Cannabis retailers relieved by end of province’s social responsibility fee
Every year, come June 30, regardless of how well the store had been doing throughout the year, AAAAA Supercraft Cannabis in Ste. Anne, Man., would invariably sink into the red.
That’s when a year’s worth of the province’s six per cent social responsibility fee (SRF) came due.
But the province announced on Thursday that it was ending the fee, retroactive to Jan., 1, 2022.
“This certainly moves the needle in the right direction for an industry that is struggling,” said John Arbuthnot, CEO of Delta 9 Cannabis.
“We are thrilled, ecstatic,” said Todd Friesen, who manages the Ste. Anne store for his brother, Sean Stewart.
Friesen and 17 of his peers petitioned the province in committee hearings in May of this year on the bill that had originally contemplated a Jan. 1 2023 end to the fee.
“We all felt that the need for the SRF had run its course,” Friesen said. “Plus they had not done a reassessment what the actual social cost was and upon further review they found there actually was not much of a social cost.”
The announcement produced a collective sigh of relief from the more than 150 stores in the province, many of whom struggle to make a profit.
“This certainly moves the needle in the right direction for an industry that is struggling,” said John Arbuthnot, CEO of Delta 9 Cannabis.
Delta 9 is the only licensed cannabis producer in the province and the vertically integrated operation also controls about 20 per cent of the retail market with 16 stores in Manitoba.
It would have had to write a cheque to the province for about $2 million last week if the SRF had not been repealed.
Even for a company of Delta 9’s size, which generated $63 million in revenue last year, the end of that fee is material events for the company.
“It is going to allow us to better compete with the black market and allow us to reinvest in other parts of the operation,” he said. “I know for a number of retailers in Manitoba this was really not just desired, it was necessary for them to continue.”
Ariel Glinter, head of business development and regulatory compliance for The Joint, a Winnipeg retailer with 10 locations in the province and another seven in Saskatchewan, said, “We sincerely appreciate the government’s steps to create a financially healthier cannabis industry for all stakeholders. These steps allow us to continue to support the government’s objectives of legalization including the elimination of the illicit cannabis market.”
The province’s decision to spike the fee is part of the process of figuring out the early stage dynamics in the evolution of a brand new industry.
Whereas the tax structure contemplated on legalization in 2018 was for an industry that would be highly profitable, that has not turned out to be the case.
Stock prices for the publicly traded cannabis companies — Delta 9 is the only publicly traded company based in Manitoba — which started out strong, have all slumped badly, reminiscent of commodity price cycles that periodically go into the tank.
The province has said the six per cent social responsibility fee, announced in 2018 as a regulatory fee to be paid by all provincially licensed cannabis retailers, was a means for retailers to contribute to the social costs associated with cannabis legalization.
The province has said retailers will continue to support social responsibility efforts through that existing wholesale price markup of nine per cent collected by Manitoba Liquor and Lotteries.
Friesen and Arbuthnot were both complimentary of the province for listening to the issues that the retailers were telling them.
“Credit where credit is due,” Arbuthnot said. “In the past several years I have not seen government move as quickly as they did on this. They moved at the speed of business, not the pace of government which is very encouraging.”
Finance Minister Cliff Cullen said, “Our government is committed to listening to small businesses and they have told us they would like to retain more of their earnings to reinvest in vital capital and labour costs. The market in Manitoba has matured to a point where we are able to balance the sector’s social responsibility with the sector’s competitiveness.”
It is anticipated that it’s not just short-term relief but the decision will have long-term implications for the industry.
For instance, Friesen said it’s likely he’ll be able to hire more staff for his small-town store.
And whereas estimates are that the legal cannabis sales has capture more than 50 per cent of the black market business, the new breathing room might allow retailers to gain an even greater share of that market.
