Widespread new regulations expected soon, but industry players want bigger changes
No one expected Canada's cannabis laws to be perfect from the start.
When Canada legalized adult-use cannabis six years ago this week, politicians included a timeline to ensure it was on the way.
It wasn't legalized for edibles and drinks until the end of 2019, and after that regulatory hurdles meant it took a while to get to stores.
Gradual changes to online ordering, delivery and more were rolled back by the state government without prior warning.
Federal laws and regulations were scheduled to be reviewed five years later, in 2023.
Health Canada is now finally starting to change the dozens of regulations governing this sector. Consultation on these changes was halted in July, and bureaucrats are preparing to publish the new regulations in the Official Gazette, the final process of making changes since Parliament does not need to pass legislation. .
The Department estimates this change will save the industry $41 million in administrative and compliance costs.
Industry insiders told BIV that they tend to favor change, but in some cases they want bigger thinking and more sweeping overhauls.
They wonder if the changes will be made in time for the sixth anniversary of legalization on Oct. 17. Instead, it estimates that changes are likely to occur within the next six months, unless a federal election is held.
When Canada legalized cannabis for non-medical uses in 2018, the plan was to heavily regulate and heavily tax the sector.
This double burden was enough to crush the dreams of many entrepreneurs and force countless closures and bankruptcies as companies went into creditor protection.
Many investors saw their capital rise like a cloud.
A few days before legalization, units in the Global X Marijuana Life Sciences Index ETF (TSX:HMMJ) closed at what would have been $104.20 if adjusted for future consolidation. The fund traded for less than $10 per unit earlier this month.
The good news is that many executives in the sector remain positive and tell BIV that their businesses are profitable.
One wild card that excites many is the possibility of the United States legalizing marijuana nationwide.
B.C.'s cannabis producers are poised to take advantage of that prospect, with Democratic presidential candidate Kamala Harris saying on September 30 that she supports legalization nationwide.
“I think we're at a point where we have to understand that we need to legalize this behavior and stop criminalizing this behavior,” she said on the sports podcast All the Smoke. ” he said.
Republican presidential candidate Donald Trump has indicated he supports reforming marijuana laws, but he has been less clear about exactly how he would reform them.
A big change in the south could allow B.C. producers to export cannabis to the U.S., at least for medical use. Currently, cannabis can only be exported to the US for research purposes, Deepak Anand, head of ASDA Consulting Services, told BIV.
Medical marijuana could soon be distributed over the counter
One of the biggest planned changes to cannabis regulation, and Anand's favorite, would allow pharmacists to dispense medical cannabis to consumers in their stores.
Shoppers Drug Mart has supported this change for many years.
Until now, a regulatory hurdle has been the inability of pharmacists to enter orders for the product into the system, as cannabis does not have a Drug Identification Number (DIN).
Shoppers Drug Mart has been operating as if it were a licensed producer in that it was able to accept patient permission from medical professionals to provide cannabis, but has since Orders must be mailed to patients, Anand explained.
“The hope is that pharmacies can work with states to issue what's called a pseudo-DIN, which is given to unlicensed products or products that are not necessarily prescription drugs but function similarly to prescription drugs.” he said. .
The bigger change Anand would like to see is the removal of Goods and Services Tax (GST) and State Sales Tax (PST) from medical cannabis.
Image: Deepak Anand, principal at ASDA Consultancy Services, is advocating for a number of changes to Canada's cannabis laws.
He explained that once the federal government declares a substance as a drug, the PST is automatically removed.
“It's not in the proposed regulatory changes, but I would like to see it,” he said.
The biggest tax change the industry is seeking is for the federal government to change the excise tax formula, which is not included in the proposed regulatory changes.
The excise tax formula is set to be the higher of $1 per gram or 10 percent of the selling price of cannabis. The formula assumed that one gram would sell for about $10.
Cannabis retailers such as Muse Cannabis Chief Financial Officer and Director of Real Estate Mike McKee told BIV that wholesale prices for legal cannabis in Canada are plummeting due to oversupply. This means McKee and other retailers may be paying $1 in excise tax per gram, or a 25% tax rate, on a wholesale price of $4 per gram.
Another industry complaint is that Ottawa imposes a 2.3 per cent regulatory fee on cannabis, but not on alcohol. Health Canada has no plans yet to change regulatory fees.
Anand said he believes the black market for cannabis remains strong in Canada because legal producers and retailers have to include additional taxes in their sales prices.
“We've probably moved 50 per cent out of the black market in six years, which is pretty good,” said Anand, who has been appealing to Health Canada officials. “There may be further changes.”
Many small regulatory changes underway
Perhaps Health Canada's regulatory changes include how cannabis products are packaged, and some retailers are excited about this.
It is expected that there will be no requirement that opaque packaging cover the entire package.
