Agriculture Committee on June 20th, 2022

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

Thank you for that.

The next question I'd like to ask is of the Cannabis Council.

One of the issues you raised in your opening was the challenges of taxes, fees and markups. I am hoping you could maybe speak a little bit more to this, particularly on the impact of the excise tax and how that, in practice, has been much higher than it would be perceived to be on the bottom line for a lot of the cannabis producers.

[George Smitherman]

Mr. Chair, I'd like my colleague, Jackie Menezes, to answer that question.

We had a recent EY report that she could refer to the committee. Also, Mr. Weiler is her member of Parliament, so it seems very fitting.

Go ahead, Jackie.

[Jacqueline Menezes, Advocacy Consultant, Cannabis Council of Canada]

Patrick, could you ask the question again? Sorry.

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

Absolutely. I was just asking about the impact of the excise tax and how, in practice, it's had a much larger impact to the bottom line of cannabis producers than was originally foreseen by Health Canada.

[Jacqueline Menezes]

Thank you, Patrick.

It has had a massive effect on people, on licensed producers particularly, because they now pay up to 40%, I believe—correct, George?—in excise tax. It was supposed to be a one-to-one excise tax and, with the lowering of the price of cannabis at the retail sector, the excise tax has gone up, so licensed producers now see less of their profits. They're shrinking, and this is having a devastating effect on the—

[The Chair, Liberal, Kody Blois]

Unfortunately we're going to have to leave it at that.

Thank you, Ms. Menezes.

Thank you, Mr. Weiler. I gave a few extra seconds so we could get that on the record.

Mr. Perron, you now have the floor for six minutes. Go ahead.

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

Thank you very much, Mr. Chair.

Thank you to the witnesses with us today.

My first question is for Mr. Deighton.

Mr. Deighton, you expressed the opinion that Health Canada does not have either the necessary experience or knowledge to regulate this sector. Yet this product is often used for therapeutic purposes. So there is a connection and a particular interest.

In Quebec, distribution is not the same as in your province. In Quebec, it is controlled by the Quebec government.

Earlier, you mentioned the personal grow exemption for therapeutic use. What I see is the opposite of overregulation. Actually, a number of municipalities in Quebec say that the permits are handed out quite quickly, without consideration for the immediate environment and where the plants are grown.

Do you have any comments on that?

[David Hurford]

My sincere apologies; the translation was not working in my headset, so I'm not sure where the question went.

[George Smitherman]

I could offer—

[The Chair, Liberal, Kody Blois]

I'm going to stop the clock just quickly.

For our witnesses, my apologies that this wasn't clear. There is an ability to toggle between English and French, so perhaps that might not have been what happened in your case, Mr. Hurford.

Mr. Smitherman, I'll turn to you.

[George Smitherman]

Thank you.

With respect to the reference to B.C. and then the SQDC, one of the realities that we face is the Canadian patchwork. As the provinces and territories have had various approaches to distribution, this has created a lot of very unique models and some very significant challenges for licensed producers. They're often shipping their products to multiple jurisdictions.

On the second point, I would have to say that we as an industry have echoed concerns raised by many provinces and territories with respect to what might be described as the “porous nature” of the personal grow. We have often felt that the number of plants involved was out of character with the good intentions of the program.

There are many comments and criticisms on the record related to that program. Health Canada did some modest tweaking last year, but we think there is area for more improvement in tightening that program to its perfect intentions.

Thank you.

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

You said the program has to be tightened up.

Mr. Deighton, I hope you have access to interpretation.

I was referring to the problems experienced by a number of municipalities in Quebec with regard to the regulation of dwellings located in the heart of urban communities. I am not questioning the legalization of cannabis or its use for medical or personal purposes, but the environment needs to be considered.

In some cases, the odour coming from fans was blown into school yards. In other cases, neighbours complained of being inconvenienced by the odour, but the municipalities' hands were tied. They were told that the individuals had permits, and even the police could not do anything. So I think there is a loophole and I would like some information about that.

Do you have the same problem?

Small growing operations and micro-cultivation are in a sector where there is agricultural production, so those inconveniences do not occur. Can you reassure me about that?

[Timothy Deighton]

I think a reasonable situation for that is what we do in our regional district. They can have a smell aspect to the regional laws of what is allowable. It's very easy to contain that as far as the production of cannabis goes in maintaining the smells. They are probably improperly ventilating and filtering the smells. A solution would be through the regional district.

I also wanted to slide in what David said about the canopy size and what it should be expanded to. I think that whole thing should be scrapped and it should be made a production limit. It has nothing to do with how big a plant you have or anything. It's what you produce. It would be much easier for everyone to adhere to a certain production limit and be able to tax it.

That is a major thing I think should change to just production limits.

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

Thank you.

I will come back to regulation on my next turn.

The legalization of cannabis was intended in particular to eliminate the black market for cannabis. That seems to have worked reasonably well, and it seems there are a lot of black market transactions. Several of you have said it is impossible for illegal producers to transition to the legal market.

What are the difficulties?

[Timothy Deighton]

The main obstacles are the cost of transitioning and the lack of support in helping these people transition to the legal market. Unless you have vast business experience, you can't be a farmer and transition.

They have set it up in such a way that it is impossible for a farmer to be just a farmer. You have to be a full-time businessman and know policy, as well, which makes it almost impossible.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Deighton.

Thank you, Mr. Perron.

Mr. MacGregor has the floor for six minutes.

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

Thank you very much, Mr. Chair.

