Budget 2021 Consultation

Budget 2021 Consultation
August 7, 2020 Mike Carroll

ACCRES SUBMISSION: Select Standing Committee on Finance and Government Services: Budget 2021 Consultation

On Behalf of the Board of Directors of ASSOCIATION OF CANADIAN CANNABIS RETAILERS (ACCRES) June 25, 2020

1. Introduction

The Association of Canadian Cannabis Retailers (ACCRES) is a non-profit advocacy group for provincially licensed, privately owned Canadian cannabis retailers. ACCRES has 34 members representing BC Recreational Cannabis Retail Licensees, as well as dozens of members who provide additional ancillary services to the cannabis sector.

As we enter the second year of recreational cannabis sales in BC, ACCRES wishes to address some of the specific distribution policies that are contributing pressure facing private retailers in the regulated market.

2. Consultation with the Industry

ACCRES’ mandate is derived from direct feedback from our membership and other private retailers. In the second quarter of 2020, ACCRES conducted an online survey of retail license holders in BC,
These results have helped inform the following policy recommendations.

3. Recommendations

The following policy recommendations represent the collective view of ACCRES’ membership, and are aimed at the following four principal goals:
• Encouraging usage of the legal retail system;
• Increasing the economic benefits of the legal cannabis market, including tax revenues and jobs;
• Reducing unreasonable regulations that impede the development of a healthy sector;
• Affording equal opportunities to all cannabis entrepreneurs, regardless of background;

We believe these policy recommendations are reasonable, evidence-based approaches to addressing these four key concerns.

Issue: The building of BC Cannabis Stores represents a significant expenditure of taxpayer dollars and their presence in communities is damaging the viability of existing private cannabis retailers.

Impact: The construction of a huge network of public stores only serves to increase economic pressure on independent retailers, leading to failure of new small businesses and a drain public coffers in the form of publicly-owned retail stores. Furthermore, competition from the publicly owned stores is creating a race to the bottom for cannabis retailers, rather than driving meaningful exercises in customer attraction and retention, due to the fact that all retailers are selling the same products from the same source.

Further increasing the number of retailers in a region does not meaningfully improve customer experience or price, but rather divides the already small pie of recreational cannabis customers further.

Recommendation: ACCRES recommends a temporary hold on the development of BC Cannabis Stores across the province. A hold on these developments would protect hundreds of small businesses across BC from unfair, taxpayer-funded competition. Halting the expansion of the BC Cannabis Stores will also allow the product selection in market and regulations related to marketing and distribution the opportunity to catch up with the realities of the regulated cannabis market.

3.2 Allocate Funds for Public Education Campaign – Legal Cannabis

Issue: As regulated retailers, we have heard over and over from the public at large that there is significant confusion on the part of the public about which retailers sell legal cannabis and which are unregulated operators, and how to determine if the retailer they are patronizing are licensed and whether the products available are regulated and tested.

Impact: The public have no sense of how to determine if a cannabis retailer and the associated products are regulated. There is a long history of unregulated access in BC that has left the consumer at large with a mistaken impression of how and where to purchase regulated cannabis.

This is fueling the illicit and unregulated markets, driving low excise tax numbers and generally causing major challenges to the project of legalization. Recommendation: Work in partnership with the private cannabis retailers to create a public education campaign in the same vein as the public safety ads surrounding the use of cannabis edibles and other topics of public interest.

The goal would be to create an education campaign around regulated avenues to cannabis purchases. The focus of the campaign should be on the social goods that result from using the regulated cannabis system.

ACCRES believe that the specific targets of this campaign should include: education on how to identify a legal retailer, the benefits of tested product, driving tax revenue for the good of all British Columbians, removing any criminal element from the system, and other related benefits of legalized cannabis.

As it stands now, the public is confused and making purchasing decisions based on previous experience in the unregulated market. We believe it is critically important government address this education gap.

3.3 Reassess Tax Burden

Issue: The cannabis consuming public continues to source much of the cannabis purchased in BC from the unregulated market, due largely to disparities in price and quality between the regulated and unregulated systems. The cannabis sold in the regulated system continues to be more expensive and of a lower quality point than unregulated product.

Impact: This quality and price gap leaves the regulated stores, both public and private, struggling with thin margins on products as their main competitors in the unregulated market can undercut regulated pricing . This is due in large part to the 37% excise and wholesale tax burden. This cost is passed on to the consumer, dissuading many customers from switching to the regulated system.

Recommendation: Review and reassess the tax burden on cannabis products with a two-fold objective:
1. Assessing whether the tax rate is affecting the net cost of legal cannabis to the extent that it is dissuading usage of the legal system and correcting as necessary.
2. Assessing whether the social costs associated with cannabis warrant the tax rate. There is an increasing body of evidence proving that the social costs of cannabis do not align with those of tobacco and liquor. Tobacco and liquor have proven negative impacts on both social and health issues.

As an example, a 2019 study by the Toronto-based Center for Addiction and Mental Health demonstrated that there are limited impacts on cognitive capacity for drivers who had consumed cannabis1. This research would suggest that projections of enforcement costs related to cannabis may be misaligned.

A second example is the fact that the insurance industry classifies cannabis use with the different risk factors for health issues than tobacco consumers2. This would likewise suggest that healthcare cost projections are also potentially misaligned, particularly as further evidence emerges that legal cannabis use may also decrease alcohol use.
1 https://www.sunlife.ca/en/tools-and-resources/money-and-finances/understanding-life-insurance/how-does-smoking-affect-your-life-insurance/
2 https://globalnews.ca/news/6245267/cannabis-and-driving-study-thc/

Given that we are now two years into cannabis legalization, ACCRES believes a significant review of the cost-driven justifications for cannabis taxation rates is warranted.