Finance Committee on May 9th, 2018

[The Chair, Liberal, Wayne Easter]

I will call the meeting to order.

As everyone knows by now, per the order of reference of Monday, April 23, we are dealing with Bill C-74, the budget implementation bill for the February 27 budget of this year.

We have quite a number of witnesses this afternoon. We're starting a little late and have a hard stop tonight at 5:30. Sometimes we can go a little beyond the time, but we can't tonight. We will ask the witnesses to try to hold their remarks to five minutes, and we'll shorten the question times for members as well so we can get as much done as possible.

We'll start with Ms. Annie MacEachern, as an individual, a colleague of mine from Prince Edward Island. Welcome, Annie.

[Annie MacEachern, As an Individual]

Thank you.

Good afternoon, Mr. Chairman and committee members. Thank you very much for having me here today to discuss the amendments to the excise tax, specifically around medical cannabis. I am here today because I fear for my rights as a medical cannabis patient and for all patients who choose cannabis.

I have been actively involved in following the progress of Bill C-45 and Bill C-46 to ensure that the rights of medical cannabis patients aren't being forgotten. I have watched hours of committee meetings on ParlVu and CPAC. I have hosted public discussions in Prince Edward Island. I have written letters to members of Parliament and senators, and I've met with local MLAs, MPs, and senators and, of course, patients. Despite my best efforts I am still here fighting for safe and fair access to a treatment that I have been prescribed by my doctor.

My goal in speaking with you today is to fill in some of the gaps in the general understanding of medical cannabis, to inform you of the obstacles medical cannabis patients face, and of how the additional excise tax will only further its inaccessibility.

The myth that non-medical users will seek a licence to access medical cannabis to save one dollar a gram is simply false. The ACMPR program is not a more convenient or a less expensive way to access cannabis, especially when retail stores will be a legal option. Patients are required to order their prescribed cannabis online, as it is not available in storefronts. The shipping costs vary by licensed producers, but they range from $10 to $20 per shipment. Logically, it would make sense for patients to fill their prescription in one order to avoid multiple shipping costs per month, but many patients are living on one income or with financial assistance and have families to support.

According to CFAMM, one in five patients can't afford to fill their full prescription, let alone pay all of their prescription in one pay cycle. These statistics align with the anecdotal research that I have done through my advocacy work with patients across Canada. I'd like to take a moment to break down the costs associated with medical cannabis for you. A gram of cannabis can vary from $4 a gram to $17 a gram when it comes in dry herb form. A typical prescription is three grams a day. On average, patients pay $10 a gram.

Many people forget that patients then have to consume their cannabis. Many doctors recommend that patients use vaporizers to eliminate certain health risks associated with combustion. A quality vaporizer will cost a patient no less than $75. The only alternative to inhaling cannabis currently available to patients is sublingual oils, which are, on average, $100 per bottle.

Simply put, healthier options for medical cannabis patients are cost prohibitive. Medical cannabis is the only prescribed medicine subject to HST and GST. In addition to that, it is not covered by the generic drug plan, and only one insurance provider will be offering limited coverage for specific diagnoses like cancer, HIV, and rheumatoid arthritis. This is a great start, but it's not enough.

With the opioid epidemic rife in our country I would be remiss not to mention the recent studies that have shown a decrease in opioid prescriptions in regions that have legalized non-medical cannabis. This in turn has resulted in fewer deaths from opioid overdose.

I would like to quickly share a story with you. A friend of mine, a young woman in her 30s, struggled with an addiction to opioids and benzos for 10 years of her life. She was diagnosed with MS two years ago. With the help of cannabis she has been able to stay away from opioids, despite living every day in chronic pain. At a recent visit to the hospital for day surgery, she was offered opioids for the pain. She declined, explaining her past to the nurses. Not everyone in that situation would have been strong enough to say no.

I believe that the current costs of medical cannabis and the costs associated with it, in addition to the excise tax, will not only drive medical cannabis patients out of the ACMPR program, but also drive them back to the black market, or potentially to opioids.

