Order Amending the Cannabis Fees Order (Extension of Deadline for Payment of 2020–2021 Annual Fee): SOR/2020-170
Canada Gazette, Part II, Volume 154, Number 16
Registration
SOR/2020-170 July 23, 2020
CANNABIS ACT
Whereas, pursuant to section 143 of the Cannabis Act footnote a, the Minister of Health has consulted with any persons that the Minister considers to be interested in the matter;
Therefore, the Minister of Health, pursuant to subsection 142(1) of the Cannabis Act footnote a, makes the annexed Order Amending the Cannabis Fees Order (Extension of Deadline for Payment of 2020–2021 Annual Fee).
Ottawa, July 22, 2020
Patricia Hajdu
Minister of Health
Order Amending the Cannabis Fees Order (Extension of Deadline for Payment of 2020–2021 Annual Fee)
Amendments
1 Section 7 of the Cannabis Fees Order footnote 1 is amended by adding the following after subsection (3):
Extension for 2020–2021 fiscal year
(3.1) Despite subsections (2) and (3), if a holder is required to pay a fee under one of those subsections not later than September 30, 2020, the holder may pay the fee not later than March 31, 2021.
2 Section 9 of the French version of the Order is replaced by the following:
Normes comptables pour les états
9 Les états remis au ministre en application du présent arrêté doivent être établis par écrit selon les principes comptables généralement reconnus établis par le Conseil des normes comptables, se trouvant principalement au Canada dans le Manuel de CPA Canada — Comptabilité, et être accompagnés d’une déclaration écrite, signée par la personne responsable des finances du titulaire de la licence, portant qu’ils ont été établis selon ces principes.
Coming into Force
3 This Order comes into force on the day on which it is registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Order.)
Issues
As a result of the COVID-19 pandemic, the cannabis industry has raised concerns regarding economic difficulties and has requested that economic relief measures be provided. Like many sectors of the Canadian economy, the COVID-19 pandemic has affected the cannabis industry by causing operational disruptions and requiring operational adjustments to implement public health control measures, such as the physical distancing of staff. It has also affected investor confidence and reduced access to the credit that some in the industry needs to maintain liquidity. Having a viable legal cannabis industry helps to ensure access to legal cannabis and the displacement of the illegal market, thus supporting the purposes of the Cannabis Act (the Act).
Background
The Cannabis Fees Order is designed to recover the Government of Canada’s regulatory costs by fairly charging those that benefit from the legal market, thereby reducing costs to taxpayers. It does so through different fees. Three of the fees are for direct services provided to licence holders: the application screening fee, the security clearance fee, and the import or export permit application fee. Another fee, the annual fee, recovers aggregate costs of administering the cannabis regulatory program not covered under the other fees. This Order applies to the annual fee, which represents approximately 80% of the fees paid by licence holders every year.
Given the economic challenges that the cannabis industry is facing as a result of the COVID-19 pandemic, any outflow of cash in the short term, including the payment of the 2020–2021 annual fee, may exacerbate economic difficulties. These economic difficulties may reduce the availability of cash flow to pay other business expenses such as rent or employee salaries, which could result in further lay-offs. The annual fee, which is based on a percentage of the licence holder’s cannabis revenue or a minimum flat fee, is not paid to receive a specific service. For licence holders in their first full fiscal year and all subsequent fiscal years, the annual fee is due on September 30 of these fiscal years. As a result of the COVID-19 pandemic, it is anticipated that the annual fee collection schedule will pose a heavier burden on the cannabis industry in fiscal year 2020–2021, compared to other years.
Objective
The objective of the Order Amending the Cannabis Fees Order (Extension of Deadline for Payment of 2020–2021 Annual Fee) is to provide short-term economic relief to the cannabis industry, while continuing to recover the costs associated with the regulation of the industry. Implementing a deferral to the 2020–2021 annual fee payment due date will have a similar effect as a short-term loan, providing greater liquidity to federal licence holders at an economically challenging time.
Furthermore, this Order addresses an issue identified by the Standing Joint Committee for the Scrutiny of Regulations (the Committee) by adding a missing passage in the French version of section 9 of the Cannabis Fees Order.
Description and rationale
This Order Amending the Cannabis Fees Order (Extension of Deadline for Payment of 2020–2021 Annual Fee) defers the payment due date of the 2020–2021 annual fee for licence holders in their first full and subsequent fiscal years from September 30, 2020, to March 31, 2021. The payment due date for licence holders in their entry year does not change.
