BC-based cannabis company Adastra has issued a press release clarifying that they are not going to be selling coca leaf, psilocybin or cocaine to the general public.
This even prompted BC Premier David Eby to comment that he was “disturbed” by the news.
The Company received its Controlled Substances “Dealer’s Licence” on August 24, 2022, and an amendment on February 17, 2023. The Company’s wholly-owned subsidiary Adastra Labs Inc. is licensed to possess, produce, assemble, sell, and transport coca leaf, cocaine, and psilocybin. Adastra Labs is only allowed to produce up to 1,000 grams of psilocybin and 250 grams of cocaine in 2023.
“The Dealer’s Licence issued to Adastra Labs does not permit Adastra Labs to sell coca leaf, psilocybin or cocaine to the general public,” stated the press release. “For cocaine, and under the Dealer’s Licence, Adastra Labs is only permitted to sell to other licensed dealers who have cocaine listed on their licence, including pharmacists, practitioners, hospitals, or the holder of a section 56(1) exemption for research purposes under the Controlled Drugs and Substances Act (CDSA).
“The Company is not currently undertaking any activities with cocaine under the Dealer’s Licence and before doing so, it will only undertake such activities legally permitted by the Dealer’s Licence and after consultation with applicable Provincial Governments.”
A so-called “Dealer’s Licence” is required by Health Canada for each physical location where activities are conducted with controlled substances. Despite the name, this does not imply one can sell to the general public. In addition, there are no legal federal mechanisms for such sales of cocaine, coca leaf, or psilocybin.
Federal and provincial governments have earned $1.6 billion from legal cannabis sales in the fiscal year ending March 31, 2022.
This comes from $4 billion in legal cannabis sales in from April 1, 2021 to March 31, 2022, the equivalent of $131 per person of legal age to consume cannabis.
The new figures released by Statistics Canada are the first time it has included data on recreational cannabis as part of their Control and Sale of Alcoholic Beverages publication. Federal and provincial governments earned $15.2 billion from the control and sale of alcohol in the same time frame.
The Territory of Yukon had the highest per-person cannabis sales ($291), followed by Alberta ($210), and Saskatchewan ($185), while Quebec had the lowest ($89), followed by Manitoba ($107), and Nova Scotia ($125).
Image via Statistics Canada
Unsurprisingly, dried cannabis remains the most popular type of cannabis sold, accounting for 71.1% of recreational cannabis sales, followed by inhaled extracts such as vape pens, hash, and rosin (18.1%) and edibles (4.1%).
More than $2.8 billion of this was for dried cannabis flower, $721 million was for inhaled extracts, $156 million for ingested cannabis extracts (oils, capsules), $164 million for cannabis edibles, nearly $59 million was cannabis beverages, and more than $52 million was topicals, seeds, and “other” products.
Extracts and vape pens have been increasing in popularity since they were first introduced into the market in late 2019 and early 2020, eating into dried flower’s market share.
Image via Statistics Canada
Quebec, which does not allow the sale of high-potency extracts or vape pens (or most edibles), sold the highest proportion of dried cannabis (86.3%). Newfoundland and Labrador, which until recently also had a ban on vape pens, sold the smallest proportion of inhaled extracts (3.8%).
The Canadian cannabis industry is reacting to a recent lawsuit filed against several Canadian lending institutions.
Following the announcement of the lawsuit on February 10, people operating different businesses within the Canadian cannabis industry have been sharing their own frustrations about working with banks in Canada.
The biggest challenge—says Paul Hakimi, owner of The Hash Guild, a micro processor in Ontario—is not only being refused by banks, but also being accepted only to have the rug pulled out from under them sometime later.
“When we first started The Hash Guild in 2019, the banks, and RBC in particular, were very supportive in setting up our accounts,” explains Hakimi. “Now in 2023, with all of our federal licensing as well as overcoming the challenges of the pandemic, banks have withdrawn their support and even closed our accounts.”
Although he has been able to find other banks willing to work with his business, he says they tend to charge very high rates for cannabis businesses.
“Other financial institutions are now charging exorbitant rates to licensed producers while black market producers are finding ways to grow with these same institutions. As a federally licensed producer, our hands are tied with the banks. It is our hope that the government, which created this industry five years ago, will step in and mandate that the discrimination against our market stops.”
John Karroll, CEO of Trichome Consulting Services Inc., which has assisted different cannabis businesses through the licensing process, says he’s seen these same challenges arise again and again for new cannabis companies trying to find a bank to work with.
Karroll says his company has helped more than 200 companies through the commercial licensing process and estimates that around 60% have run into challenges finding or keeping a bank account.
