The Collapse Of Craft Cannabis Farms In Canada: Coalition Calls For Government Intervention

The Cannabis Council of Canada, the Canadian Chamber of Commerce and StandForCraft.com, a coalition of 45 cannabis cultivators and processors self-identifying as small to medium enterprises endorsed a short-form working paper "demonstrating the immediate need for Government intervention" to save "failing small businesses" in the Canadian cannabis market.

“Even the most commercially successful and efficiently run farms cannot continue to operate in an environment that often federally taxes them in excess of 30% of monthly top-line revenues. No other consumer-facing industry in Canada is taxed to this extreme. Certainly none with a widespread and low-cost illicit competitor that does not bear the burdens of tax nor regulatory compliance,” reads the statement.

An Alarm For Action

The Cannabis Council of Canada, the national and international representative of Canada’s licensed producers and processors of cannabis, supports the call for urgent action “in response to the unprecedented financial crisis raging in the legal cannabis sector.”

George Smitherman, president and CEO of the Cannabis Council explained that the extraordinary increase in cannabis producers who have fallen into default with CRA due to “oversized excise tax obligations is an alarm for action."

Michael Harvey, VP of Policy and International for the Canadian Chamber of Commerce called Canada’s excise tax regime “inefficient” and said it imposes significant administrative and economic burdens on businesses, especially small-scale cultivators and processors.

“The legal sector, therefore, risks being uncompetitive with the illegal market given that these illicit businesses are not required to pay the cost of compliance. Reform is needed now more than ever to help our legal sector grow and displace the legacy market,” Harvey said.

What’s In The Report?

According to the release, the paper demonstrates a “systemic lack of breakeven income levels for firms large and small across the sector,” and “articulates a specialized need to preserve small business participation in Canada’s nascent cannabis industry with targeted relief combatting the growing balance of ~$100m currently overdue to the Canada Revenue Agency (CRA).”

The coalition pointed out that companies cultivating and processing cannabis in the Canadian industry are "likely ~98% absent self-sustaining breakeven income."

“Two-thirds of reporting entities owe CRA an exponentially widening outstanding debt. 47% of all CCAA filings in the first six months of 2022 came from the cannabis industry. These financial metrics demonstrate the desperate reality of material over-taxation, with end consumers paying well over half of their retail price to federal excise and provincial markups,” per the release.

Recommendations From The Ground Up

StandforCraft recommends several proven policy strategies, including:
● Moving to a 10% tax rate that adapts to price fluctuation
● Graduating taxation based on production volume, prioritizing small business participation
● Unifying a national excise stamp
● Normalizing payment terms to align provincial payables with excise timelines
● Encouraging provinces to rationalize markups and tariffs
● Eliminating Health Canada’s 2.3% regulatory fee

“The time for intervention has come and gone, and without immediate action, the participation of small businesses in the future of legal Canadian cannabis is materially at risk,” said Dan Sutton, StandforCraft founder.

The coalition is recommending short-term roundtable emergency intervention planning inclusive of small businesses, the Health Ministry, the Finance Ministry, Innovation, Science and Economic Development (ISED) and the Canada Revenue Agency (CRA).

Photo by Issy Bailey on Unsplash.