This Order provides a deferral similar to the corporate tax payment deferral announced as part of the COVID-19 Economic Response Plan. This Order maintains the rate of the annual fee and upholds the Government of Canada’s objective of recovering costs of regulating the cannabis industry.
Additionally, this Order addresses an issue identified by the Committee by harmonizing the English and French versions of the Cannabis Fees Order. A missing passage in section 9 of the Cannabis Fees Order equivalent to “the primary source of which is, in Canada, the CPA Canada Handbook — Accounting” in the English version was added to the French version.
Consultation
Beginning in March 2020, licence holders and officials within the cannabis industry contacted Health Canada to convey the economic challenges some industry members are experiencing as a result of the COVID-19 pandemic. They requested measures to address their difficulties, such as regulatory fee relief. This Order is part of the Health Canada response to these requests.
A notice of intent was published in the Canada Gazette, Part I, on June 13, 2020, to launch a 14-day public consultation to solicit licence holder and public input and views on a proposal to defer the 2020–2021 annual fee payment due date. Notification and communications regarding the consultations were provided to licence holders, provincial and territorial representatives, other government departments, and other interested parties via email messaging and social media channels.
During the consultation period, Health Canada received 167 submissions. The online questionnaire generated 118 responses and Health Canada received 49 email submissions. The majority of respondents identified themselves as individuals.
The majority of respondents provided positive feedback, with some requesting that the deferral of the 2020–2021 annual fee payment due date be extended for a longer period of time, or that the annual fee be waived/reduced. A few respondents stated that new licence holders should be eligible for the fee deferral to improve cash flow of the industry.
The minority of respondents provided negative feedback, indicating that no measures are necessary to provide economic relief to the cannabis industry. Some respondents cited reports that the cannabis industry benefits from its “essential service” status during COVID-19, as it was permitted to conduct business on a limited scale unlike other businesses. Additionally, respondents reported that the cannabis industry was potentially experiencing an increase in sales and earnings compared to other businesses over the pandemic period.
Cost-benefit analysis
Benefits and costs
By deferring the payment due date of the 2020–2021 annual fee, this Order will provide the affected licence holders with more liquidity for the remainder of the fiscal year. It will also impose some financial and implementation costs on the Government of Canada. Overall, it is expected that this Order will provide net benefits to Canadian society as a whole by supporting a diverse legal cannabis market.
Benefits
It is anticipated that the deferral of the 2020–2021 annual fee payment due date will benefit the more than 300 existing licence holders subject to the annual fee. These amendments will provide liquidity to businesses to address operational cash flow requirements in the short term. For some licence holders, the increased liquidity has more benefit than for other licence holders because the annual fee is based on revenue. In addition, it is projected that the cannabis industry will benefit from $0.8 million in interest accrued during the deferral period. Additionally, these amendments will support the Government’s commitment to enable a diverse and competitive legal cannabis industry encompassing small and large players, thus helping Canadians continue to have access to a competitive and dynamic legal cannabis market that is capable of displacing the illegal market.
Costs
These amendments will create financial and implementation costs for the Government of Canada.
The cost for the Government of Canada is estimated to be approximately $3.5 million. Part of this cost arises from the opportunity lost to the Government to otherwise make use of the money during the deferral period. Furthermore, the Government may also potentially incur costs from not collecting the annual fee from businesses that will default or be unable to pay the fee in full on March 31, 2021. In other words, this cost could arise if some licence holders become insolvent or under creditor protection in the six months between September 30, 2020, and March 31, 2021.
Health Canada will incur costs related to the implementation of the amendment, including updating the relevant webpages and social media channels, advising relevant stakeholders of the payment deferral, and responding to inquiries from stakeholders. These costs are expected to be minimal.
Small business lens
The small business lens assessment was conducted to investigate the impact of the amendments on small businesses. The fee deferral provided by these amendments will benefit all types of businesses, including small ones. There will be no additional administration or compliance burdens on any business, regardless of size. Therefore, developing alternative flexible options to mitigate the impact on small businesses is not necessary.
One-for-one rule
The one-for-one rule does not apply, as there is no incremental change in administrative burden on business.
Regulatory cooperation and alignment
The Government of Canada has taken steps to address the economic difficulties businesses are facing across the entire economy, such as relief measures available through the COVID-19 Economic Response Plan. The measure is consistent with these efforts, and provides additional relief for a relatively new and inexperienced market sector.
Contact
John Clare
Director General
Strategic Policy, Cannabis
Controlled Substances and Cannabis Branch
Health Canada
Address Locator: 0302I
Ottawa, Ontario
K1A 0K9
Email: hc.cannabiscrf-rcf.sc@canada.ca