Agriculture Committee on June 20th, 2022

[George Smitherman]

Chair, two different studies have been out there in the cannabis space recently, with Deloitte showing that the sector contributes $45 billion in GDP. More recently, we put out the first phase of an EY study that shows that the governmental collective appetite for taxes is coming in at the 25% to 40% range. Tax on cannabis was characterized first as at 10%, $1 in $10, but the floor has fallen out on the $10, and it's $3.50 or whatever, but the tax ratio has only grown as we've seen price de-escalation.

Cannabis, especially the dry flower, becomes like a commodity. The commodity was projected to be $10 per gram, with $1 of that as tax. We now have a commodity that's often $3.50 per gram, and the tax is still $1, so the proportionate aspect is out of control.

The inflationary piece that you mentioned, Mr. Member of Parliament, I need to check on, because I'm not sure it applies to us in the same way that it does to beer and other excises, but I may be wrong. You'll forgive me for taking a moment to go back and get my facts straight. I'll send information along to all members of the committee related to the EY report that focused in a lot on this overall tax bite, which is making it very difficult for all sizes of growers.

[John Barlow, Conservative, Foothills, AB]

Certainly, I'd give you that opportunity to go back and find that out. I don't want to make an assumption, but I would assume that you're being treated the same as wine, spirits and beer.

Ms. Menezes, you have a Liberal member of Parliament, and I would certainly go back to Mr. Weiler and say, “Your government needs to change it tack on the excise tax and listen to Conservatives on this issue.”

[Voices]

Oh, oh!

[John Barlow, Conservative, Foothills, AB]

It's a team effort here; it's a team effort.

In showing that it's a team effort, I'm going to relinquish the rest of my time to Mr. MacGregor.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you, Chair. How much time do I have?

[The Chair, Liberal, Kody Blois]

You have a minute and a half.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you, Mr. Barlow, for that.

Mr. Hurford, maybe I'll turn to you. We had a great submission from the Kootenay Cannabis Economic Development Council. In one of their sections, they were talking about the microbial limits placed on cannabis and the fact that the product needs to be irradiated to get rid of it. Often when small craft farmers are growing, especially with regenerative methods, that soil biology is incredibly important to producing a top-quality product. Can you maybe tell us about those stringent requirements and how maybe they're placing an added burden on the craft cannabis industry?

[David Hurford]

Absolutely, and I congratulate the Kootenay council for their excellent work. Tim may be able to give you a better technical answer on this.

I think the broader scope, particularly around the issues of microbes, is that the laws have really been brought in without a lot of engagement and consultation with the experts. This is a good example, I think, where we have a “made in Ottawa” policy that really doesn't reflect what's going on, and it has some unintended consequences for the sector.

I hope this will be a key point that we can delve into as we review the Cannabis Act, because it really does prohibit a lot of the practices that we want to see, such as regenerative farming in traditional soils and giving back to the earth instead of taking away from it. We pioneer that in British Columbia, and we're very proud of it.

I think this is one of those examples of where a lack of engagement and a lack of consultation with experts really has created some unintended consequences.

I might defer to Tim a little bit more on the details on that question—

[The Chair, Liberal, Kody Blois]

We're at time, Mr. Hurford.

Thank you, Mr. MacGregor.

I'm going to turn to Mr. Drouin now for up to five minutes.

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Thank you, Mr. Chair.

I want to thank the witnesses who took the time to appear before us.

I also want to thank my colleague Mr. MacGregor for putting this motion forward. I think it's an issue that we normally wouldn't have discussed here at the agriculture committee, but there is a sense that cannabis is a crop and that it should be treated as such.

My question is an open question, but maybe I'll go to the council first and Mr. Smitherman.

Can you talk to me about the growth and economics of this sector? Are analysts saying that there will be important growth over the next one, two, three, four or five years? What are the biggest impediments from government regulations that could impede that growth?

[George Smitherman]

I would say there is still a pattern of growth that's possible, but we're seriously at risk of stymying that growth if we don't take means to address a combination of three things that lead up to a very entrenched illicit market still having a good go at things.

We have this tax issue that I have put on the table, the combination of taxes and fees. The provinces are big beneficiaries of these resources, of course, if we're forthright about it, but the burden of those collectively, as the EY report shows, is very challenging to sustain.

Second, there are a lot of regulations, which nobody is surprised by, but now we know that a lot of the assumptions behind the regulations are just plain wrong, and the statutory review looks like a very slow process to get the change that a lot of people need more immediately, so I'll just put a circle around that.

What we're really concerned about, Mr. Drouin, is that we would see a situation where we stop growing and we get locked into what we would think is approximately a fifty-fifty situation between the legacy markets and the regulated marketplace.

Our argument—and this is the work that we're doing in the second stage of our study—will be to show all governments that if we take steps together, we can grow the pie, and we can get more of the sales under a regulated framework, which provides certainty for a certain number of public health objectives and really important economic objectives for individuals, for communities and for government.

We're a little concerned that the growth potential that's there as we bring on more of those legacy consumers is being stymied by a series of constraints and that a few years hence we might look back and ask where we went wrong and why we have only gotten halfway there.

[David Hurford]

Those are good points. I would add that the restrictive micro-class regulations are really the gift that keeps giving to the illicit market. What we're seeing is consumers are really voting with their feet. They don't have the product they want on the store shelves. They don't have fresh, locally grown cannabis available in their local legal store.

