Still no changes to excise. Don’t be surprised.

| David Brown

As expected, the Federal Budget 2024 did not include any changes to cannabis excise rates.

This is unsurprising, despite recent recommendations for such changes by the federal House of Commons Standing Committee on Finance and years of industry lobbying, given the complexities of the issue

Nonetheless, some in the industry took the opportunity to highlight the issues of Canada’s $1 per gram federal excise rate. David Klein, CEO of Canopy Growth, called it a missed opportunity and an oversight that “signals a lack of commitment to the legal cannabis industry as well as the jobs and economic growth we create.”

“The failure to correct this broken tax regime and to leave other critical issues like potency limits unaddressed will continue to hinder the growth of legal cannabis business and comprises consumer access to safe, regulated products,” he continued in a post shared on social media.  

Others had held out hope that such changes were coming. Beena Goldenberg, CEO of Organigram, had said in February that the changes proposed by the House of Commons Standing Committee on Finance were what was needed to give the industry an edge in the global market. 

“The pre-budget recommendation could not have come at a better time. Excise reform is critical to the long-term viability of the Canadian cannabis industry. The positive impact of the proposed reduction to a 10% ad valorem rate on the sustainability of the sector cannot be underestimated. We sincerely hope that the recommendation made by the Finance Committee is adopted by the Federal, Provincial and Territorial governments so that Canada can retain its position as global leader in the emerging cannabis movement.” 

The industry has been calling for these changes for years now. A Cannabis Council of Canada (C3) survey from 2023 said that 96% of respondents viewed the current model as excessively punitive.

The recent report on the review of the federal Cannabis Act suggested changes to the excise program that would see higher rates on higher potency products, a suggestion many in the industry were, unsurprisingly, not supportive of. 

Still, as others in the industry have noted and StratCann has covered extensively, such changes will require coordination with provincial authorities, who take home 75% of every dollar collected and are not likely to be eager to give that up. 

“Changing the rate structure on flower to a fixed 10% model, as the federal House of Commons Standing Committee on Finance has recommended, would affect the provinces, and is something they probably wouldn’t do without provincial consent,” says Trina Fraser, a partner at Brazeau Seller Law in Ottawa. 

While the federal government could potentially unilaterally change these rates, doing so without the province’s support would likely have significant political blowback. And in a politically contentious time when governments are desperately looking for revenue, this becomes even more unlikely. 

One move the federal government could make, is to lower the rate they collect, which is currently 25% of every dollar. It could also lower initial and annual fees for various aspects of licensing for cannabis producers. 

The fact we don’t see these kinds of changes highlights how little leverage the industry has with both politicians and the general public. Despite years of lobbying efforts in Ottawa, the industry has been unable to generate the political capital required to push the issue over the line. 

While many of those operating cannabis businesses, especially small-scale producers, express frustration at this lack of response to their concerns, the reality is that politicians will only care when they know it’s an issue voters care about. And there is very little knowledge of the issue outside of those working in or directly connected to this industry. Telling a politician that your company will go out of business if a specific policy doesn’t change will not motivate them as much as telling them such and such issues will help them get reelected. 

While similarly-regulated industries like alcohol enjoy all kinds of benefits from government programs, the cannabis industry in Canada has not been able to leverage that kind of political capital. Is this because politicians love alcohol but not weed? Maybe. Or it might be because beer, wine, and spirits operate a more sophisticated ground game at all levels of government, and enjoy a much broader acceptance across the voting public than cannabis. 

Of course, these are long-term solutions and many cannabis producers in Canada don’t have that much time. More and more producers are throwing in the towel. Several dozen have chosen to revoke their own licences this year alone. But that’s the reality of this industry. No one is going to swoop in and save the day. Batten down the hatches and figure out how to operate in today’s landscape, as flawed as it may be, because change will take a long time.

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