Business
Unpaid cannabis regulatory fees continue to climb in Canada
Unpaid regulatory fees owed by cannabis companies to Canada’s federal government jumped more than 200% from a year earlier, to almost 4 million Canadian dollars ($3.1 million) as of the end of March, MJBizDaily has learned.
The overdue fees have grown every year since 2019, as cannabis businesses licensed by the federal government struggle under the weight of taxes, fees, an intensely competitive market and poor business decisions.
For the 2022-23 fiscal year, the fees in arrears grew to CA$3.9 million, 225% more than the previous fiscal year’s CA$1.2 million, according to new figures shared with MJBizDaily by Health Canada.
The outstanding funds are only for the annual regulatory fee applied to licensees.
Proceeds from annual regulatory fees are used by the government to cover the costs associated with regulating the cannabis industry, such as paying hundreds of federal employees.
The annual regulatory fee generally amounts to 2.3% of a company’s gross revenue.
Canada’s cannabis excise tax, which is also applied to gross revenue, is separate from the annual fee.
Industry executives have criticized the government for what they say are excessive fees and taxes.
In fiscal 2021-22, for example, various levels of government collected more than CA$1.5 billion from the cannabis industry via excise tax, other taxes (such as sales taxes) and various fees.
Industrywide wholesale sales – the main source of revenue for most licensed cultivators – was only CA$3.1 billion that year.
In addition, government-owned marijuana wholesalers such as the Ontario Cannabis Store – which collectively represent the most profitable firms in Canada’s cannabis industry – have applied markups of up to 45% on private marijuana companies that buy their products for retail sale. (The OCS is lowering its markup on edibles from 45% to 25%.)
Those kinds of margins, when considered with taxes and fees, leave little for private business, industry executives say.
“We’ve seen in Smiths Falls, Ontario, and Olds, Alberta, the consequences of an administration of fees and taxes which makes our industry largely unsustainable,” George Smitherman, CEO of the industry group Cannabis Council of Canada, said during a news conference in Ottawa, Ontario, earlier this year.
Smitherman was referring to 800 employees in Smiths Falls who were let go by Canopy Growth as well as 85 jobs in Olds cut by Calgary, Alberta-based producer and retailer SNDL.
“Everywhere you look, someone’s put up a fee or a regulatory barrier or burden that in the collective sense is making it impossible for our sector to make the progress that was expected and sustainable in the long run.”
The growing amount of unpaid government fees accumulated by licensed producers is no surprise to Mitchell Osak, president of Toronto-based Quanta Consulting.
“Fundamentally, LPs are overtaxed and overcharged with fees in a very hostile operating environment,” he told MJBizDaily.
‘The financial rooster may finally be coming home to roost for many of them.”
Osak suspects many companies are likely months, if not weeks, from failing.
“The LPs don’t have the money to pay (the government) on time, when more mission-critical business needs like payroll are staring them in the face,” he said.
“Realistically, many of these fees won’t ever get paid to the government because the companies will go out of business.”
Osak said another factor might be fueling the growing amount of unpaid fees.
“Cost-cutting measures have led to the pruning of back-office staff as well as turnover,” he said.
“This has created a situation where fewer or less trained people have to do the same amount of financial management work.
“Payment delays in some companies simply comes down to accounts-payable processing or approval delays.”
Osak also said some licensed producers might be refusing to pay out of sense of grievance and anger with the government.
As a result, these fees do not have arrears because they must be paid ahead of time.
“These fees are charged to recover the costs incurred by Health Canada and the Royal Canadian Mounted Police to perform the service being requested,” a spokesperson for the health department told MJBizDaily via email.
The annual regulatory fee is intended to recover the remaining costs of administering the Cannabis Act and its regulations.
The fee is invoiced each fiscal year, which runs April 1 to March 31.
The fee is required to be paid by Sept. 30.
Insolvency filings
The insolvency filings of an increasing number of cannabis companies provides clues as to how much money Canada’s federal government is missing out on in the way of taxes and fees.
In April, Canadian cannabis producer Phoena Group was granted creditor protection.
The company’s list of unpaid creditors shows that it owes the Canadian government more than CA$2 million in unpaid fees and taxes.
In fact, the Canadian government was the company’s third-largest unpaid creditor, indicating that fees and taxes contribute a notable amount to cannabis businesses’ costs.
At the time of its insolvency, Phoena had amassed a total debt with the Receiver General for Canada and the Canada Revenue Agency of CA$911,893 and CA$870,506, respectively.
The unpaid creditor list showed that Health Canada was owed CA$95,799.
Trichome Financial Corp. also owed the Canadian government millions of dollars in unpaid fees and taxes when it obtained creditor protection late last year.
The unpaid creditor list showed the Canada Revenue Agency was owed CA$7.7 million and Health Canada was owed approximately CA$443,000.
When The Flowr Corp., another cannabis company, filed for creditor protection, its second largest debt was to the Canadian government via the Receiver General for Canada (CA$781,994).
Health Canada was owed $1,886.
Source: https://mjbizdaily.com/unpaid-cannabis-regulatory-fees-continue-to-climb-in-canada/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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