Experts at business advisory firm EY discuss the changes they think could help the Canadian cannabis industry flourish.
EY: Canada's Cannabis Market Needs Changes, How Government Can Helpwww.youtube.com
A new cannabis market report from business advisory firm EY shows the Canadian industry is in desperate need of changes, including help from the government.
After years of buildup, Canada's cannabis market shows struggling signs at nearly every turn, particularly for publicly traded companies whose past excesses are catching up with them.
The Investing News Network (INN) spoke with two of the leads on the recently released report — Rami El-Cheikh, strategy partner and cannabis lead with EY-Parthenon, and Fred O’Riordan, EY’s Canada national leader of tax policy — to discuss their findings and how the report came to be.
EY recommends tax policy changes to help cannabis companies
In the report, EY outlines several ways government stakeholders could aid the cannabis industry.
Among the top takeaways is the need for updated tax policy for cannabis products. The experts want to see reductions in excise duty rates and a combined provincial and federal tax to create a “single national excise stamp.”
The report also suggests that the government adjust its rules regarding promotional materials and packaging restrictions — two factors that Canadian operators often single out as affecting their overall business models.
Cannabis industry unites to call for government action
At the most recent Lift & Co. Expo in Toronto, several key voices in the Canadian cannabis market joined in unison to ask federal and provincial regulators to engage more willingly with the industry.
From calls for a thorough market review and lower substance restrictions, Lift Expo discussions clearly signaled the industry's dissatisfaction with the rules put in place by the federal government.
“I think the need for change has become more urgent,” Trina Fraser, a partner at the law firm Brazeau Seller, said.
“If we come together, if we present a clear, cogent case for change as a collective voice, the government is listening. And if it aligns with the government objectives, we will see changes made.”
This need for change sparked the EY report, which was commissioned by the Cannabis Council of Canada (C3), an organization looking out for the best interests of Canadian cannabis licensed producers.
Financial circumstances hurting Canadian cannabis producers
In a recent interview with INN, Matt Hawkins, founder and managing principal of Entourage Effect Capital, said there is next to no interest or appetite for Canadian cannabis operators, even those listed on senior US exchanges.
“I think they are flawed business models for the most part,” he said.
This sentiment has been felt by cannabis analysts for years now. While Canadian operators got the ball rolling on legitimate investments in cannabis stocks, US operators now command most of the market's attention.
That turn has resulted in several Canadian operators struggling to raise capital, according to El-Cheikh.
While there is some level of optimism around the idea of Canadian companies readjusting their costs and finding niches to survive in, it’s clear the glory days of Canadian cannabis producers are most likely gone.
“It all comes down to just bad planning and exuberance,” Nawan Butt, portfolio manager with Purpose Investments previously told INN, referring to the amount of waste produced by Canada's cannabis companies.
Watch the interview with El-Cheikh and O’Riordan to hear about previous Canadian tax policy changes and just how dire the situation could get for the cannabis industry if some of the suggested changes don't take place.
Don’t forget to follow us @INN_Cannabis for real-time updates!
Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.