strategic objectives of cannabis legalization in Canada to support “a diversified and national cannabis industry.”
The Structure of Regulatory Fees
Under the current regulation, cannabis businesses are subject to fees designed to help Health Canada recover the costs related to regulation. These fees include application review fees, security clearance fees, and import and export permit fees, as well as an annual regulatory fee.
The report shows that respondents have reported that these fees contribute to “difficulties in achieving profitability and positive cash flow, which are already under significant pressure.”
Impact on Different Types of License Holders
In total, 37.5% of micro-license holders (maximum 200 square meters of growing space), compared to 20.5% of standard license holders, stated that the fees constituted more than 10% of their operating costs.
The report specifies that, “Fees collected under the order can have a greater impact on smaller operations than on their larger competitors, due to economies of scale.”
“It is also important to note that license holders surveyed in the categories of micro-license and standard license represent license holders at various stages of development, from startups with no revenue to large-scale license holders operating across the Canadian market.”
Revenue from Regulatory Fees
Furthermore, the report revealed that annual regulatory fees account for 90.5% of all cannabis-related fee revenue collected by Health Canada between 2018 and 2019 and between 2021 and 2022.
In this regard, 10 micro-license holders and 12 standard license holders stated that the minimum annual regulatory fees are prohibitive “especially for license holders who have no sales revenue.”
Calls for Tax Reform
Many small cannabis businesses are currently struggling to survive, if they haven’t already shut down. Small cannabis producers are thus pushing for a reform of the excise tax in Canada that would allow them to make a minimum profit.
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