Visiting FIGR’s massive production facility in Charlottetown, it would be easy to assume that the PEI-owned cannabis company is booming.
Everywhere you turn, employees are busy filling bags and canisters with cannabis flower and oil, or loading products into boxes, which will end up in stores across the country.
But as busy as the company and its 130 employees are, and as strong as sales are, the CEO said that hardly translated into a profit.
“If you look across the industry, I don’t know if you’ll find any Licensed Producers reporting a profit at this point. And as a local business competing in the industry, we’re certainly not immune to neither,” said Alex Smith, CEO of FIGR. “The industry is not viable right now for licensed producers.”
High taxes, low prices
Smith said the biggest problem is the excise tax imposed on cannabis producers. For every gram of cannabis they sell to distributors, they owe the government $1, or 10% of the price per gram, whichever is greater.
Since pot became legal four years ago, he said, growers across Canada have had to lower their prices to compete with illegal growers and sellers, who don’t face the same overhead or taxes.
When cannabis products hit the shelves, many licensed producers began selling their products for $7-8 per gram. Now most sell for $4 or less per gram, and $1 of that is lost to excise tax.
“So that translates into a tax of 25-35% of our revenue, which is restrictive,” he said. “If you look at any business, giving up 25-35% of their revenue, that’s just not a sustainable business model.”
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Add to challenge? The rising cost of just about everything except cannabis.
“It’s sort of a double whammy. Our costs are going up. But we can’t just raise our prices or consumers will go into this unregulated and potentially dangerous area of the market, and go back to these channels,” Smith said. .
Cannabis group lobbying in Ottawa
These are all questions the Cannabis Council of Canada raised in Ottawa this week, with MPs and federal officials.
Board Chairman George Smitherman said many cannabis businesses across the country are on the verge of closing.
His advice calls on the federal government to streamline a review of the Cannabis Act, including the excise tax. In the meantime, he wants Ottawa to scrap a separate 2.3% regulatory tax that producers must pay.
“We’re saying to the government, ‘step back a bit in the short term, and collectively we can make the pie bigger together,'” Smitherman said. “Otherwise, we run the risk, especially in many rural parts of Canada, where cannabis has been associated with economic renewal, of seeing setbacks.”
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While FIGR’s CEO said the company has avoided laying off employees, it has started cutting some positions as people leave.
Indeed, over the past two years, FIGR staff has increased from 160 to 130.
“We had to make some very tough decisions — temper our growth, downsize over time just to stay competitive in this space,” he said.
About a year ago, a group of local investors took over the business. Smith said they were determined to make it a profitable business.
“We have a team to produce something very special on the island. We just need government support to do so.”
No one from Auxly Charlottetown, another PEI cannabis processor, would interview, but the publicly traded company continues to post financial losses.
CBC News spoke to five former Auxly employees who all say they and several others were recently made redundant.
In an emailed statement, the company’s CEO, Hugo Alves, said Auxly had “also encountered difficulties with accelerated price compression and an unbalanced tax regime”, and had to bring ” some adjustments to its workforce”.
The company said it “continues to focus on achieving its goal of achieving profitability.”
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