“This issue is significant and widespread across Canada. It impacts many legally registered cannabis companies, from retail to micro & standard licenses, and creates financial hardship for these companies. In addition, the majority of companies that are in the application process with Health Canada are also victims to this banking issue, as they cannot open accounts if they state openly to the bank they are in the cannabis industry”.
“These companies are spending thousands of dollars to be part of this industry and meet all regulatory requirements, municipal, provincial and federal,” he adds. “They are compliant and go through the stringent licensing requirements. Yet they have to process these operational funds through personal bank accounts or other companies that are not listed as cannabis operations.”
Karroll says he suspects some of the challenges could be related to banks and other lending institutions that also do business in places like the United States, where cannabis remains federally illegal.
However, Joshua Reynolds, President of CapitalNow Cannabis, a small financing company focused exclusively on small-to-medium-sized licensed operators in the Canadian cannabis sector, tells StratCann he thinks this may often be an easy excuse some banks use when they simply don’t want to work with cannabis companies.
“I think they have conveniently been able to blame those rules, but I don’t think they would jump into it. I think they see it as too risky still, that it’s not mature enough. I think they would be concerned about the business acumen, and a few other things.”
Highlighting how widespread the issue is, following the announcement of the class action lawsuit against Desjardins Federation, National Bank, Royal Bank, Bank of Montreal, TD Bank, Royal Bank (RBC), and CIBC, numerous cannabis companies also left comments online mirroring similar experiences across Canada. Here are just a few:
Following the acquisition of a processing facility in 2022, popular cannabis brand Ghost Drops says they have closed their flagship Toronto retail location.
First opened in April 2022, the Ghost Drops store at 1184 Queen Street West in Toronto featured limited edition drops of Ghost Drops products.
Now that Ghost Drops has also purchased a 10,000 square foot cannabis processing facility in Ontario in November 2022, the company is pivoting away from retail to ensure compliance with Ontario regulations, and to focus more on production.
The store’s final day was January 31, 2023.
“You likely are aware that in Ontario, Licensed Producers can only own up to 25 per-cent of shares in a retail cannabis store (unless that store is located on the same site as a production facility),” explains Gene Bernaudo, CEO of Ghost Drops, in an email to StratCann.
“After this change, and assessing our ownership stake situation in 1184 Queen Street West, we decided that our resources were better allocated towards controlling the manufacturing and distribution of our products in order to continue the growth of the Ghost Drops brand.”
Bernaudo says the decision was not related to any concerns with cannabis retail saturation in Ontario, and says the company has no current plans to open any additional retail locations in Canada. But he adds that they are also “assessing new ways to allow our consumers to experience the Ghost Drops brand in-person and have some announcements coming soon.”
Ghost Drops has been in operation since 2017 as a cannabis brand, before officially launching in the legal cannabis market in Canada in 2021. The company has been partnering with licensed cannabis producers in Canada to bring their various cultivars to market, such as Donny Burger, Baklava, White RNTZ, C.R.E.A.M. Cake, King Sherb, First Class Funk, Khalifa Mints, and Z-Splitter.
Products are currently offered in pre-rolls, blunts, 3.5-gram and 14-gram packs and are available in hundreds of retail cannabis stores across Canada.
The SQDC brought in more than $30 million in net income in the last three months of 2022, from nearly $190 million in cannabis sales.
During its third reporter quarter of 2022, the Société québécoise du cannabis (SQDC) recorded an overall net income of $32.2 million from $187.3 million in sales.
In addition, the province brought in another $38.4 million in estimated tax revenue in the same time period, out of $54.4 million collected (75 percent of excise taxes collected goes to the province). A total of $86.6 million was earmarked for governments from this reporting period, including $70.6 million for the Quebec state.
Quebec reinvests this income for prevention and research in the field of cannabis, as well as against any harm related to the use of psychoactive substances.
Sales from September 11 and December 31, 2022, represented a slight decline from the same time period in 2021 of $190.5 million. The provincial cannabis agency says sales volume (33,242 kg of cannabis) declined slightly, potentially due to ongoing strike actions impacting two dozen SQDC locations.
The SQDC sold 31,274 kg of cannabis for a total amount of $176.6 million. Sales on the SQDC website accounted for another 1,968 kg of cannabis, for a total of $10.7 million. Net expenses for retail sales with 14.6 percent of sales, or $27.3 million.
The SQDC had 92 branches operating as of Q3 2022, compared to 81 branches in the third quarter of 2021-2022. Forty-eight SQDC branches are non-unionized, while 26 are unionized. Twenty-four of those 26 are currently on strike. The stores are operating with limited hours.
A class action lawsuit is targeting several Canadian banks that it alleges have engaged in financial discrimination against legal cannabis businesses.
