Canada’s cannabis industry struggling amid high excise taxes, competition from illicit market: experts

On Thursday, Canopy Growth Corp., one among Canada’s largest hashish producers, introduced that it will be shedding 800 employees, impacting 35 per cent of its workforce, and shutting down its headquarters in Smiths Falls, Ont.

It’s the newest spherical of layoffs for an business that has proven indicators of struggling in latest months, four-and-a-half years after legalization. In the backdrop of all this, specialists say excessive excise taxes and stiff competitors from unlicensed sellers have made it tough for authorized growers to do business.

George Smitherman, president of the Cannabis Council of Canada (C3), says he needs to see Ottawa stage the enjoying area for authorized growers whereas ramping up enforcement actions towards the illicit market.

“If you’re willing to be regulated and put up your hand, fill out all the forms and pay all the fees, everybody’s got time attention and more fees and taxes for you. And just on the other side of the line, if you care not to do any of that, almost nobody cares,” Smitherman informed CTVNews.ca in a telephone interview on Thursday.

For instance, authorized sellers have to stick to strict TCH limits in the case of edibles, however Smitherman says they’re too stringent, which permits the illicit market to dominate the class.

“We have a amazing array of offerings there, but it doesn’t match up with where the cannabis consumer is in that category. So they’re all in the illicit market,” he stated.

It’s unclear precisely how a lot of the hashish market share is taken up by illicit sellers nationwide, however in line with final yr’s annual report from the Ontario Cannabis Store, illicit hashish made up 43 per cent of the market within the province. In addition, Health Canada’s 2022 Canadian Cannabis Survey discovered that 33 per cent of hashish customers nonetheless purchase from illicit sources, a minimum of often.

On an earnings name on Thursday, Canopy Growth CEO David Klein additionally positioned the blame for the corporate’s struggles on the illicit market.

“The competition with the illicit market, compounded by an overbuilt legal cannabis industry, has caused price compression across the board. We expect the sector challenges to remain for years to come. And as a result, the sustainability of this legal sector is in question,” Klein informed buyers.

Smitherman has additionally taken purpose on the federal authorities’s excise taxes on hashish. In 2017, previous to legalization, Ottawa had signalled that the taxes could be $1 a gram for a $10 a gram hashish product.

“You can see the proportion of this whole excise tax, and it’s way out of whack,” he stated. “Our preference would be to go back … 10 per cent excise on products across the board,”

Cannabis business skilled and Toronto Metropolitan University lecturer Brad Poulos agrees.

“This is not the time to be taxing cannabis into oblivion. Get greedy later. Don’t do it now,” he informed CTVNews.ca in a telephone interview on Thursday. “Let’s let the legal industry thrive before you start to tax it into oblivion.”

But whereas Poulos additionally needs to see reforms that ease the tax burden for authorized growers and make it simpler for them to compete towards the illicit market, he believes Canopy Growth’s struggles are largely as a result of them increasing their manufacturing services too shortly.

“I don’t buy (Klein’s) argument because, like it or not, the industry has grown in the past year and they shrunk,” he stated. “It’s disingenuous for them to only throw this on the federal government and simply say it is all the federal government’s fault.

Back in September, the federal authorities introduced that it would undertake a assessment of the nation’s Cannabis Act. Smitherman hopes the assessment may give his business extra publicity round these points, however notes that it might take years earlier than any reforms come out of it, given the sluggish tempo of Parliament

“We’ll try to use it for all that we can to help to emphasize some of these urgent actions and hopefully, you know, maybe proactively develop some consensus around them,” he stated.

Meanwhile, Poulos believes the excise tax is not going wherever anytime quickly, even after the federal assessment.

“I don’t think the government will be able to wean themselves off the tax as much as everybody in the industry is pushing and screaming about it. They have not done anything to indicate that they’re going to make a change,” he stated.

With recordsdata from CTV News’ Adrian Ghobrial and The Canadian Press