Finance Committee on Oct. 26th, 2023

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Baker for that.

We do have a great group of witnesses here. We would like to respect the witnesses, and we would like to get back to the questions and answers.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

We would like to respectfully challenge the chair, and this is why:

We believe that the motion directly talks about spending, and pre-budget consultations are primarily about how the government is spending the resources. We believe we're solidly within the topics raised today and, in fact, that testimony was not only raised once but multiple times at this committee prior to bringing the motion. One of the things that of course Conservatives are keen on, and that, in fact, we've heard from Mr. Asselin as well as numerous other witnesses, is that spending should be brought under control and that monetary and fiscal policies should be brought together as opposed to operating separately.

As John Manley said, this government continues to hit the inflationary gas pedal, and we need that to stop so that Canadians can keep a roof over their heads.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Lawrence.

The question is whether the decision of the chair should be sustained.

(Decision of the chair sustained: yeas 7; nays 4)

The decision is sustained, so we'll get back to our questions and answers.

MP Hallan you have a minute.

[Jasraj Singh Hallan, Conservative, Calgary Forest Lawn, AB]

Mr. Asselin, Phil Cross appeared before our committee recently and reiterated his concerns about Canada's productivity. He noted productivity as low as it was in the 1930s—the Great Depression, literally.

Professor Ian Lee, and the former governor of the Bank of Canada, David Dodge, also warned about Canada's declining productivity.

How concerned are you guys about the impact of these high interest rates, low productivity and the lack of investment coming into Canada? Is there a link between those?

[Robert Asselin]

Mr. Chair, absolutely.

Structurally, these things cannot continue, otherwise our living standards will decline, unfortunately, as a country.

I'm happy to see the wage increases for workers right now, but they're not sustainable if we don't have the productivity that comes with them. At some point, we're going to have to become more innovative and productive to sustain these wage increases. Otherwise, they will be inflationary, and it will just make the Bank of Canada's job more difficult, unfortunately.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Hallan.

Now we're going to MP Weiler, please.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, Chair.

I appreciate getting back to the testimony from our esteemed witnesses. I appreciate what they've already provided to our committee today.

I would like to turn my questions to Mr. Smitherman and the Cannabis Council of Canada.

It's really incredible to think that an economic sector that was created out of nothing in just three years invested $45 billion into the Canadian economy and 150,000 broadly distributed jobs across Canada through the legalization of cannabis.

Given that cumulative taxes have reached the level you mentioned, it's not surprising that so few companies are at profitability today. I understand that the structure and formula of the excise tax has greatly contributed to the relative tax that's paid by producers and that this formula may have been based on an assumption that no longer holds true.

I was hoping you could explain this to the committee.

[George Smitherman]

Thank you so much for the question and for your interest in our sector.

At the heart of it, when cannabis was first proposed for adult use through recreational legalization, the premise that Finance advanced was that a $10 gram would have a $1 tax. We have the $1 tax—it never changes—but the gram is $3.50, so the ratio of the tax is enormous. Actually, as our producers have reduced prices—anti-inflationary—over the last number of years, the implication has been that the ratio of the tax has even grown.

When you look at, say, a one ounce bag, 28 grams, which is a pretty common purchase, upwards of 50¢ or frequently 60¢ on the dollar is going to government in one form or another. This varies by province because we have a lot of different models out there. It's just not leaving enough for the regulated sector on either side—that's the retailers, and the producers that I represent, who've been involved in that $45-billion investment in those first three years—which produced, by the way, out of that $45 billion alone, $15 billion in taxes for governments in all forms.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

What impact would returning the tax structure to the original intent of 10% have on the profitability of the sector?

[George Smitherman]

I think that the impact would be that we'd be doing a better job of fulfilling the obligations of legalization, which included getting as many cannabis-consuming Canadians as possible to consume safer and tested products.

The impact on profitability would be very positive, and the impact of that would be that cannabis companies would be able to pay taxes across the range of taxes, rather than just seeking to pay their excise.