“Being able to have a clear point of contact for cannabis packaging has a huge impact from a sales perspective,” said Jaclyn Pehota, executive director of the Licensed Retail Cannabis Council of British Columbia.
The changes will allow customers to see what products they are purchasing.
“Now you're buying without knowing anything until you get home and open the bag,” she says.
The second major retail change likely would be for Ottawa to allow producers to package multiple products together, as long as the packages are under the 30-gram limit.
This means producers can sell more edible food in one outer package, Pehota said.
“Let’s say you have a pack of three pre-rolls,” she said. “Right now, they should all taste the same. This change will allow producers to create true variety pack pre-rolls with multiple different varieties in one package. It will happen.”
Strict packaging restrictions restricting images and celebrity endorsements are expected to continue. However, producers could be allowed to put a QR code on their packaging that links to a website with more information.
The good news for small producers is that the federal government is likely to allow small producers to farm on larger plots and grow their products in spaces of up to 800 meters, up from the current 200 meters. , Anand said.
B.C.'s small producers still sell their beef for a fee.
The state government began allowing handicraft and small producers to sell directly to customers in 2022, but the program has had little uptake due to high fees.
In addition to the fees that allow bureaucrats to conduct document reviews, license fees, and ongoing renewal fees, the British Columbia Liquor Distribution Branch (BCLDB) charges a 15 per cent commission on products sold directly to customers. It charges small producers a 15 percent fee. -Percent warehousing fee.
Therefore, the cost for a small producer to sell directly to a customer is the same as selling the product through BCLDB and having BCLDB cover warehousing and other costs.
A drastic change has occurred in the industry
Insolvency, bankruptcies, and creditor protection filings have defined the legalization landscape as regulatory and cost issues dash entrepreneurs' big dreams.
Take BC's Dan Sutton, for example.
After founding Tantalus Labs, a licensed producer to sell cannabis to medical patients, in 2012, he brought the company to the brink of profitability in early 2023, he told BIV at the time.
His business entered bankruptcy and insolvency proceedings in mid-2023, and in August his assets were purchased by Newfoundland's Atlantic Cultivation for an undisclosed sum.
He said Ottawa's excise tax structure was a major factor in killing the venture.
Sutton has since left the cannabis sector to serve as CEO of Synergetic, a company that claims to be leading the global transition from fossil fuels to synthetic fuels.
He told BIV last year that he was looking for non-cannabis-related work.
Image: Muse Cannabis CFO and real estate director Mike McKee told BIV that his five stores are profitable, which makes him positive about the future.
Many retail ventures are struggling.
Donnelly Group's cannabis arm, Lightbox Enterprises, went into creditor protection in late 2022, but at the time it had eight Dutch Love stores in B.C., about a dozen in Ontario and several in Alberta. Harrison Stoker, the company's chief growth officer, told BIV. . After that, over-the-counter sales began.
Regulatory hurdles are to blame for the downturn, Stoker said.
After legalization, the British Columbia government had a monopoly on cannabis delivery within the province for 34 months.
At the time, the government's online store was the only place B.C. customers could order legal cannabis online and have it delivered.
Illegal cannabis sellers are rampant online, and Attorney General Mike Farnworth told BIV at the time that police stings could be carried out.
The BC government then took steps in March 2020 to allow private legal cannabis retailers to conduct sales transactions online, but customers must complete payment, present identification, and purchase. I had to go to the store to pick up the item.
Five months later, in August 2020, the B.C. government began allowing licensed private cannabis retailers to sell products and receive payment online, but customers are still required to pick up their purchases at a brick-and-mortar store. There was a need.
It took until July 2021 for the B.C. government to allow legal private cannabis sellers to deliver their products directly to consumers.
Even then, the industry still faces complications, such as retailers having to own the vehicles they use to deliver cannabis and employees having to undergo police inspections and obtain state permits. A restriction had been imposed, but this restriction has continued since it was dropped.
Given the cost of vehicle insurance for cannabis deliveries, many stores do not offer that service.
McKee said cannabis retailers in B.C. can use Canada Post to deliver cannabis. However, to receive mailed items, customers must go to a Canada Post office.
“I don’t want to wait for those types of deliveries,” he said of cannabis.
“We want it delivered within an hour or right after that. Mailing it in and having to go pick it up is not how consumers want to order products.”
McKee said his five cannabis stores are profitable and he is positive about the future. He said the company is looking for a viable location to expand into a new store.
Gary Carver is another optimistic cannabis retailer.
He said he intended to buy the four Dutch Love stores and keep the chain's name to protect creditors.
“We were running a pharmacy,” he said, explaining why he thought he had the expertise to turn the business around.
“We already have a good understanding of retail and how to handle sensitive items. We're profitable.”
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