Health Canada is targeting real revenue instead of forecasted revenue to determine how much licensed producers have to pay the government in annual regulatory fees.
LPs holding standard cultivation licenses will still have to pay an annual fee equivalent to 2.3 per cent of their revenue, to help the government defray the cost of regulating the new legal recreational cannabis market.
But Health Canada will “use previous year’s revenue to calculate the fee rather than forecasted revenue,” the department said on Friday in a news release. It also committed to ensuring “it recovers no more than the regulatory costs.” In 2017, it pegged these costs at $546 million over the next five years.
The clarification comes after a 30-day consultation period that involved considerably lobbying from industry participants and advocacy groups.
The decision to calculate fees based on real revenue is positive, said Allan Rewak, executive director of the Cannabis Council of Canada, an industry group representing large licensed producers.
"We still felt it would have been a better choice for Canada to wait on the annual regulatory fee until at least the first year roll-out had been conducted. That being said... I think this will result in something we can work with," Mr. Rewak said.
"It will allow us to better understand and adapt to the impact of this fee. Personally I suspect we're going to collect a lot more money than is required, based on revenues," he added.
Health Canada estimates that the federal government it will recover between 14 per cent and 33 per cent of its costs in the first “partial year of fee revenues starting after the coming into force of the Cannabis Act.” It does not expect to hit 100 per cent cost recovery until 2021-2022.
“The percentage of costs recovered is expected to increase year over year as the legal industry grows, matures and stabilizes,” Health Canada said.
The clarification around real revenue is “a pretty marginal adjustment, but it's a move in the right direction," said Fred O’Riordan, national leader of tax policy at EY Canada.
He still has concerns, however, about the government’s cost recovery approach. Adding a 2.3 per cent fee, on top of federal excise taxes and provincial taxes, will drive up costs that LPs will inevitably hand along to consumers, said Mr. O’Riordan.
"Contraband cannabis will prosper to the extent that the legal marketed prices are too high,” he said.
Along with the annual regulatory fee, other cost-recovery fees include:
· $3,277 per application for standard cultivation, processing and sales licenses
· $1,638 per application for standard micro-cultivation, micro-processing and nursery licences
· $1,654 per security clearance request
· $610 per import/export permit request
Some license holders will be exempt from the fees, including companies holding licenses for research, analytical testing and hemp production. Companies that produce exclusively for the medical market will be exempt from the annual regulatory fee.