Manitoba moves to eliminate 6% levy on cannabis retailers, sign on to federal excise tax instead

Manitoba is looking to eliminate a tax on cannabis retailers and replace those revenues by asking consumers to pay a higher excise tax collected by the federal government. 

The provincial government introduced new legislation on Monday that would eliminate the social responsibility fee — a six per cent levy the province slapped on retailers to cover the province's "social costs" of legalizing the drug.

The need for such a fee has lessened over time, Finance Minister Cameron Friesen said after tabling the legislation.

"We're a few years into the legalization of cannabis and now there are more knowns than unknowns. The industry continues to mature and evolve. We have more certainty as to the cost of regulating the industry and that is why, at this point in time, we bring this repeal of the former legislation," he told reporters.

If the legislation passes, the levy would be eliminated on Jan. 1 of next year.

The bill does not specify what sort of tax could be developed, but Friesen said Manitoba is in talks with federal officials about piggybacking on the existing federal excise tax — which all other provinces are doing.

Piggybacking on federal excise tax

In those jurisdictions, excise cannabis tax revenues are split 25-75 between Ottawa and the provinces and territories, respectively.

Only the federal share of the excise tax ($0.25/gram of flower) is currently charged in Manitoba. The tax would be higher if the province agreed to take a share itself (the provincial share would be $0.75/gram of flower).

The existing social responsibility fee has been pegged at six per cent of a retailer's gross revenue from selling recreational cannabis.

It was needed, the government said in 2018, because the various health, safety, education and enforcement implications of legalized cannabis would fall squarely at its feet and it needed the help financially. 

As of now, the retailers pay out the lump sum every summer — between $50,000 to $75,000 for some cannabis stores, said cannabis advocate Steven Stairs, who represents the Cannabis Business Association of Manitoba. 

He said the cannabis retail market is already oversaturated, with nearly 100 stores in Winnipeg, and this levy doesn't help.

"It's really been hurting the bottom lines of local independent businesses and we're glad to see that the government is taking this action," he said.

Tom Doran, owner of the Jupiter Cannabis store on Academy Road in Winnipeg, said some retailers have baked in some or all of the cost of the social responsibility fee into the products they sell, but their margins remain tight.

"With the amount of stores and the hyper-competitive marketplace," he said, repealing the fee amounts to a "significant amount of working capital that we can redeploy in our business into inventory and other parts of our business."

He said it might mean the difference for some retailers between keeping their doors open and having to close down.

It will help Doran's business as well. He said smaller cannabis brands are struggling in a province with no restrictions on the number of cannabis retailers or proximity between stores. He also said there's no minimum margins, which, if it existed, would ensure certain profit levels and prevent bigger companies from undercutting their prices and potentially driving competing stores out of business.

Rescinding the fee would also likely save the provincial government from a legal dispute.

Long Plain First Nation has been fighting the social responsibility fee in court. It has said the fee amounts to a provincial tax that is not allowed on reserve land.

Province wants 2nd shot at loosening liquor sales

The province is also making another attempt to loosen some restrictions on liquor sales.

Private wine stores and beer vendors would be able to offer a full range of alcoholic options if a new bill introduced by the provincial government Monday is passed. The move would put them on equal footing with government-run stores, which offer one-stop shopping for wine, beer and hard liquor.

"We know it's going to give retailers more choice but it also gives Manitoba customers more choice," said Andrew Smith, the minister responsible for the province's Crown liquor corporation.

The bill is similar to one introduced in the spring that died when it failed to pass before the last session ended. Like its predecessor, the new bill would also allow the Crown corporation to make enhanced security a condition of any expanded sales licence.

But unlike the one in the spring, the new bill does not pave the way for a pilot project where alcohol would be sold in some grocery and convenience stores. Smith said the idea requires more consultation.

The Manitoba Hotel Association, which represents private beer vendors, welcomed the right to sell a broader range of alcohol but raised concerns about the cost of enhanced security.

"A big question we have is 'what margins are we going to be working under?"' association president Scott Jocelyn said.

"If the margins are what we're making now and there's security requirements put on top of that, then more and more of my operators will look at it and [ask] 'is this something I want to jump into or not?"'

The Opposition New Democrats said having more sales at private outlets could lead to fewer sales and jobs at government-run stores.

"Those are good family-supporting jobs. I think Manitobans feel well-served in our current system," NDP legislature member Adrien Sala said.