• Niche Canada

To Fee or Not to Fee? Health Canada Launches New Plan to Recover Costs

Health Canada is seeking input on its new plan to recoup about a $100-million per year from the cannabis industry.

The proposal, unveiled last week, includes an annual regulatory fee of 2.3 per cent on the gross revenues of large producers, while microcultivators and microprocessors with gross revenue under $1-million would pay a fee of 1 per cent.

The plan also includes fees for screening licence applications, conducting security screening of key persons and for reviewing applications to import or export cannabis for scientific or medical purposes.

The plan proposes that licences for research, analytical testing and hemp production will be exempt from fees, and those who produce, cultivate and sell cannabis exclusively for medical purposes will be exempt from the annual regulatory fee.

The government says the proposed fees are intended to offset expenses borne by Health Canada, the Canada Border Services Agency and Public Safety Canada.

According to the government, the revenue generated will allow these agencies to meet all of the costs associated with regulating the cannabis industry by 2020, except in terms of law enforcement. They add that they will collect no more than the cost of delivering and enforcing the regulatory program.

But, many are concerned the fees will make it harder for the industry to financially compete with the illegal market, especially because these new proposed fees will be in addition to the $1-a-gram excise tax on cannabis that has already been announced.

One of the government’s stated objections for legalization is to stop organized crime from continuing to profit from the illegal cannabis market. But, if prices in the legal market continue to rise, the black market will continue to thrive.

It is estimated that Canadians spent approximately six billion on cannabis last year — 90 per cent of it for recreational, non-medical purposes, according to Statistics Canada.

Many predict that if the price of legal cannabis is too expensive, consumers will continue to buy their products from the illegal market at a cheaper price.

As part of last week’s announcement, the federal government is looking for feedback and has launched a 30-day consultation program on the proposed fees. The approach to cost recovery is outlined in more detail in this consultation paper.

If you’re interested in providing your thoughts, you’re invited to share your views online or in writing by August 13, 2018.