Despite the benefits of purchasing cannabis from a medical producer, cost is the bottom line for many Canadians. Rather than taxing medical patients, I urge the government to please explore a different approach to taxing recreational users. We should be supporting those who have made the choice to use cannabis as a treatment as much as the patients who choose to use pharmaceuticals to medicate.

Thank you very much for your time.

[The Chair, Liberal, Wayne Easter]

Thank you, Annie.

We're turning, then, to Beer Canada. Luke Harford is the President. Welcome, Luke.

[Luke Harford, President, Beer Canada]

Thank you, Mr. Chairman, and members of the committee, for the opportunity to appear here today.

My name is Luke Harford. I am the President of Beer Canada, the national voice for beer. I appreciate being able to come here to explain the beer industry's concerns about part 3 of Bill C-74.

Beer Canada has 50-plus Canadian beer companies as members. Some are large. Some are medium in size. Many are small. Together, they account for 90% of the beer manufactured in Canada and cover all 10 provinces and one territory.

Part 3 of Bill C-74, the budget implementation act, proposes to amend the Excise Act of 2001 to introduce an excise duty framework on cannabis products. The federal government has structured the excise duty framework on cannabis to coordinate with the provinces and keep taxes on cannabis products low. The government aims to keep the tax on cannabis low to keep prices low and encourage sales through legal market channels.

Bill C-74 proposes a flat 25¢ excise duty per gram of cannabis product as the federal portion, with plans to later introduce a 75¢ per gram portion that will go to the province or territory.

Beer Canada views this tax proposal as low, in the context of current taxation policy and given the evidence in the United States. Evidence from the U.S. indicates that the price of cannabis will fall as larger volume cannabis producers come on stream and get up to capacity, while industry analysis of the recreational market in Canada also shows that cannabis prices will drop by half with legalization.

In Colorado, recreational marijuana excise tax revenues have grown by 540% since 2014, with the state having increased its marijuana sales tax from 10% to 15% in July 2017. In Washington state, where recreational marijuana is subject to a 37% state excise tax, sales grew by over $1 billion in the last two years, with state excise revenues increasing from $65 million in 2015 to $314 million in 2017.

Canadian marijuana taxation levels should not be driven solely by an exaggerated concern about pricing too it high to cannibalize the illegal marijuana market. Convenience, product knowledge, quality assurance, and personal safety will drive sales through the legal channel, even at higher tax loads.

What is especially noteworthy for us about the U.S. experience is that their marijuana taxes are much higher than their beer taxes. Colorado, Washington, and Oregon have all implemented marijuana tax rates that are double and triple the rates they apply to beer.

In Canada, the potential for legal marijuana to cannibalize beer is much more significant compared to the U.S. because of our higher beer taxes and higher prices. The tax on a case of beer in Canada is five times higher than it is in the U.S.. Marijuana taxation rates need to be informed by basic principles of fairness and potential economic impacts, in addition to black market activity.

Since 2010, there have been 45 tax increases on beer in Canada. The taxes on a case of beer now make up, on average, 47% of the price a Canadian pays for a case of beer. Last year, the federal government increased the excise duty on beer by 2%. It was increased by another 1.5% this past April, and it's set to increase every year because of the federal government's new automatic beer escalator tax.

Canadians are upset over high beer taxes. Fifty thousand Canadians have signed on to our Axe the Beer Tax campaign. They have demonstrated a desire to be engaged in the issue. The frustration with high beer taxes also came through in sentiments Canadians expressed on social media over the recent April 19 Supreme Court ruling in the Comeau case.

Domestic brewers are concerned about legal recreational marijuana. It is going to have a negative impact on beer sales, which have already declined by 10% in the last 10 years on a per capita basis.

The implication is clear. Low cannabis taxes will increase cannabis sales, while high beer taxes will decrease beer sales, leaving the government with less revenue, on balance. We are left asking ourselves, is it worth investing in the Canadian brewing industry today?

In the United States, not only are taxes on cannabis higher than beer taxes, but the U.S. government recently rolled back federal excise taxes on beer to help American brewers grow and compete. The 2017 U.S. Tax Cuts and Jobs Act lowers beer taxes, while Canada is moving in the exact opposite direction. From the beginning of 2017 to the end of 2019, Canada will add $63 million in higher excise duty costs on beer while the U.S. lowers its federal excise burden by $280 million. At the beginning of 2017, a brewer producing one million hectolitres of beer in Canada paid an excise duty rate 60% higher than an American brewer with the same production volume. By April 2019, the difference will be 93% at today's exchange rates.

