Dropping prices and heavy tax burden will mean cannabis industry bankruptcies, warns producer

With high taxes, a saturated market and few options, some of Canada's legal cannabis producers arestruggling.

When the federal government legalized the sale of recreational cannabis in October 2018, retail locations popped up one after another as investors and entrepreneurs dove into a new industry thatwas highlighted as the next big thing for the economy.

The market initially flourished,with products in high demand and in short supply.

However, prices are fallingand the industry is taking a hit, andlicensed producers and retailers are now looking for new ways to improve their bottom line.

Taylor Giovannini,co-owner of Oceanic Releaf, acannabis producer based in Burin with nine retail locations across Newfoundland and Labrador, saysa lot of the problem is due to how the deal was initiallylaidout.

"We are facing decliningprices on product. It's a race to the bottom at the moment, and really it can't sustain itself,"Giovanninisaid Wednesday.

"We're also overtaxed, overregulated, yet the black market is still thriving. There's a lot of roadblocks happening."

There's a federal excise tax on cannabis that is $1 per gram, and Giovanninisaid product prices can't keep up.

"We're still being charged $1 a gram even though the average price per gram was around $10 and now we're sub-$5," she said.

"Over 50 per cent of a $5 gram is going towards government, whether it's excise federally or provincial taxes."

Giovanniniwants to see a sliding percentage scale rather than the fixed amount that'sin place. That would help companies roll with the ebbs and flows of a volatilemarket, she said.

"In general the market is at extreme risk,"Giovanninisaid.

Grim outlook

Chris Crosbie, chief operating officer of Atlantic Cultivation in St. John's, said Giovannini's concerns are widespread in the industry.

His company pays anywhere between $800,000 to $1 million to the federal government per month, he said about a third of the wholesale revenue.

"When you look at other comparative industries with alcohol and tobacco, it's far less than that, and that's a massive stress on many organizations," Crosbie said Thursday.

"The problem is largely to do with the excise calculation, pre-legalization, was done on a idealized gram of cannabis being at about $10 wholesale going into these provinces."

Under that model, licensed producers would only have to pay a tax of 10 per cent, but that's not the case anymore, said Crosbie.

"So that's difficult. I'm hopeful that with the right lobbyingand efforts, and given time, things will change but I don't think there's any change coming in the immediate future," he said.

And without any changes to help the industry from the federal level, Crosbie predicts a dire future for many licensed companies across the country.

"It's not sustainable. A lot of these companies, unfortunately, will go bankrupt," he said.

"There's 905 licence holders at the moment. I suspect that 60 per cent of those will go bankrupt and not be in the industry over the next year to 18 months, and it's happening already."

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