The lawsuit—brought by Groupe SGF, a group of cannabis legal advisors and consultants—is suing on behalf of Gabriel Bélanger, the founder of Origami Extraction, a micro processor in Quebec. The suit names the Desjardins Federation, National Bank, Royal Bank, Bank of Montreal, TD Bank, Royal Bank (RBC), and CIBC.
The class action includes all individuals or corporations that, directly or indirectly, do business with any of the defendant banks and who have been involved in the legal cannabis industry since October 17th, 2018.
Maxime Guérin, a lawyer with Groupe SGF who is representing the case, says the issue of banks treating legal cannabis businesses unfairly has been damaging to the development of the legal industry.
“For far too long, Canadian banks have treated the cannabis industry like pariahs, as if it was still completely illegal,” says Guérin. “By doing so, they are depriving the Canadian—but especially the local—economy of developing a promising market.”
“It was necessary, almost 5 years after legalization and discussions between the industry and the banks, that we took this step. Enough is enough, the legal cannabis industry and its players are 100% legal and should not be treated as criminals anymore, especially in a corporate environment such as a bank.”
The lawsuit contends that these lending institutions have taken “reprehensible and discriminatory actions” towards numerous individuals and businesses who have been operating within Canada’s legal, regulated cannabis market.
“This class action covers anyone that has a relation with legal cannabis. It covers anyone that is directly or indirectly part of the industry, either it be the bud tender in Ontario, the LP in Saskatchewan, or the hydroponic shop in Québec that sells fertilizers.”
Maxime Guérin, a lawyer with Groupe SGF
The lawsuit contends that prior to October 18, 2018, the legal medical cannabis industry still faced numerous challenges to accessing banks, but options remained available. This changed, it continues, after cannabis was fully legalized in 2018, though with no clear policy and many banks often refusing to open bank accounts, supply loans, or do any kind of business with some cannabis business owners while continuing to do business with others.
In the instance of Gabriel Bélanger, the micro processor who is pursuing this issue, he opened a bank account registered to his own cannabis consulting agency in 2020 with the National Bank of Canada.
Then, in 2022, after Bélanger incorporated his company Origami Extraction Inc, he received a letter from National Bank telling him that the account of Origami Extraction would be closed on October 11, 2022. Bélanger contends he only discovered his accounts had been closed when he checked his bank account.
Over time, Bélanger then says he was also refused by Desjardins and CIBC, and not provided a clear explanation of why.
Then, on December 2, 2022, the lawsuit says a National Bank account manager told Bélanger that his two bank accounts, as well as any linked credit cards, were closed simply because the businesses were connected to the cannabis industry.
Bélanger was initially able to open a bank account with the Royal Bank of Canada between October and November 2022, but was then informed in December that the accounts were closed due to an “internal policy”.
Bélanger says he also attempted to open an account with Desjardins in 2020 connected to another cannabis company in Quebec but was refused.
This inability to secure permanent banking caused Bélanger undue hardship, contends the lawsuit, and forced him to use his personal account for business, further putting himself at financial risk. With his micro processing licence, he says he has a minimum annual turnover rate of one million dollars, highlighting the challenge of operating this kind of business without a bank account.
The lawsuit seeks compensation not only for Bélanger, but any others who have had similar experiences in Canada, says Guérin.
“This class action covers anyone that has a relation with legal cannabis. It covers anyone that is directly or indirectly part of the industry, either it be the budtender in Ontario, the LP in Saskatchewan or the hydroponic shop in Québec that sells fertilizers.”
More information on the class action can be found here.
Some Ontario retailers say they are concerned about a new type of “data leak” circulating within the industry that appears to be showing their sales.
Unlike a leak of retailer info in 2022 that was the result of an issue with a third-party partner of the Ontario government, this newest release of information seems to be the result of third-party data “scraping” services that collate publicly available information.
Jennawae McLean, the co-founder of Calyx+Trichomes, a cannabis store in Kingston, Ontario, says she became aware of sales information in early February showing figures for stores in the Hamilton area and was concerned it could be even more widespread.
Posting about it on Twitter, she began hearing from other retailers still reeling from last year’s data leak.
Scraping is kind of a dirty word in our industry as it diminishes the complexity, but ultimately what we do is go to retail web pages, pull relevant, public-facing data twice a day, clean and organize it for LPs so they can monitor their products in the market.
“We’re still not sure exactly what happened,” explains McLean, noting that in her discussion with other store owners, not all sales data appeared entirely accurate.
The Ontario Cannabis Store (OCS) and the Alcohol and Gaming Commission of Ontario (AGCO) both sent out notices to retailers that the leak did not originate from either of their organizations.