Canadians know that they pay more for beer compared to their neighbours to the south. They know that because they visit the U.S. and come back talking about how expensive beer is here. Beer Canada aims to explain that this is because Canadians pay $20 in tax for a case of beer, on average, while Americans pay just $4 in tax, and to explain how the federal and provincial governments are layering one beer tax on top of another, hoping that Canadians don't notice.

Beer Canada believes that the low-tax approach to cannabis proposed in Bill C-74 is unreasonable in the context of the higher beer taxes paid by Canadian consumers. It is not fair to Canadian beer drinkers. It is not reasonable for the government to set marijuana taxation at such a low level while increasing one of the world's highest beer tax rates year after year.

Beer Canada urges the finance committee to consider the implication of low marijuana taxes on beer sales and government revenues. Higher taxes on beer are not going to help domestic brewers invest in their facilities and their people, or reverse declining beer sales. Canada needs a more balanced approach to tax policy that is fair for beer drinkers and brewers alike. We request that future increases to the federal beer excise tax be eliminated and that the government consider a higher tax rate for marijuana products that is more consistent with its approach to competitive products.

Thank you, Mr. Chairman.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Luke.

We go now to Brian Kingston, the Vice-President of Policy, Business Council of Canada.

Welcome, Brian.

[Brian Kingston, Vice-President, Policy, International and Fiscal Issues, Business Council of Canada]

Thank you, Mr. Chair.

Committee members, thank you for the invitation to take part in your consultations on Bill C-74.

The Business Council represents chief executives and entrepreneurs of 150 leading Canadian companies in all sectors and regions of the country.

In the council's pre-budget submission we asked the government to introduce a strategy to promote economic growth, encourage private investment, and strengthen competitiveness. Among other recommendations we called on the government to undertake a comprehensive review of Canada's tax system with the goal of strengthening the incentives for both investment and growth. Since we submitted that to the government, the need for a comprehensive review has only been intensified by the controversy over the government's passive investment proposals, and then more recently by the U.S. Tax Cuts and Jobs Act.

While we do welcome the changes made to the passive investment proposals in budget 2018, we believe the government could have done more to address the root of the problem. Rather than lowering the small business tax rate even further and restricting access to the deduction, the government should have eliminated the small business deduction altogether as part of a broader tax reform simplification effort.

Regarding U.S. tax reform, we're disappointed that budget 2018 did not address Canada's serious competitiveness challenges. The U.S. now enjoys a marginal effective tax rate on new investment of 18.8%. That's down from 34.6% and below Canada's existing METR of 20.3%. The relative tax advantage that Canada has enjoyed over the United States for more than a decade was eliminated overnight.

In a recent survey of 90 business council members, nearly two-thirds indicated the U.S. tax reform will either definitely or probably influence their company's future investment plans. Three-quarters of those surveyed are concerned or very concerned about the competitiveness of Canada's business environment. We find this to be a very alarming finding at a time when direct investment in Canada has fallen to an eight-year low.

Now is the time to act on the advice of the federal Advisory Council on Economic Growth, which in its final report called for a review of the tax system by an independent panel of experts. In the advisory council's own words, such a panel should “consider changes to corporate and personal tax rates, the balance between types of taxes, and the use of tax instruments designed to support investment.”

Before I conclude, I would like to make one comment on the fiscal outlook. We remain very concerned about the government's failure to set a clear path to balance over the medium term. Between 2017 and 2023 the government expects to add nearly $100 billion to the federal debt, bringing it to almost three-quarters of a trillion dollars. Over the same period the interest on public debt is expected to grow by 36%. That's more than double the growth rate of direct program spending.

While we share the government's view that targeted investments in infrastructure and innovation create the foundation for long-term economic growth, we also know from experience that rising public deficits and debt only serve to undermine consumer and business confidence with negative consequences for business growth and job creation.