With only 80 farmers approved in B.C. in the first four years of legalization, it's almost impossible to find that product anywhere. As long as we continue to restrict access to the market, to the expert farmers—and we're talking about thousands of B.C. farmers being needed to meet a local supply, as consumers want to buy local—to meet the national demand for B.C. bud and the growing global market for B.C. cannabis.... Other countries are coming on board, and B.C. has an incredible reputation. As I said, it is an asset for our country that we have the best cannabis farmers in the world here in B.C. and across Canada.

There are great craft farmers across the country. As long as the government continues to restrict access to these expert farmers, and as long as they continue to deprive consumers of what they really want—fresh, locally grown cannabis—I fear that the current dynamic is just going to continue and that we're going to start losing these farmers. We're already seeing farmers who fought long and hard to get a micro licence just walk away from it, which is very sad.

There are thousands and thousands of jobs at stake in rural communities. We see rural communities suffering with layoffs in forestry and fisheries, and large producers are laying people off in rural communities. Here we have a whole network of expert farmers who are just waiting to join the market, give consumers what they want and create—

[Francis Drouin, Liberal, Glengarry—Prescott—Russell, ON]

Mr. Hurford, is the impediment to growth and micro licensing because operations such as yours or the ones you know in B.C. want to grow and can't expand, or is it that startups are not able to access these licences because there is either too much upfront cost to get going, or they submit an application, and they don't hear back from Health Canada for months and months and months?

[David Hurford]

It's all of the above, and the stigma that still exists—

[The Chair, Liberal, Kody Blois]

Mr. Hurford, we're going to leave it at that because that's perfect timing.

Mr. Perron, you have the floor for two and a half minutes.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Thank you, Mr. Chair.

My question is for Mr. Deighton.

You said that Health Canada does not have the necessary knowledge and expertise to regulate this industry and that it takes too long. This is obviously not the only instance of things taking a long time.

In your opinion, what would constitute effective regulations? Who could regulate cannabis cultivation for medical purposes?

[Timothy Deighton]

Medical cannabis and recreational cannabis are all in one. You're just selling from the recreational market to the medical market, so it's just making it available. It goes back to allowing quality craft product being available to the medical market and ways of making licensing easier and faster, and just more support. One of the key things I said was that you're not even allowed to apply for a micro cultivation license until you have your building almost completely finished. There is no other industry in the world that would have that requirement, and it deters every cultivator from even moving forward, because you're having to put up a million dollars before you even know you can get a licence.

That is one of the major roadblocks to anyone moving forward. That is a hard stop for a lot of people wanting to transition.

[Yves Perron, Bloc, Berthier—Maskinongé, QC]

Essentially, the difficulties stem from the fact that the system really favours larger companies over smaller ones, which might have specialized or organic products, and so forth. I think that has been clearly established.

How can we facilitate this development without creating the difficulties I mentioned earlier for nearby regions?

You seem to be saying that your regional and local regulations take precedence over production permits. That does not seem to be the case in Quebec though.

Would it be possible to follow the example of British Columbia, if that would not cause problems for you?

[Timothy Deighton]

I'm not quite understanding what your question is.

[David Hurford]

I can help there a a little bit.

[The Chair, Liberal, Kody Blois]

Okay. Thank you.

Mr. Hurford, just 20 seconds if you could.

[David Hurford]

We are working very closely with the Quebec association on exactly that, namely, the ways that we can share experiences and learn from each other. I think there are definitely models that we can work off of together.

Through innovation on issues like smell and odour, prohibition has really held back innovations in those areas. We believe there is lots of technology that can address some of those very legitimate concerns that municipalities have as well.

The answer to that question is yes.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Hurford.

Thank you, Mr. Perron.

Mr. MacGregor, over to you to finish up.

[Alistair MacGregor, NDP, Cowichan—Malahat—Langford, BC]

Thank you very much, Mr. Chair.

On this whole issue of trying to get the legacy growers to come into the licit market, it has been a story of challenges. We know that in many small towns in B.C. during tough times, cannabis sales are what have kept many of those towns going. If we do want to have that success, I want to drill down on this issue of the constraints that currently exist to outdoor micro licences.

Mr. Hurford, there have been proposals to not have it really based on canopy size but on the volume harvested. There have been further proposals that the licensing system should be graduated so that, first of all, a company can start with the smallest one. If they can become quite successful and they see that the demand is outpacing what they're able to supply, they can graduate to a bigger licence.

Can you maybe fill in the blanks for us and provide a little more detail on the specifics you'd like to see on those proposals just so that our committee can make as accurate a recommendation as possible?

[David Hurford]

I'll be brief.

I don't disagree with what Tim said earlier on the measurement, but given how difficult it is to move Health Canada—they're stuck on square feet—we felt it was just easier to continue down that road, but I think the Cannabis Act review should help that. We know it should be larger, and we know doubling the current size is very doable.

The last thing I would say is that I would really start with the medical farmers. We have 35,000 licensed medical farmers in this country who have been producing medical cannabis with some challenges along the way, as we've heard. We should start with them. These are expert farmers. None of them have really been approached in any systemic way to say, would you like to transition?

The BC Centre for Disease Control tested the cannabis coming from these medical farmers and found that 15% to 20% of all of the cannabis they're producing could pass the testing regime right now. I would start in a systemic way with really looking at all of those medical farmers who are in the system, who have done their checks, and the municipal government knows they're there, and to start looking at systemically transitioning them into the legal marketplace, or recognizing that these are expert growers and then working our way up from there. Then we could maybe provide a little more flexibility on the top end of the micro category for people to grow.