Owen Allerton, the owner of Highland Cannabis, a retail store in Kitchener, says he suspects the issue comes down to “data scraping” services that collect and collate information from websites like his own in order to glean information about product levels and sales figures.
The way his own store’s online menu works, he explains, allows someone to select a product to purchase and will tell the user if the amount they selected is more than the store has in stock. By using an automated search mechanism these services can complete enough searches to gain a rough idea over time of what a store’s sales figures could look like.
“Because it’s linked to inventory…you can inadvertently see your inventory through that dropdown mechanism. So they go through every SKU on a website like mine and take snapshots of what the max quantity is at different points of time and, over time, they’ll see what the sales are.”
His concern, he says—something echoed by McLean—is that this can be a security risk for store owners already facing concerns with break-ins and robberies, as well as giving inside information to retailer competitors in Ontario’s highly saturated and competitive retail cannabis market.
For Allerton, he says the responsibility comes down to the companies that are managing retailers’ online sales platforms.
“On one hand, what products I carry and the prices of those products, that’s fair game. It’s on my website. But there’s a line there somewhere when you start to extrapolate my sales from all of this, and I think that, if it is from scraping, it falls back to the e-commerce providers. A lot of us are talking to our e-com providers and telling them they need to do something about this.”
For their part, Dutchie, the company that operates Highland’s online store, says they have heard concerns about sales information making its way to the public.
“While we are aware of ongoing discussions of data leaks in the Canadian market, we are confident that our customers’ data and our platform remain secure and protected,” Dutchie’s chief technology officer, Chris Ostrowski, tells StratCann. “We are committed to data privacy and place customer trust above all.”
“Protecting our customer’s data is a top priority. As part of our ongoing commitment to doing so, Dutchie recently earned a SOC 2 compliance certification to help keep customer data safe.”
Jeff Woods, the co-founder of Neobi Technologies, a service that utilizes such “scraping” tools to gather information for licensed producers and others within the industry, says the process is somewhat misunderstood.
“Scraping is kind of a dirty word in our industry as it diminishes the complexity, but ultimately what we do is go to retail web pages, pull relevant, public-facing data twice a day, clean and organize it for LPs so they can monitor their products in the market,” he told StratCann.
The main reason they provide this service, he explains, is for cannabis producers who otherwise don’t have much insight into factors such as what stores carry their products or when and where certain products are or are not selling.
Rather than exploiting the system, he says Neobi and other similar services are filling a gap in the market, arguing that many provinces don’t provide distribution or inventory data to producers.
“It’s a black hole of data in the supply and demand chain. LPs have no real-time understanding of where their products are and how quickly they’re being sold.”
“This is a consumer packaged goods industry,” he continues, “and inventory and distribution data are the basic information LPs need to operate their business effectively. We aim to ensure our partners have access to the intelligence they need to thrive in a heavily regulated industry.”
“We don’t collect or produce sales data; POS companies sell that information. We track product inventory counts and how they deplete over time, helping producers understand inventory velocity in specific markets or stores.”
“Regarding the reports circulated on Twitter, we can confirm Neobi does not handle proprietary data and only aggregates publicly available information. From what we can tell, this is not data produced by our team.”
For retailers like Allerton at Highland who aren’t comfortable with that kind of information being available, he says he may start looking for an e-commerce provider who can address his concerns.
“If they’re able to scrape that data, it’s a problem for the e-commerce providers we’re all using. If they can’t plug this hole, then we’ll need to look at viable alternatives.”
Canopy Growth has announced they are laying off 800 workers and will be closing their flagship facility at the former Hershey factory in Smiths Falls.
The layoffs will represent 35 per cent of the company’s workforce. Forty per cent of the cuts will be immediate while the rest will take place over the course of the coming months.
The former Hershey chocolate factory at 1 Hershey Drive in Smiths Falls was an iconic symbol of cannabis and cannabis legalization in Canada formerly under the Tweed banner.
The company says it will move to an “asset-light model” and will also cease cannabis flower production from Smiths Falls to its Mirabel, Quebec facility. Canopy will also move to a third-party sourcing model for cannabis beverages, edibles, vapes, and extracts.
“Canopy must reach profitability to achieve our ambition of long-term North American cannabis market leadership,” said chief executive officer David Klein in a news release. “We are transforming our Canadian business to an asset-light model and significantly reducing the overall size of our organization. These changes are difficult but necessary to drive our business to profitability and growth.”
Canopy’s recent quarterly report showed net revenue of $101 million in Q3 FY2023, which declined 28% versus Q3 FY2022. The company claims the decrease is primarily due to increased competition in the Canadian adult-use cannabis market, the divestiture of their “C3” Cannabinoid Compound Company GmbH, a decline in their U.S.-based CBD business, and softer performance from assets Storz & Bickel and This Works.