I look forward to questions. Thank you.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Brian.

From the Canadian Bankers Association, we have Ms. Mason and Mr. Hannah.

[Angelina Mason, General Counsel and Vice-President, Canadian Bankers Association]

I'd like to thank the committee for inviting us here today to discuss Bill C-74. The CBA always welcomes the opportunity to share our perspectives on legislation before Parliament.

The CBA is the voice of more than 60 domestic and foreign banks that helps drive Canada's economic growth and prosperity. The CBA advocates for public policies that contribute to a sound, thriving banking system to ensure Canadians can succeed in their financial goals.

This afternoon, we will focus our comments on part 6, division 16, which contains amendments to the Bank Act.

Given the dynamic nature of today's financial services market, updates to the legislative framework are critical to ensure that the framework is responsive to the evolving needs and expectations of consumers. The amendments in part 6, division 16, are a result of the consultation process that the government undertook as part of the regular review of the federal financial sector framework.

We are pleased to take your questions on the Bank Act amendments and other clauses of the legislation that pertain to the banking industry, including cybersecurity.

Over the last several years, consumer demand has produced a dramatic shift in the financial services landscape. Today, consumers expect safe and convenient access to banking services 24 hours a day, in real time, from anywhere in the world. In response, banks in Canada continue to innovate and develop new technologies to provide better products and services to their customers.

The Internet brought online banking into homes and offices, and mobile is now eclipsing that technology. Everyone with a smart phone has a bank in their pocket. Banks have mobile apps, which are constantly updated with new features. A thumb scan can now verify your identity. An e-transfer is a quick and simple way to send money to a friend, and a cheque can be deposited by snapping a photo. Over a few short years, the number of Canadians using mobile banking has grown dramatically, with 44% of Canadians using it in 2016, up from a mere 5% in 2010. In fact, more than two-thirds, 68% of Canadians, now do most of their banking digitally, using online and mobile banking.

Clearly, Canadians are embracing technology in banking, and we believe that the legislative framework that supports financial services must be modernized to reflect this reality.

Banks are strong proponents of an open, competitive, and innovative financial services sector. There is already an impressive number of fintech start-ups in Canada that have brought expanded competition and customer choice in areas such as payments, investing, and budgeting.

Currently, there are barriers in the Bank Act that restrict certain types of relationships among banks and fintech companies. These include lengthy regulatory approval processes and restrictions on the type of investments banks can make in fintech. For example, if a fintech company has a small line of business in something other than financial services—say, a food delivery service—bank investment is restricted because that company offers a non-banking service. The regulatory approval process can take months—an eternity for fintech companies. This can deny fintech companies access to brands, customer reach, and partnerships that banks can offer. It can also push innovative Canadian fintech companies to other countries.

Many of these current barriers to collaborations between banks and fintech companies were imposed at a time when fintechs were not even conceived of, and when technology was not as fundamental to banking products and services as it is today. These barriers are outdated in a world where technology is integral to financial services, and they inhibit innovation.

If passed, Bill C-74 will ease many of the existing barriers in the Bank Act, and will allow for greater collaboration between banks and fintech companies.

In addition, the Bank Act framework needs greater clarity regarding the nature of fintech activities in which banks may engage in-house. Even more fundamental is the need to update references to the types of relevant technology in the Bank Act, such as “sites”, “platforms”, and “portals”, since the current language in the statute is quite outdated.

Canadian consumers will benefit by having new channels of distribution as well as new applications, products, and services. Fintech companies will have access to banks for capital, funding, distribution, and advisory needs.

These provisions will also bring Canada more in line with other jurisdictions around the world that are actively encouraging growth of their fintech sectors.

In conclusion, the proposed amendments in division 16 will encourage greater collaboration between fintechs and banks. If passed, Bill C-74 will foster innovation in financial services, promote competition, and ensure consumers have access to better products and services.

We look forward to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you very much, Ms. Mason.

Canadians for Fair Access to Medical Marijuana, Mr. O'Hara, President and CEO, and Mr. Zaid, Founder and Adviser, the floor is yours.

