Canada: Cannabis companies urge delay for new tax

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With Ontario delaying the opening of storefront pot shops until the spring, cannabis producers are pushing back against a proposed federal levy on their sales.

Health Canada wants to slap large-scale marijuana producers with a 2.3 per cent fee on their gross revenue to cover the federal government’s cost of regulating the nascent industry – a job pegged at $82 million over the next fiscal year.

But an industry umbrella group is urging the government to suspend the levy until after April 1, when bricks-and-mortar dispensaries will open in Ontario, giving cannabis companies a better idea of what their sales numbers will look like.

“We want to pay our fair share, we want to be part of the solution. Our only issue with this . . . is based around the timing of it,” said Allan Rewak of the Cannabis Council of Canada, an industry group representing some of the country’s largest marijuana producers including Canopy, Tilray and Aurora.

“This is a new industry and it’s one that’s ever-changing. We just saw that in Ontario,” Rewak added.

Recreational cannabis becomes legal on Oct. 17, but in Ontario the drug will be sold only through a government-run online service for the first six months following the Progressive Conservative government’s shift to let private companies own and operate dispensaries.

The proposed annual fee, which applies to companies growing, processing and selling cannabis products, may increase in the future as the recreational cannabis industry stabilizes and grows, says Health Canada, noting a discounted fee will apply to companies with gross revenue of less than $1 million.

Public consultations on the federal agency’s cost-recovery plan ran from June 12 to Aug. 13.

The head of a Strathroy-based marijuana producer highlighted the many costs growers already face to comply with the country’s strict guidelines for security, sanitation and quality control, saying Health Canada needs to “look at the big picture” before imposing the levy.

“We also have the excise taxes,” Natural MedCo chief executive Melinda Rombouts said of the $1-a-gram tax on cannabis that has already been put place and will go mostly to provinces.

“We have a lot of additional costs. It would be nice if that could all be considered before this (fee) passes.”

Rewak says the federal government should take a year before implementing the levy, noting it would give companies a chance to know their third- and fourth-quarter revenue, a move that would also give Health Canada an exact cost for regulating the industry.

“They may need more, they need less, then we can . . . build something that’s fair, transparent and something we call all get behind,” he said of the annual fee.

The 2.3 per cent levy won’t cripple the cannabis industry – consumer spending on legal marijuana will hit $12.9 billion globally this year, according to a recent report by Arcview Market Research – but it could hamper companies’ efforts to expand and create jobs across Canada, Rewak said.

“The regulatory fee won’t stop the growth of the cannabis industry, but it may limit the effect for us to impact positively in communities because it’s going to mean more money in the hands of the government, less investing in our communities,” he said.

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