The company hopes these cost-cutting measures will reduce annual expenses by $140-$160-million over the next 12 months.
Featured image shows a grow room inside the Smiths Falls facility.
Note: This article initially reported that Canopy would be moving flower production to their Mirabel facility. It has now been edited to note that Canopy will also cease cannabis flower production from Smiths Falls to its Mirabel, Quebec facility
A group of Ontario cannabis stores are calling for an end to “kickbacks” that they say are used to incentivize shelf space for some producers.
Highland Cannabis Inc., an independent retailer based in Kitchener, Ontario, is leading the Cancel Kickbacks campaign in an attempt to pressure the provincial government to look closer at the issue and enforce its own rules against inducements between licensed cannabis producers and licensed cannabis dealers.
“The Cancel Kickbacks campaign is demanding that the Ontario government properly enforce its own anti-incentive regulations, which are being circumvented by retailers and manufacturers who falsely and unlawfully characterize incentive transactions as payments for the sale of ‘data for business intelligence purposes’,” argues the organization in a press release.
“These payments favour larger, well-funded, licensed cannabis producers who have the means to pay sales incentive kickbacks to gain market share, and larger retail chains who have the leverage to collect the kickbacks and then use them to fund such low competitive prices that independent retailers can’t possibly keep up,” it continues.
Ontario, like many other provinces, does not allow inducements, such as producers offering payment for preferential shelf space—or to even carry their product at all. However, it’s become a well-known and controversial practice that some retailers, especially larger retail chains, sell “data plans” to producers that, some argue, are simply a workaround that allows for these kinds of inducements.
AGCO defines gratuities as payments “made with the purpose of promoting or increasing the sale of a particular brand or product by the licensee or its employees.”
The Cancel Kickbacks campaign is demanding that the Ontario government enforce its own anti-incentive regulations, which the campaign says are being circumvented by retailers and manufacturers who falsely and unlawfully characterize incentive transactions as payments for the sale of “data for business intelligence purposes.”
Jennawae Cavion, co-owner of Calyx + Trichomes Cannabis, an independent cannabis retailer in Kingston, Ontario says she has been approached by several producers who want to pay such “kickbacks” for shelf space. Although she notes such practices are not uncommon in the retail world, they are not supposed to be allowed in the cannabis space.
“In our industry it’s specifically not allowed,” explains Cavion. “In my opinion, the AGCO changing the rules to allow for data sales has just opened up this opportunity for retailers to benefit from kickbacks. It’s not even a very thin veil in some places, some are very blatant in it being a kickback.”
Ultimately, she says she thinks producers and retailers participating in such programs will only harm themselves in consumers’ eyes. But this might take years, she says, meaning smaller retailers will have to tighten their belts to make it through this period.
“It’s really to their detriment because now I won’t carry their products at all. There’s no longevity in these deals. They’re going to dry up. It’s a dead end. But for those of us who are independent, the question is can we outlast this program.”
Owen Allerton, owner of Highland Cannabis Inc, says he thinks these plans will be the end of independent retailers.
“By not enforcing the inducement ban, AGCO tacitly allows cannabis producers to pay prohibited kickbacks to cannabis retail chains,” says Allerton.
“Several of the big retail chains are using the banned stimulus money to fund predatory pricing, to control the market and thereby drive the small independent retailers out of business. People are talking about the price wars in the cannabis retail market. There are no price wars. There are only big chains, and their ultra-discount models are subsidized by illicit kickbacks.
“Producers pay these illicit kickbacks for shelf space at major chains while undermining the 1,000+ independent retailers—putting them out of business,” he continues. “In the end, only the chains will remain.”
As of June 30, 2022, the AGCO revised the Registrar’s Standards for Cannabis Retail Stores to allow retailers to sell this “sales data” to producers “for business intelligence purposes.” One retail chain that recently posted its public earnings report noted its “data sales” were $21.7 million for the fiscal year that ended October 31, 2022. Such data sales are not necessarily connected to such ‘kickbacks, making it difficult for the provincial regulator to investigate.
The Cancel Kickbacks campaign argues that this rule change made it possible for some larger industry players to get around this ban by characterizing such payments as being for ‘sales data’, which the organization says threatens to undermine Ontario’s cannabis industry.
“Of Ontario’s 1,573 licensed retailers, about 300 are affiliated with large retail chains and over 1,000 are smaller, independent stores (fewer than 10 stores),” notes the press release. “Independent cannabis retailers are predominantly run by individuals or families who have invested personal finances and savings in their retail startups. These independent businesses make up the bulk of the industry and are most at risk from predatory pricing funded by illicit incentives.”