[James O'Hara, President and Chief Executive Officer, Canadians for Fair Access to Medical Marijuana]

Mr. Zaid will start first.

[Jonathan Zaid, Founder and Advisor, Canadians for Fair Access to Medical Marijuana]

Thank you, Chair, and to the standing committee, for the invitation to appear here today.

My name is Jonathan Zaid. I'm the Founder of Canadians for Fair Access to Medical Marijuana, commonly known as CFAMM. I'm a medical cannabis patient myself.

I will introduce CFAMM briefly, and then pass it off to James, the president and CEO.

CFAMM is a national non-profit organization that has successfully represented medical cannabis patients since 2014. With a membership of over 20,000 Canadians, the organization has emerged as the thoughtful grassroots voice for medical cannabis in the non-profit advocacy space.

We are joined by a coalition of non-profit organizations, who are also recommending the elimination of tax on medical cannabis. The coalition includes the Arthritis Society, the Canadian AIDS Society, the Canadian Arthritis Patient Alliance, the Canadian Hospice Palliative Care Association, the Canadian Nurses Association, the Canadian Pharmacists Association, the Canadian Spondylitis Association, the Cardiac Health Foundation of Canada, the GI Society, the Huntington Society of Canada, and the Multiple Sclerosis Society of Canada.

Affordability of medical cannabis remains an urgent crisis for the majority of patients. Insurers rarely cover the costs of medical cannabis, meaning the majority of expenses are paid out of pocket.

The reason we are before you today is to discuss Bill C-74's proposed application of sin taxes on medical cannabis, which, if passed, will be detrimental to the 269,000 Canadians using cannabis for medical purposes. We are calling on you to support the rights of sick Canadians and drop the proposed excise tax on medical cannabis.

Now I'll pass it off to James.

[James O'Hara]

Thank you, Jonathan.

Hi, my name is James O'Hara, and I'm the President and CEO of Canadians for Fair Access to Medical Marijuana. I'm also a former bank vice-president who is now a medical cannabis patient. I have a number of conditions which I successfully treat using medical cannabis: focal seizures, osteoarthritis, and asthma.

The use of medical cannabis in my life has been utterly life changing, and I truly mean life changing. I've been able to reduce the number of seizures I have by about 80% to 90%, and my overall quality of life has increased dramatically. I'm far from alone in my experience. Today, over a quarter of a million Canadian medical cannabis patients get relief from symptoms from various conditions and illnesses, including chronic pain disorders, arthritis, insomnia, MS, Crohn's disease, and epilepsy, just to name a few.

However, fully 60% of these patients cannot afford their full dose; it's already out of reach for them. What we've heard from patients are some very important points about their making very difficult life choices. Many say they will source from the black market; they feel they have no choice. Even if there's an element of product safety risk, they will still do so. Some have dipped into their savings or used their credit lines to pay for medicine. Others say they will go without, or go back to using opiates which are covered by insurance to get some relief from their pain. Keep in mind that this is a medicine with cost that is already significantly burdened by HST, and it shouldn't be.

Other medicines in Canada are zero rated and not subject to any tax. These patients are already struggling to finance the cost of their medicine, or even putting themselves and their families in financial jeopardy. Frankly, in a country like Canada, this is completely unacceptable.

However today, the government is considering adding another tax for medical cannabis patients, an excise duty, or what is commonly described as a “sin tax”. Let's understand and just remind ourselves for a minute what a sin tax is designed to do. A sin tax is imposed on items whose use is deemed harmful to society, such as alcohol and tobacco. It's primarily designed to disincentivize use.

For medical cannabis patients, cannabis is harm reducing and symptom reducing, not harm creating, and it does not fall into these categories whatsoever. Moreover, sin taxes are designed and used to discourage consumption, something a medical cannabis patient has absolutely no choice over whatsoever.

Think about this for a minute. A sin tax on medical cannabis patients is imposed to deter use. That's effectively discouraging sick Canadians from using their medicine, and that makes no sense. To go back to what I said earlier, medical cannabis patients are already significantly burdened and are struggling to pay for their medicine, and that makes no sense. This proposal puts their medicine out of reach even further.

