B.C.’s cannabis sector struggled through 2023, with many ventures selling assets after being forced into creditor protection.
One sign of how much share prices have fallen for public cannabis companies came on Dec. 15, when large licensed producer Canopy Growth Corp. (TSX:WEED) consolidated its shares, bundling each 10 shares that shareholders previously owned into one new share.
The sector is bracing for 2024 to be another year when business owners in the legal sector are forced to pay high fees and taxes that counterparts in the black market do not need to factor into business models. Sales are up, but profit is way down.
The result could be more bankruptcies and restructurings.
High taxes and fees were likely partly to blame for Lightbox Enterprises Ltd. entering creditor protection, and then selling four Dutch Love cannabis stores to Calgary-based pot retailer SNDL for $7.8 million in March.
In August, Atlantic Cultivation acquired the insolvent Tantalus Labs brand for an undisclosed sum.
ASDA Consultancy Services advisor and principal Deepak Anand told BIV he spoke with federal officials about how to improve the Cannabis Act and lobbied those writing Health Canada’s final report to Parliament on proposed changes to that legislation.
“There’s a number of things wrapped up in that document,” he said of the report expected to be tabled in Parliament in March.
Potential tax changes will be in the forefront.
Anand expects Ottawa to provide some tax relief for cannabis-sector entrepreneurs.
He estimated that taxes and fees contribute to be approximately 60 per cent of the price of retail cannabis. The industry has been lobbying the federal government for changes for years and this year could be the year change comes, Anand said.
The excise tax is one area that will likely see a change, Anand suggested.
Ottawa put in place an excise tax when it legalized cannabis in 2019. The tax was to be either $1 per gram, or 10 per cent of the price of the cannabis sold, whichever is more. The federal government created that taxation system because it expected a $10 wholesale price for one gram of cannabis.
Licensed producers then swamped the market with cannabis, leading to the wholesale price for a gram of marijuana sinking to less than $4 per gram. With $1 needing to be paid as an excise tax, that lifted the excise tax rate to around 25 per cent.
“I don’t think the excise tax will be removed in its entirety, but there will be some changes," Anand said.
Regulations around edibles could also change.
One scenario could be that the government increases the allowable amount of the active ingredient Tetrahydrocannabinol (THC) in edibles.
Manufacturers are now limited to a maximum of 10 milligrams of THC per package of edibles. The industry wants to see that limit rise to be 100 milligrams per package, Anand said.
“Anything between 20 and 100 milligrams is probably going to be ideal for the industry,” he said.
“There will be some give on that.”
A third element of cannabis regulation that the government could change in 2024 relates to the medical-authorization system.
Canadian doctors provide medical authorizations to patients that they deem could benefit from cannabis. These are technically not “prescriptions” because cannabis does not have a drug identification number, which pharmacists need to dispense drugs.
Patients use their medical authorizations to buy cannabis directly from licensed producers, or to grow their own cannabis – sometimes in quantities much greater than would otherwise be allowed by law.
Former Canadian health minister and justice minister Anne McLellan, who chaired the federal task force on marijuana legalization and regulation in 2016 and 2017, told BIV in 2018 that she believed that the medically authorized class of grower should be eliminated. She then predicted that this change could come the next time the government reviewed cannabis regulations – then slated for 2023.
Anand said he expects tweaks to the medical-authorization sales stream, but that he doubts a full-scale elimination of that retail channel is possible.
“We've had a number of court challenges around access to cannabis so I don't think that even if the government wanted to remove it, and delete it, that it would be something that would happen because of various legal precedents,” he said.
Instead of outright removal, Anand predicted that the government in 2024 could somehow tweak laws to enable pharmacies, such as London Drugs or Shoppers Drug Mart, to dispense cannabis to medical patients.
The lack of drug identification numbers for cannabis has so far been one stumbling block in making that business possible.
