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Calgary Herald

John Ivison: Punitive taxes are killing the legal cannabis industry

Article content If you want to be a millionaire, start with a billion dollars and launch a cannabis production company in Canada. Article content Article content In the original version of his famous quote, British entrepreneur Richard Branson was highlighting the challenges and capital intensive nature of the airline industry. But a new report by consultancy firm Deloitte, due for release on Wednesday, paints a similar picture. Article content Article content The report looked at the impact of Canada's cannabis excise tax and concluded the industry's financial viability is in question because of high taxes. Article content Article content The Cannabis Act of 2018 was a cornerstone piece of legislation for the Trudeau government, which pledged to 'outflank' organized crime by undercutting the black market for pot. Article content But the new report suggests that illicit producers still control between one quarter and a half of the market, partly because a punitive excise tax regime raises costs for legal producers. Article content The Deloitte report, commissioned by the Cannabis Council of Canada, said that the excise tax paid to governments accounted for 31.5 per cent of gross production revenues last year, at a time when prices are falling. Article content It would, of course, be rare to find an industry that endorses the amount of tax it is paying. Article content However, the government's own expert panel, which conducted a legislative review of the Cannabis Act last year, noted the industry's 'urgent concerns' about viability and said they were 'well founded.' Article content Article content Deloitte looked at the financial results of 36 licensed cannabis producers between 2019 and 2024 — nine of which filed for insolvency during the period under review. Article content Article content The share of production revenues diverted to excise taxes doubled in that time, making it the largest single expense. Article content When the excise tax was set at $1 per gram or 10 per cent of the value of dried or fresh cannabis seeds (whichever was greater), prices were around $10 per gram. But the flood of new entrants to the market, and the stubborn illicit market, lowered the price to around $3-4 per gram, sending the effective tax rate over 30 per cent. Article content The industry has argued that the excise duty should be adjusted to a uniform 10 per cent of value and the flat rate of $1 per gram should be eliminated entirely.