Struggling patients can't understand why, when they're doing their very best to take care of themselves, the government would propose to tax their medicine and treat it like alcohol, tobacco, or gasoline. To disincentivize the responsible management of someone's medical needs makes absolutely no sense, and applying a sin tax to medicine is completely out of line with our collective moral beliefs and principles as Canadians.

This is the reason why every jurisdiction in the United States that has both medical and recreational cannabis systems either partially or fully exempts medical cannabis from taxes. Germany takes it a step further and mandates that insurers cover the costs for patients.

It's also very important to highlight that the 269,000 patients utilizing Health Canada's ACMPR medical cannabis program today are people using health care provider authorized medical cannabis products, which are not considered to be prescription medicines and therefore would not be exempt from excise tax. This means that these Canadians will potentially face unfathomable and increased costs post-legalization due to the new taxes being placed on their medicine. Although the government has made one small step in exempting low THC products such as CBD oil, the government missed a key point, in that THC is proven to be an effective medicine for chronic pain, MS spasticity, chemotherapy-induced nausea and vomiting, as well as other conditions.

In response to the government's plan to apply a sin tax on medical cannabis, CFAMM launched a campaign called “Dont Tax Medicine”. To date, over 20,000 Canadians have written letters to their MPs calling for the elimination of tax on medical cannabis. A dozen leading national health charities joined our coalition calling for the same. We conducted a public opinion poll that found only two out of 10 Canadians support applying a sin tax on medical cannabis.

Needless to say, both the general public and the health care communities overwhelmingly support eliminating tax on medical cannabis. It's time for the Canadian government to step up and treat medical cannabis as a medicine. That means no tax, and especially no tax for medical cannabis patients.

We're asking the committee to amend Bill C-74 by exempting medical cannabis from the excise tax. By amending the bill in such a way, the government will help ensure medical cannabis patients are treated more fairly and won't have to pay an unjustified and misguided sin tax on the medicine they need.

The bottom line here is that this is a question of fair and equitable tax treatment when it comes to medical cannabis, and the only answer to that question is, “Don't tax medicine.”

I thank the committee for your time. I'm happy to take your questions.

[The Chair, Liberal, Wayne Easter]

Thanks to both of you.

We are turning to Cannabis Canada, with Mr. Rewak, Executive Director.

[Allan Rewak, Executive Director, Cannabis Canada]

Good afternoon.

Thank you very much for the opportunity to be here today. As mentioned, my name is Allan Rewak, and I am the executive director of Cannabis Canada, the national trade association for licensed producers of medical cannabis under the ACMPR.

Our group has recently undergone a very profound and positive transition. At our recent annual general meeting just three weeks ago, the members of the Cannabis Canada Association, the Canadian Medical Cannabis Council, and Canopy Growth Corporation agreed to unify to create one central stakeholder voice for our sector, which we will operate on a go-forward basis as the Cannabis Canada Council, or C3.

I'm very pleased to say that our strengthened and large organization can now confidently say that we represent the vast majority of licensed producers in this country, including the large-scale major producers, mid-scale producers, and emerging licensed producers. We believe this common and inclusive framework will be a significant asset to policy-makers such as you as you look towards the further regulation and design of our growing industry.

We are collectively committed to investing heavily in Canada and building up great jobs in the long term in the communities we operate in. This is something that we anticipate will escalate significantly once Bill C-45 comes into force and is fully implemented.

As part of this commitment to building up Canada, we are not opposed to the application of tax on adult consumer use of cannabis, despite the challenges a new taxation regime imposes on a nascent regime. We're proud to play our part.

That being said, our members, both large and small, are deeply concerned with the application of excise tax to medical cannabis as a sin tax. While we recognize and appreciate the very positive efforts of the federal government in seeking to exclude high-CBD, low-THC products from taxation, we believe the ratios offered in this budget are overly prescriptive and will work against our common interest of providing fair access to medicine for Canadians.

Instead, considering the fiscal risk of harm for legitimate medical patients—some of whom are here today—that the proposed taxation regime would entail, we propose that we instead adopt a collaborative and iterative approach to this issue. Specifically, C3 would recommend that all taxation on medical cannabis be deferred for a minimum of one year.