The BC government has brought in more than $157 million dollars from their share of federal cannabis excise taxes since the beginning of legalization, but municipalities are still asking for what they say is their share.
The figures, which span the first day of legalization up until August 2022, do not include additional revenue from provincial taxes or other related industry fees.
BC, like all other provinces and territories, has an agreement with the federal government to take 75 cents from every dollar of the federal government’s cannabis excise tax.
Under the Federal-Provincial-Territorial Agreement on Cannabis Taxation, which was signed prior to legalization, it was mandated that the combined rate of all federal, provincial and territorial cannabis-specific taxes would not exceed either $1 per gram or 10 percent of a producer’s selling price.
This tax revenue was to be shared, with 75 percent going to provincial and territorial governments, and the other 25 percent going to the federal government, with the federal portion of cannabis excise tax revenue to be capped at $100 million a year.
As per the agreement, provinces and territories were expected to work with municipalities to allocate these funds. Most provincial governments, including BC, never made an official commitment to share cannabis taxation revenue with their municipal governments.
Municipalities in BC have been asking the province for years to provide them with a portion of those tax revenues. In 2020, the Union of BC Municipalities (UBCM) said a survey of their membership showed $11.5 million per year in local government incremental costs for the three years following cannabis legalization.
A representative with BC’s Ministry of Finance says they have not provided any of this tax revenue, but are in talks on the subject with the UBCM as part of a long term plan.
“In general, provincial taxes–including PST revenue–flows into the Province’s consolidated revenue fund to provide the programs and services people rely on, such as health care and education,” notes the Ministry representative. “To date, the B.C. government has not provided any excise tax revenue to local governments.
“We’re currently working with the Union of BC Municipalities on a review of local government finance systems in B.C., including signing an MOU in 2022 laying out that we’ll work together over the next few years. Cannabis revenue sharing is one of the items we will be looking at over the longer-term. As the cannabis market continues to mature, we are working cooperatively with UBCM through this process to promote local governments’ financial resiliency.”
Paul Taylor, the director of communications for UBCM affirms that the province remains unwilling to sign such an agreement.
“The province has been non-committal on the question of sharing a portion of federal excise tax with local governments,” explains Taylor. “They have met with UBCM and considered appeals from our membership, but as of yet have not stated a long term approach, adding that “Cannabis tax revenue sharing is part of a much larger ongoing set of discussions with the province on strengthening the finance system for local government.”
In 2019, UBCM developed a survey for local governments to estimate the expected costs to municipalities associated with legalization.
Cities were asked to provide information covering their expectations for the first three years of legalization, which was estimated at more than $15 million due to projected enforcement costs, the cost of the licensing and oversight of retail stores, and costs to public health. No figures are yet available outlining how these projections have borne out.
Meanwhile, the cannabis industry has been calling for a lessening of this tax burden on the industry, arguing that $1 per gram tax rate hamstrings producers who are often only selling cannabis for a few dollars a gram. In 2022, the BC Chamber of Commerce called for major changes to BC cannabis laws, including an elimination of the 20 percent provincial tax on cannabis vape products, and a national excise tax based on a calculation of the percentage of sales rather than price/gram.
Delta 9 Cannabis will be cutting capacity at their Winnipeg-based facilities by 40%, and laying off around 40 staff in an effort to cut costs.
The layoffs will be temporary, the company says in a press release. The cuts are being made to lower costs and save between $3 and 4 million in 2023 as the company seeks to compete in an increasingly competitive cannabis market.
“Delta 9’s retail operations have achieved profitability and positive operating cash flows over the past several years,” Delta 9 chief operating officer Mark Jonker said in a statement. “Our cultivation and wholesale cannabis operations have struggled with profitability due to continued price and margin compression in the Canadian cannabis market. Our decision is designed to significantly reduce costs and to chart a near-term path to becoming cash flow positive from operations.”
Delta 9 was first licensed in 2014, one of the first licensed cannabis producers under the new medical cannabis program at the time. Since then, the company has expanded to include micro cannabis production partners and several retail stores.
Delta 9’s retail stores will not be affected by the cuts.
“We recognize that in the current market environment we need to make near-term strides to improve profitability across our operations,” the company’s chief financial officer Jim Lawson added. “The board of directors and executive have also agreed to reducing compensation as part of their commitment to achieving positive cash flows from operations in the current fiscal year.”
Delta 9 Bio-Tech Inc, the company’s subsidiary, is a licensed producer of medical and recreational cannabis and operates an 80,000-square-foot production facility in Winnipeg, Manitoba, Canada. Delta 9 owns and operates a chain of retail stores under the Delta 9 Cannabis Store brand.