Seventeen per cent of companies being profitable after five years is a significant canary in the coal mine for those many companies that are invested and are operating in communities, many of them in small, rural and relatively remote communities. They're operating in very challenging constrained times, as there is no additional capital available for the sector.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Further to that, you also mentioned in your opening statement that the sector is facing challenges accessing basic financial services or facing usurious rates if they do.

I was hoping you could please explain to the committee why that is and what that looks like.

[George Smitherman]

It's a situation where the big banks don't have any interest in participating in providing services to small companies. I run an industry association that does not touch cannabis. TD Bank, which is my historic banker, doesn't want to touch our association. We're forced to go and get our services from Alterna Savings. They charge our association, which doesn't touch cannabis, an extra $4,000 a year and $100 a month just for the privilege of having operating accounts. Those independent retailers that many of you will have in your ridings, depending on the province you're from—understand that those retailers are burdened with the lack of access to financial services and are frequently forced to pay outrageous amounts just to get basic banking services.

Another point mentioned by Alex was that they are sometimes proprietary, such as the big banks around the use of the Interac system. One of the ironies is that our legitimate, legalized, regulated sector does not have access to financial services, but the same banks and their Interac system operate and provide lots of services to the online illicit market. As well, Canada Post delivers those illicit products. There's a real stinging irony to that circumstance for many in the legalized cannabis sector.

[The Chair, Liberal, Peter Fonseca]

Thank you, MP Weiler.

I'm just looking at the time. I want to get through another round. This will be our third round. I will have to be pretty strict on the time. I'll say [Inaudible—Editor] MP Ste-Marie for that.

We'll start with MP Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair.

Mr. Smitherman, welcome. It's always nice to see a neighbour here at committee.

I want to stay with you for a minute on the excise tax. I understand the principal basis for which we might request that the government review their position. If they're not inclined to do so, there's also an issue or an opportunity with labelling, is there not, to reduce the costs placed on producers that could save them significant amounts of money?

[George Smitherman]

Yes. The operation of the excise tax, which includes this stamp, quite an onerous application on the wide variety of products that we have, as well as the means of remitting excise in its own right are two operational matters that could be addressed and significantly assist with bottom-line costs for cannabis operators.

I could say also that we pay a regulatory fee. That is a priority that we have advanced to the government that they might get at to offer more urgent relief.

[Adam Chambers, Conservative, Simcoe North, ON]

My understanding is that the overburdened requirements for physical labelling create a lot of costs for producers. If you moved to accepting a digital label or a scanned QR code, you wouldn't even have to touch the excise tax. You could strip out a lot of cost for industry, correct?

[George Smitherman]

Yes, it's true. In a certain sense, this is what we might call a non-cost item for government—or for “governments”, because obviously the provinces and territories are partners in this matter. That would be an opportunity to significantly abate operating costs.

For anyone who has purchased a cannabis product, and if you haven't, go try one out—

[Voices]

Oh, oh!

[George Smitherman]

—we have a range of products.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Did you bring samples?

[George Smitherman]

We can't bring samples, sadly. That's not legal. But I was anticipating the question.

[Voices]

Oh, oh!

[George Smitherman]

For anybody who's witnessed it, we have a stamp model where for every province and territory a producer must apply that province or territory's stamp. They're really tricky. It's pretty much a manual process. That makes it very expensive.

The worst is the circumstance where you ship your product to Saskatchewan, let's say, and it isn't moving. If you want to bring it back and reapply it into Manitoba, the stamps have to be removed by hand. They have to be stuck to a piece of paper. They have to be resubmitted to CRA. For any one that you lose, you have a $30 fine and six months to wait to get paid back, etc. This is an area of significant opportunity for operational cost reduction without losing anything, if you will, from the revenue side for governments.

[Adam Chambers, Conservative, Simcoe North, ON]

How many times per year is a producer audited by CRA?

[George Smitherman]

The producer is audited by CRA at least quarterly, I think. The thing is that audits that were in place before COVID fell off during COVID, which created quite a conundrum for a lot of companies who got kind of out of sorts with CRA. That is causing some very, very aggressive collection work at the moment.

There's also a lot of duplicative auditing. We have a regulatory system called CTLS that Health Canada runs. Very frequently the audits that we're involved in with CRA are a duplication of the same information that's already been shared in those systems.