During that time, we would further propose that this committee recommend that Health Canada and aligned ministries create a working group to study appropriate age-gating and other gating mechanisms to the medical cannabis system to ensure that this system is free of abuse and to develop a more comprehensive evidence-based matrix of cannabis as treatment for specific medical disorders. We hope this new matrix will confidently and reasonably define a legitimate health care regime that ultimately will be tax free, just like other medicines.

We believe this approach will give us the information we need to get the medical system right while preserving and respecting the needs of medical patients.

In closing, I'd like to thank the committee again for the opportunity to be here. I'd be pleased to answer questions within a scope of information when available.

[The Chair, Liberal, Wayne Easter]

Thank you very much.

I'm turning now to Hydropothecary, with Mr. Killeen, vice-president.

[Pierre Killeen, Vice-President, Government Relations, Hydropothecary]

Thank you, Mr. Chair.

My name is Pierre Killeen. I am Vice-President of Government Relations with Hydropothecary, an authorized medical use cannabis producer located in Gatineau, Quebec. We were the first authorized producer in Quebec and we are now the only authorized producer that can sell cannabis for medical purposes. On April 11, we announced that we would be the preferred supplier to the Quebec market following an agreement concluded with the Société des alcools du Québec.

It is an honour for our enterprise and for me to appear before the Standing Committee on Finance to discuss issues related to Bill C-74. We want to thank the members of the committee for this opportunity to introduce ourselves, and we would also like to thank the hundreds of thousands of Canadians who asked for the right to consume cannabis for medical purposes in Canada. Without their efforts, there would be no legal cannabis industry in Canada.

Today, I will limit my remarks to Part 3 of the bill concerning the excise tax on cannabis products for medical and recreational purposes, and on the economic impact of these measures on our industry.

The economic opportunities for the cannabis industry amount to close to $10 billion in Canada. As for economic opportunities worldwide, the forecasts often surpass $50 billion.

Our industry will create thousands of jobs in Canada and hundreds of millions of dollars in tax revenue for our governments. With that in mind, let's focus on the political signals sent by Part 3 of the bill regarding the excise tax on cannabis.

With the cannabis industry's economic opportunities in mind, let's turn our focus to the policy signals that are being sent by Bill C-74.

When it comes to adult-use recreational cannabis, the excise tax duty that will be imposed on cannabis will be the greater of a dollar per gram or 10% of the price of the product. This price should allow legal, adult recreational cannabis to compete with illicit black market cannabis, which operates a very sophisticated market that sells and delivers cannabis online to Canadians with the tap of a mobile phone.

Bill C-74's approach to recreational cannabis sends positive public policy signals to Canadians and to Canada's industry. It says that we are committed to ending the illicit black market. We commend the government for setting the initial excise tax at this rate.

When it comes to cannabis for medical purposes, Bill C-74's decision to impose an excise tax on cannabis consumed for therapeutic purposes sends the wrong policy signals. The committee has heard from patient groups and others about the real-life consequences of this decision on Canadians. Let's focus our comments on the consequences of this decision for Canada's cannabis industry.

Medical cannabis, as we've said before, is going to be a multi-billion dollar industry on a global level. Recent estimates have pegged this at $55 billion a year by 2025. The therapeutic benefits of medical cannabis for chronic pain relief, cancer, arthritis, and other conditions are really just starting to be understood. Interest in the therapeutic properties of cannabis is driving investment and research by cannabis companies, by the pharmaceutical industry, and by wellness industries in Canada and the world over.

At the present time, Canada's cannabis companies are at the forefront of this industry. The prohibitions facing cannabis companies in the United States provide us with a first-mover advantage opportunity to create leading companies on a global level. It should also be noted that Canada's approach to medical cannabis is far different from that in the U.S. and that many experts are of the opinion that our push to medical cannabis will be the one most likely to be emulated in other parts of the world.

The world is watching what we're doing. At this stage, the policy signals we need to send to medical cannabis companies, to investors, and to the world is that Canada supports medical cannabis. Building a world-leading medical cannabis industry means a number of things across a number of public policy domains. When it comes to the fiscal domain, it means incentivizing people to stay in the medical cannabis stream and not discouraging them from doing so.