“I would like to thank the employees affected by this decision for their invaluable contributions to Delta 9’s success and growth,” CEO John Arbuthnot concluded. “This was a very difficult decision, but it is a key component of executing on our strategic plan and one we believe best positions Delta 9 for profitable growth.”
Delta 9 Biotech posted net revenue of $15.7 million for the third quarter of 2022, an increase of 3%, from $15.2 million for the same quarter last year, and gross profit of $1.9 million for the third quarter of 2022, versus $4.8 million for the same quarter last year.
However, the company faced a net loss from operations of $6.2 million for the third quarter of 2022 versus a net loss from operations of $55,031 for the same quarter last year.
Today Aurora Cannabis announced the sale of a processing and logistics facility located near the Edmonton Airport.
The company says it has closed the sale of its Aurora Polaris facility with gross proceeds of approximately $15 million.
Originally located next to the now-defunct Aurora Sky facility, the company first announced the plans for a 300,000 square foot Polaris project in 2019, at an estimated cost of $50 million. The building was originally intended to serve as Aurora’s “centre of excellence for the industrial-scale production of higher margin, value added products, such as edibles.”
In May 2022, Aurora announced the closure of Aurora Sky, as well, with 214 lost jobs.
In September 2021, the company then announced their plans to close the facility, representing a loss of 8% of its global workforce at the time. A news report at the time noted an Alberta government website listed the Aurora Polaris facility as being around 2,800 square meters “with one-third of the space dedicated to warehousing and distribution of cannabis products and the remainder hosting product manufacturing.”
The Ontario Cannabis Store sent out a notice to licensed cannabis producers on December 15 to inform them that the provincial cannabis distributor and retailer will no longer be listing delta-8 THC products until it receives guidance from Health Canada.
Update: BC now confirms that they will also not be registering or replenishing any products that contain Delta-8-THC until they determine their next steps.
In their letter, the OCS says they have been monitoring “emerging concerns in the United States, where the Food & Drug Administration (FDA) has issued public health warnings for unregulated products that contain the novel synthetic cannabinoid delta-8 THC. As a result, an increasing number of U.S. States have taken steps to regulate or ban products that contain this cannabinoid.”
The OCS began carrying several products that contained novel cannabinoids, including Delta-8 products. These have been in the form of cannabis vapes, edibles, beverages, and topicals. The OCS will still continue to purchase and list dried cannabis products, including pre-rolls, that contain low levels of naturally occurring Delta-8 THC.
While the provincial agency says it is not aware of any adverse reactions to these products in the legal cannabis market in Canada to date, products that contain delta-8 THC fall “outside the definition of THC under the federal Cannabis Act”.
The OCS says it has contacted Health Canada, asking for direction on the subject of delta-8 products specifically.
Until Health Canada provides this requested guidance to the industry, “out of an abundance of caution” the OCS will: no longer accept any product that contains delta-8 THC as part of the product call process; will not issue notices to purchase new products containing delta-8 THC that have previously been submitted through the product call process; will not issue purchase orders for any products containing delta-8 THC (any purchase orders that have been issued but not fulfilled to OCS will be cancelled); and will not issue replenishment orders for any currently listed delta-8 THC products.
The OCS will still sell the existing inventory through its online store and whole distribution channels. OCS.ca currently lists nine products that feature delta-8 THC.
Other provinces
UPDATE: In response to a request for comment from StratCann, the BC LDB says that it has become aware of some products containing delta-8 THC “which falls outside the definition THC under the Federal Cannabis Act”.
“Information about Delta-8-THC and the potential biological effects and health risks to consumers is new and emerging, and the BC Liquor Distribution Branch (LDB) is working with its government counterparts to determine the appropriate next steps,” wrote a representative for the LDB.
“Until we determine next steps, the LDB will not be registering or replenishing any products that contain Delta-8-THC.”
A representative from the SQDC in Quebec noted that the SQDC does not currently sell products with minor cannabinoids such as delta-8 on the labeling. “As such we do not have a position on the matter at this moment” noted the media representative.
StratCann has reached out for comment from other provinces as well as Health Canada and will be updating as that information is provided.
The NSLC in Nova Scotia does not carry any delta-8 products, nor does Cannabis NL, serving Newfoundland and Labrador. Cannabis NB in New Brunswick lists at least 1 delta-8 product on their website. At least one store in Yukon carries a delta-8 product.
A representative for Cannabis NB (CNB) tells StratCann: “We have just become aware of OCS’ policy approach and we are still assessing the situation. In general, for CNB, we follow the act and the guidelines as mandated by Health Canada when it comes to selling products and adhere to direction that they provide.”
Legislation to reform how financial institutions can interact with cannabis companies in the United States won’t change much for Canadian cannabis companies struggling to find banks willing to take their business.
