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Canada Budget Document Proposes Cannabis Strategy Table to Combat Illicit Market

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As the United States approaches the decade anniversary of the first votes to launch individual state adult-use cannabis markets, it’s clear that recreational cannabis alone hasn’t stopped the illicit cannabis market. Now, Canada is looking to combat its own illicit cannabis market in the wake of its growing legal market with a new working group with the federal government.

The Canadian government is proposing a new “cannabis strategy table” to collaborate with legal cannabis industry businesses, according to a new 2022 budget document. The budget also proposed possible changes to Canada’s federal excise tax system for cannabis.

Ottawa said in the budget document that it will create a strategy table that will help to support a continuous dialogue with businesses and stakeholders in the cannabis sector. The document notes that the table would provide an “opportunity for the government to hear from industry leaders and identify ways to work together to grow the legal cannabis sector in Canada.”

Amar Khan, senior vice-president of corporate and public affairs at cannabis retailer High Tide Inc. told The Globe and Mail that he and his team feel the creation of the table “puts us on equal footing with other sectors,” adding that this is just an initial step in developing a long-term growth strategy for the industry.

The strategy table would fall under the purview of Canada’s federal Department of Innovation, Science and Economic Development. The federal ministry already runs strategy tables for a number of other industries, like manufacturing, clean technology, agri-food and tourism.

“It says to me that the folks in Ottawa are finally realizing that the cannabis industry, for all its ups and downs, has become a key economic driver,” Khan said.

The legal Canadian cannabis market has created 50,000 jobs, contributed $15 billion (about $12 billion USD) to government revenue and $45 billion (approximately $35 billion USD) to Canada’s gross domestic profit over the past three years, according to the Cannabis Council of Canada. However, recent estimates have attributed nearly half of all cannabis sales in the country to the illicit market.

Rick Savone, senior vice-president of government relations at cannabis producer Aurora Cannabis Inc., told The Globe and Mail that “without a doubt,” the first theme they’ll want to raise with the Canadian government is potential plans to improve the overall situation and allow legal cannabis companies to compete with the illicit market. 

Industry experts in Canada have argued that high taxes have kept cannabis too expensive to bring customers over to the legal side of the market, and the country’s restrictions on potency result in product that is potentially too weak to pull over consumers.

“The overwhelming regulations that the legal market faces makes it impossible for us to compete with the illicit market,” Savone said. “While that market continues to exist, Canadian companies are going to struggle.”

The supplementary budget materials also dive into excise tax changes for Canada. They include allowing smaller cannabis producers to remit excise duties on a quarterly basis, rather than monthly; permitting cannabis production licensees to transfer excise duty stamps between them, along with allowing excise stamp agreements between licensed producers designed to address “inventory management issues and inefficiencies in the supply chain for the cannabis industry” and changing the penalty structure for lost excise duty stamps.

Though these proposed changes to Canada’s excise tax rules would not affect the actual excise tax rates.

George Smitherman, president of the Cannabis Council, said the initial cannabis excise system was created when the cannabis industry was expected to remain vertically integrated, owning all the means of manufacturing and producing its own products. Though in recent years, cannabis companies have begun working with outside firms to manufacture products and packaging.

The changes in the budget are aimed to make it easier for producers to work with outside companies and streamline the requirements. The council says these changes will help to make the cannabis supply chain more efficient.

“These changes will lighten that load a little bit. It’ll make a difference to the bottom line. It just makes the sector a little bit more efficient,” Savone said.

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