A healthy domestic market is needed in order to drive a healthy export market. It's tough to find successful exporters and businesses with weak domestic demand. The challenges facing our clean tech sector are evidence of this challenge.

In conclusion, we would recommend that part 3 of Bill C-74 be amended to remove the excise tax on cannabis purchased for medical purposes.

We welcome the opportunity to respond to your questions.

[The Chair, Liberal, Wayne Easter]

Thank you all for being as short and concise as you could be.

I think we'll drop back to six-minute rounds and see where we are after the first four.

Mr. Grewal.

[Raj Grewal, Liberal, Brampton East, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for coming today. It is very much appreciated.

Mr. Harford, you were saying that, depending on the price of marijuana, there will be a reduction in beer consumption. Is there empirical data to back that up, or is that just an assumption?

[Luke Harford]

The evidence out of the United States is starting to come in. We've seen a decline in beer sales in the state of Colorado of 4.4% since recreational marijuana came on. In February there were news reports in Aspen, Colorado that recreational marijuana sales have now surpassed alcohol beverage sales. I think it's becoming more and more conclusive that there is a direct competitive aspect to this. There was a CIBC report referred to in The Globe and Mail this morning saying that recreational marijuana sales in Canada will surpass spirit and wine sales within the next two years. Certainly, from the brewers' perspective—

[Raj Grewal, Liberal, Brampton East, ON]

People aren't making a choice necessarily between buying marijuana and buying beer. In my humble opinion, that's an assumption you're making. The report in The Globe and Mail, which I read as well, is projecting growth of the legalized market, a market that doesn't currently exist. People smoke marijuana, but when it becomes legalized, you'll be able to count how many people smoke marijuana, and there will be a number to that market.

The decline in the consumption of beer is similar in the United States, because, even in the United States, there was a 1.8% decrease in the consumption of beer last year, so why are there more brewers coming up? There's been a 20% increase from 2015 to 2016 in the number of people brewing beer, even though there's a corresponding decrease in the consumption of beer. Why are people putting money into a shrinking market?

[Luke Harford]

It's a great question, and there's a variety of reasons for it. One of them is that governments have recognized that the model is broken and they've tried to structure it so they can provide incentives for people to bring capital into the brewing sector, but they have different levels. You have small brewers that have a tax advantage versus the larger brewers, so you see a lot of companies coming into the sector and investing, and that's great. It's great for the category, but none of them are saying their tax rates are low and need to be increased. They're all saying that they're suffering from too much tax, and it's going to hurt their investment going forward.

[Raj Grewal, Liberal, Brampton East, ON]

Nobody ever says they're suffering from too little tax, but point well noted.

Does anybody from the cannabis industry have any data or evidence to suggest that with the legalization of cannabis, there is a corresponding decrease in cannabis users buying beer?

[Allan Rewak]

No data is available that indicates that to my knowledge. At the end of the day this is a very different product category. Consumers will choose to use it. There is a lower incidence of harm, a lower rate of addiction, a lower risk of car accidents, etc. Respectfully, the comparison to the beer industry is a little different, because you guys will have greater advertising flexibility to control more elements of the supply chain, such as the Ontario Beer Store brewers retail distribution.

These avenues won't be available to us. We are selling to crown agencies that will retain a majority of the profit. That profit will be invested in schools and hospitals at a provincial level, and this is a choice consumers will make.

[Raj Grewal, Liberal, Brampton East, ON]

My next question is for the Canadian Bankers Association. Thank you for coming.

When it comes to fintech, how many of the companies are now looking at digital currencies and cryptocurrencies? That's got to be a big place in the fintech world. How are Canadian banks and your member organizations adapting to it?

[Darren Hannah, Vice-President, Finance, Risk and Prudential Policy, Canadian Bankers Association]

I can't speak to the degree to which fintechs are looking at cryptocurrencies. They're not members of the CBA, but clearly it's an emerging issue. Increasingly, you're seeing some usage around the world. It's an emerging area, though. There's no regulatory space around it right now, so it's something of an unknown, but it's something everybody's studying.