Thank you.
Good day, Chair, vice-chairs and members of the committee.
In the spirit of reconciliation, I wish to acknowledge the great privilege I have of being on these Algonquin lands and wherever I am in Canada celebrating my good fortune.
Members of the committee, it's such a great privilege to be here today, because all politics is local.
I want to say that I started my day in Simcoe North, where the leaves are hanging on, and I know in some parts of the country winter is fully in the grips.
I'm very privileged to be here today with the chair of the board of the Cannabis Council, Rick Savone, who previously served Canada with distinction as our ambassador to Brazil.
Our association is the leading voice for regulated producers and processors of cannabis in Canada, and we very much appreciate the opportunity to draw urgent attention to the state of the regulated cannabis sector, as October 17 marked the fifth anniversary of adult use legalization. That historic action undertaken by Parliament enjoys continued strong support among Canadians. Various reports issued after five years support the idea that the worst predicted outcomes of legalization have not occurred, while social and health impact studies have indicated areas where ongoing research about the potential of cannabis is warranted.
More challenging are the economic conditions facing the regulated cannabis sector. In a recent study involving more than 120 licensed producers and processors of cannabis in Canada, results indicated that profitability has been elusive, achieved by only 17% of the cannabis companies surveyed. These results are presented against a backdrop of massive investment and then dramatic subsequent disinvestment.
In a study completed by Deloitte on behalf of the Ontario Cannabis Store, data showed that during the first three years of adult use or recreational legalization alone, the industry invested $45 billion, building out 3,500 stores and operations among up to 900 production licences issued by Health Canada. The GDP impact of that buildout supported up to 150,000 jobs and impacts on par with powerhouse sectors like automotive manufacturing and dairy, albeit more broadly distributed, especially in rural Canadian communities.
I might add that the cannabis sector was powering forward with investment and expansion under Covid conditions while many other sectors were sidelined.
The conditions that contribute to challenges that we are facing certainly include those having to do with building an industry literally without a road map from anywhere on the globe. Difficult decisions to address surplus capacity are taking place, as in any business, and as the list of CCAA filings shows, the cannabis sector has been leading all sectors, sadly I say, with 40% of filers since 2022 coming from the cannabis sector.
Members of the committee know very well that such numbers have a personal implication for families and communities. Instead of having a world-leading, first-mover advantage, we're dealing with challenges in our own country that are dragging us down. Bluntly put, our sector is having its full potential to compete with the illicit market due to a suffocating government middle of taxes and fees, frequently representing well over 60% of the final price of any product paid by a consumer. This formula inadequately distributes the consumer dollar in a way that creates prospects for the unregulated and illegal players, and it also puts up barriers for those patients who find relief in medical cannabis that they can't find elsewhere.
In the meantime a considerable lack of interest in enforcement means that the illicit market flourishes without headwinds. Hard as this may be to hear after five years, the illicit cannabis world enjoys numerous commercial advantages even beyond the lack of taxes, fees and regulation. They are everywhere online. They use Interac. They use Canada Post. In contrast, many cannabis producers and retailers cannot access basic financial services, and when they do, they are usually subjected to usurious service rates.
It has frequently been described to me that it feels that if you put up your hand and say you are willing to be regulated, then government, frequently from different levels, has every tax, fee and rule for you, but if you set up an illegal shop on the other side of the line, almost nobody will take notice or care.
Last week our sector was in Ottawa, where we celebrated five years of adult use legalization. We drilled down on areas where we're asking for change. We need adjustments to the excise tax formula and to costly matters about how the formula operates. We need the elimination of a special tax of 2.3% in the name of a regulatory fee charged by Health Canada that neither alcohol nor tobacco pay. This is about $75 million off the bottom line of companies.
We need regulated formats that align with the cannabis consumer, especially in edibles, where the regulatory prohibition pushes people to consume untested products from the illicit market, which are a risk to them and their children because the products look like candy, chips and cookies.
We have presented these proposals for incremental change that can create the conditions for companies to be successful and fulfill the promise of legalization, including attracting more cannabis consumers to the protections afforded by a regulated environment.
Thank you. I look forward to any questions that might arise.