Two-Thirds of Canadian Marijuana Dealers Falling Behind in Tax Payments, Report Finds

As of September 2022, 66 percent of licensed marijuana producers required to remit excise duties had an outstanding debt with the Canada Revenue Agency, and unpaid taxes last year totalled $52.4 million, according to a report by the Competition Bureau. (Dmytro Tyshchenko/Shuterstock)

The decline of Canada’s legal marijuana trade has led to two-thirds of marijuana dealers falling behind in their tax payments, according to a federal report.

“The total amount of unpaid cannabis excise duties has continuously been rising since legalization,” said a report by the Competition Bureau released May 26.

As of September 2022, 66 percent of licensees required to remit excise duties had an outstanding debt with the Canada Revenue Agency, and unpaid taxes last year totalled $52.4 million, according to “Planting the Seeds for Competition”, as first reported by Blacklock’s Reporter. The report said the total unpaid cannabis excise duties is projected to nearly double to $97.5 million this year.

The Competition Bureau wrote that following legalization in 2018, Parliament began taxing marijuana at $1 per gram plus GST, but with the average price per gram for dried cannabis falling since then, excise duties now take up a more significant portion of producers’ revenues, up to 30 percent or more.

The report stated that until recently, cannabis producers licensed under the excise duty regime were required to remit excise duties to the CRA on a monthly basis. However, many producers found this challenging since not all buyers pay for products on a monthly basis. The report noted that the Ontario Cannabis Store, for example, has 60 days to pay cannabis producers for their products.

The Department of Finance in Budget 2023 proposed to allow all cannabis producers to remit excise duties on a quarterly rather than monthly basis, the report said.

“The Bureau believes that this is an important step in the right direction,” said the report. “With more working capital, small and medium-sized businesses in particular will be better positioned to establish themselves in the industry, and compete more effectively with larger cannabis producers.”

Insolvencies

A total of 34 marijuana corporations have become insolvent since 2020, including national wholesalers and retail chains, according to bankruptcy court filings. George Smitherman, CEO of the Cannabis Council of Canada, told reporters last February 15 that “there will be more closures.”

Smitherman said that regulatory mandates, fees, and taxes have made the industry “largely unsustainable” despite legalization. “If you put up your hand and say you’re willing to be regulated, they have every fee and tax for you,” he said.

The Competition Bureau report, based solely on interviews with “industry stakeholders” including marijuana dealers and lobbyists, said regulations were onerous. The current requirements for micro cannabis producers include a $1,638 Health Canada application fee, a $1,654 Health Canada security clearance fee, and a minimum $2,500 Health Canada site fee. For standard cannabis producers, the application fee is $3,277 and the minimum site fee is $23,000.

Additional compliance costs to meet Department of Health standards and anti-theft measures can run to $100,000, according to the report.

It noted that illicit cannabis producers do not face these regulatory compliance costs and certain other additional costs, such as physical building requirements, physical security costs, and CRA regulatory costs. They also don’t face similar restrictions on promotion, packaging, and labelling, and have “found ways to promote illicit products despite potential legal repercussions.”

“Without the ability to compete vigorously and effectively against an entrenched illicit market, businesses operating in Canada’s nascent legal industry cannot, and will not, succeed,” said the Competition Bureau.