The SAFE Banking Act in the US made headlines again in the past few weeks, with many in that country’s cannabis industry saying such changes are needed to allow the industry to grow.
Canadian cannabis companies often face similar challenges in finding banks willing to work with them, despite the industry being fully legal and regulated across the country. One of the reasons sometimes offered to explain Canadian banks’ lack of interest in working with the legal cannabis industry is their ties to other countries like the US, where cannabis is not yet legal.
While the US bill seems unlikely to pass anytime soon, even if it does, it’s unlikely to change those dynamics, says Joshua Reynolds, President of CapitalNow Cannabis, a small financing company focused exclusively on small to medium-sized licensed operators in the Canadian cannabis sector.
Although the connection to US and European banks and any legal or regulatory concerns are real, he says that even if cannabis was legal in the US and any other country they operate in, most large financial institutions would still not likely want to work with cannabis anytime soon.
“I don’t think that, even if the (SAFE) Act passed, the banks would jump in,” says Reynolds. “US illegality is a real issue, but it also provides a good excuse to avoid the sector and the risk associated with it.”
The cannabis industry is still too new and too risky, he explains.
“I think they have conveniently been able to blame those rules, but I don’t think they would jump into it. I think they see it as too risky still, that it’s not mature enough. I think they would be concerned about the business acumen, and a few other things.”
Mike Schilling is the President and CEO of Community Savings Credit Union, which operates seven branches across British Columbia and works with numerous cannabis businesses. He echoes some of Reynolds’s comments about fear of legal or regulatory penalties, and adds that he thinks it’s just not a priority for larger banks, but is something smaller credit unions are more comfortable with and suited for.
“There are two key reasons why financial institutions don’t work with cannabis companies,” says Schilling. “The first is that banks that operate in both Canada and the US can be sanctioned by the extraterritorial reach of US law, as cannabis is still not legal at the federal level in the US.
“The second is that the cannabis industry isn’t seen as a big enough prize to compensate for the additional regulatory burden. Many financial institutions aren’t willing to do the extra hard work. And while there are some examples of larger institutions willing to bank cannabis, they charge exorbitant fees.”
Schilling says legislation like the SAFE Banking Act could begin to change that equation, although it could be too late for many Canadian companies.
“Banks turn away because of both fears of sanctions, and a calculation of if the industry is worth the effort. As the cannabis industry matures and shows longevity, the calculation of whether it is worth it to bank cannabis will change and more banking options will emerge. Removing the threat of legislation will further change the cost-benefit equation for banks, and more banking options for cannabis will emerge.
“What we hear from our members is that it’s too late. So many banks weren’t willing to bank cannabis from the start when it was tough, or were only willing to with fees that meant cannabis businesses could not survive. Now that it’s getting easier, financial institutions want a slice of the pie without the legwork.”
Oscar Jofre, the President and CEO of KoreConX, a company doing business with cannabis businesses in the US and Canada, says the issue isn’t as widespread in the US as some might believe, noting that numerous smaller banks are doing business with cannabis companies in numerous legal US states.
Even if legislation like SAFE passed, he says he doesn’t see it making much of a difference in the US or Canada because of the risk aversion larger banks have to the cannabis industry in general, regardless of any regulatory concerns.
“Even with the SAFE Act, the bigger banks aren’t going to put it under their risk profile,” says Jofre. “They’re going to do the same thing our banks are doing in Canada. They’re not looking at it from the legal point of view anymore. They’re looking at it from the optics point of view. They’re big banks and don’t want to be seen doing business with cannabis.”
He notes that the banks are also quite inconsistent, even those operating in both the US and Canada. While many Canadian banks say they don’t want to touch cannabis, they have no problem accepting payments through credit cards. In the US, he says it’s often the opposite, with at least smaller banks being willing to work with cannabis companies, but credit and debit card sales are often off the table.
One solution Jofre says his company has found success with is working with some of those smaller US banks. As the US moves closer to a fully regulated, federal legal model, he says those businesses can then better serve their Canadian partners.
“Canada has some things that the US doesn’t and the US has some things that Canada needs. I believe if Canadians can’t find banking in the Canadian sector, they should do what the rest of us do, begin the operational side by partnering with someone in the United States and move from south to north.”
For Reynolds at CapitalNow, the early success of the cannabis industry in Canada in bringing in investor dollars may have left a bad taste in the mouths of some of the large banks. With large publicly traded companies seeing skyrocketing valuations for a few years before often imploding, banks are just deciding to stay away until things settle out, regardless of the law.
“Banking, in general, is very conservative. In Canada, it’s even more conservative. So even if the SAFE Banking Act passed, I don’t think they would have anything to do with it.”
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