Again, thank you to all of our witnesses for joining us today.

One of the reasons I wanted to have this meeting at the Standing Committee on Agriculture and Agri-Food is that this committee focuses on the challenges that farmers experience in growing. It is a high-risk environment right across the field.

We are very familiar with the frustrations with Health Canada. That is not only from the committee membership, but also from many of the witnesses. Farming is a sector that runs into Health Canada regulations on a daily basis. I think at this committee, you will find a much more sympathetic view to the challenges you experience in the growing aspect.

Mr. Hurford, I would like to start with you. It's really to continue your interaction with Mr. Weiler on the programs that are available through Agriculture and Agri-Food Canada.

You mentioned in your letter to the minister that you wanted official recognition across all federal programs that cannabis is a legitimate farming activity. You also wanted to see that craft cannabis farmers and processors have access to the capital, grants and small business loans available to other agricultural sectors.

Can you clarify for the committee, when you look at the business risk management suite of programs, the federal Crown corporation and Farm Credit Canada, is it currently true that craft farmers don't have access to those, like other agricultural activities do?

[David Hurford]

That's largely correct. It's really a patchwork across the country. There doesn't seem to be a lot of consistency to it, but generally, the answer is no when our members go in. There have been some exceptions. Community Futures. for example, has done some good work in British Columbia as well.

We're also looking, of course, at regional economic development agencies in addition to Agriculture Canada. For example, in British Columbia, we've just created a Pacific economic development agency that's focused squarely on growth sectors of the economy.

We think it isn't just the agriculture programs, but I think you could pretty well go through the full suite of agriculture programs and nine times out of 10, you're going to see cannabis as ineligible, particularly for the credit programs. Late-stage applicants can't even get bank accounts at this stage. Even for licence-holders, it's amazing to me how their banks are charging them huge amounts of money if they're even able to get an account. Insurance is whole different discussion; we have some farmers who are giving up their house insurance to be able to get the insurance for their small farm. All the cards are stacked against these farmers; the system appears to be built to fail. Even when Tim gets through the process, there are a whole bunch of challenges waiting for him. For example, we haven't talked about the CRA and other things like that.

It really is these kinds of grants, these kinds of.... Even economic development grants from municipalities and from indigenous governments have downloaded a significant amount of costs as well. There's no incentive, really, for municipalities to jump on board and say they want a whole bunch of craft cannabis farmers there; it's just cost and work for them as well. We think even in a case like Lytton, where the town needs to be rebuilt, there are incredible opportunities there to rebuild it around agriculture, and the agriculture we're talking about is cannabis.

I think nine times out of 10, the answer to the question on existing agriculture programs applying to small farmers is no.

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

Sorry to interrupt, Mr. Hurford. That's perfect. I have a few other questions for some of other witnesses, but we do want to get those points drilled down for our committee to make recommendations on.

Mr. Deighton, I'd like to turn to you. You took the time to explain that Sweetgrass has gone through the trouble to become a certified organic company, so congrats on that. I know for the craft industry as a whole, whatever sector you're in, for instance if you look at craft breweries, they're often taking the time to tell a story about how their business came into being, the extra love and quality that they put into the product they make, the extra steps they go to make sure their environment and growing practices are in harmony with the environment. I'm assuming from what you told us that the labelling requirements are so strict your company is not able to really tell that story on the product that it sells. Can you expand a little bit more on that?

[Timothy Deighton]

Yes, a huge issue we're having is telling the story of our growing practices, for example. We're in live soil and are using mountain water. There's the care that our team puts into it, and none of this can be shared, even in a picture on the label. This is a big thing that needs to change. We have a beautiful company video that we've been flagged for recently because while we were describing a day in the life of one of our employees, there was an animal in the video and we were flagged for that. Then there are other companies that are able to skirt the laws around it and have inappropriate material in their videos, but because they're a brand, they're able to do that. Yes, these are things that I'd like to have the same as the wine industry does, and we'd be able to use local artists to do our packaging and tell the story. Everything you said there is so correct and what is needed for the craft industry to actually be able to be appreciated and so forth.

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

Thanks, in the last 15 seconds, that's also on the certification, right? You're not allowed to tell whether you've been certified organic or if you're employing regenerative farming methods either, right? Quickly on that, please.

[Timothy Deighton]

No, that is not correct. We are able to say that we are certified organic, but that is an issue as well with organic cannabis because we are not recognized as an organic product by the Canadian government and its independent regulatory certifications.

[The Chair, Liberal, Kody Blois]

Thank you, Mr. Deighton and Mr. MacGregor.

Mr. Barlow for five minutes.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair.

I want to pick up on the questions to Ms. Menezes. I don't know if she had a chance to complete her answer. I certainly appreciate it when my Liberal colleague, Mr. Weiler, brings up the concerns with the excise tax, which the Liberal members have been identifying as a problem, since we've been discussing this since the excise tax was increased.

Ms. Menezes, the excise tax is indexed to inflation. I'm curious if your industry has done any analysis of this. Obviously, this is impacting and impeding your industry's ability to grow as it already stands, but next year, when we see inflation at 6% to 8%, or maybe 9%, and when this is set in the fall, have you done any analysis of what the excise tax could possibly be when you see it doubled, if not maybe tripled, from what you're used to?

[Jacqueline Menezes]

We have recently done a study, thanks to Deloitte, and we will look at the inflationary impacts.

I'm going to throw it to George to see if there are any other further impacts beyond what Deloitte mentioned.