Poor cannabis sales leads to drop in provincial revenues, angry municipalities

By Shannon Waters February 26, 2020

The amount the province expects in transfers from the federal excise tax on cannabis plummeted by 92 per cent in Budget 2020.

In 2018, the government projected it would receive $75 million in excise tax transfers from Ottawa in 2019-20, but now it is expecting just $6 million.

While the budget did not provide a breakdown of cannabis sales revenues — as with previous provincial documents released since legalization — federal excise tax projections provide a window into the amount of cannabis being sold in the province. The tax, which is paid by cannabis producers, is doled out to provinces on a monthly basis by Ottawa, depending on how much product is sold in their jurisdiction.

Meanwhile, weak cannabis sales are dragging down the revenues of the Liquor Distribution Branch (LDB), which has enjoyed high profitability on booze sales alone.

In 2018-19, the LDB fell $2 million short of its revenue projections despite recording “record growth” in liquor sales.

This means the province, which uses LDB revenues to fund service delivery, ended up with less in its coffers than projected.

In its annual report, the LDB said the revenue shortfall was “due in large part to the upfront costs” related to legal cannabis. Its cannabis division posted an operating loss of $5.6 million despite selling nearly 2,100 kilograms of cannabis products for a total of $18 million.

Combined, the reduced excise tax projections and reduced revenue at the LDB represent a $71-million hit to coffers as the NDP government struggles to stay in the black moving into the next election cycle.

At the same time, the budget included $30 million in new spending over three years on public safety measures related to cannabis and to crack down on illegal sales — in addition to approximately $50 million that had already been on the books

‘We can’t afford it anymore’: Municipalities want province to pay out local share of cannabis excise tax revenue
Municipalities, which had been promised a portion of the federal excise task, have yet to see that materialize.

In its 2019 report on the survey, the Union of B.C. Municipalities (UBCM) projected that the average municipality would spend $11.5 million per year on cannabis over the first three years of legalization — roughly 30 per cent of the excise tax the province previously expected to receive.

Post-budget, Finance Minister Carole James told BC Today the province is still looking to cover its own costs before forking over any funding to help municipalities cover theirs. “We’re not there yet,” James said.

But that’s not how things were supposed to work, according to Sooke Mayor Maja Tait, who also chairs UBCM.

“My understanding was that the federal government increased [the provincial] share from 50 [per cent of the excise tax] to 75 … with the understanding that the 25 per cent would flow through to local governments,” she said. “The messaging [from the province] has sort of been that it’s still new, [they] don’t know what the revenue is going to be, and we appreciate that. However, the federal government never … based their decision on the allocation to the province based on what the revenue projection was.”

If the province is unwilling to redirect 25 per cent of its excise tax revenues to towns and cities, Tait says Ottawa should do itself, especially since the NDP government continues to download costs.

“We are willing to do the work — all of this is still unfolding,” she said. “But as we continue to do that, that’s more of our time and costs that are coming up. And all we can do is raise money through property taxes, and through development fees, but we’re trying to remain affordable for everyone.”

Tait said her own community ended up dedicating an entire year to land-use planning, related to the zoning for cannabis retail shops, at a cost of approximately $80,000.

“It’s a complete download to us,” Tait said. “We have done our part — we’re being ignored.”