Canadian cannabis industry over-taxed according to Health Canada report

A new report from Health Canada reveals that the high fees imposed on Canadian cannabis companies prevent the industry from making a profit.

The report, titled «2021–2022 Review of the Cannabis Cost Recovery Framework,» aims to inform progress made in the implementation the key strategic objectives of cannabis legalization in Canada to support «a diversified, national cannabis industry.».

Under current regulations, cannabis businesses are subject to fees, which are imposed to help Health Canada recover the costs associated with regulation. These fees include costs for reviewing applications, security clearances, and import and export permits, as well as an annual regulatory fee.

The report shows that respondents stated that these costs contribute to «difficulties in achieving profitability and a positive cash flow, which are already under significant pressure.».

In total, 37.5% of the micro-license holders (up to 200 m² of cultivation space), compared with 20.5% of standard license holders, reported that fees accounted for more than 10% of their operating costs.

The report states that «The fees collected under the order may have a greater impact on small farms than on their larger competitors, due to economies of scale.»

«It is also important to note that the licensees surveyed in the micro-license and standard-license categories represent licensees at various stages of development, ranging from start-ups with no revenue to large-scale licensees operating throughout the Canadian market.»

In addition, the report found that annual regulatory fees accounted for 90.5% of all revenue from cannabis fees 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.».

Many small cannabis businesses are currently struggling to survive—if they haven’t already closed. Small cannabis producers are thus pushing for reform the excise tax in Canada that would allow them to generate a minimum amount of profit.