When Canada legalized cannabis in 2018, the goal was to create a thriving legal market where small cannabis producers could find success alongside larger companies.
But six years later, many small producers say they’re struggling — facing taxation, strict regulations, and retail challenges that make profitability difficult.
“It’s not one thing that kills you in this business. It’s everything,” says Guy Giroux, founder of Grass Monkeys, an Alberta-based cannabis facility.
The price of selling cannabis
The heart of the issue is the excise tax system, a government-imposed tax on specific goods and services. When legalization launched, the tax was set at the greater of either $1 per gram or 10 per cent of the sale price, a system designed when cannabis was selling for $10 per gram.
As competition pushed prices down to about $3 per gram, the tax didn’t change, and producers say it now eats up roughly 34 per cent of their revenue — one of the highest tax burdens of any industry in Canada.
Paul McCarthy, president of the Cannabis Council of Canada, says that, unlike most industries, cannabis producers pay this tax before they sell their products.
“If you talk to anyone in the consumer packaged goods business – forget cannabis, forget controlled substances – just somebody who’s in the business of making products and selling them, and you tell them that you’re selling your products at 30 per cent or higher effective tax rate, the first question you’ll get is, ‘How are you making money?’” McCarthy says. “The short answer is, you don’t.”
PHOTO SUPPLIED: GUY GIROUX
Beyond taxation, small producers also deal with extensive regulations, particularly around the provincial excise stamp system.
Every cannabis product must have a province-specific excise stamp. If a producer miscalculates demand in one province, they must manually remove and replace each provincial stamp to redirect their stock. McCarthy argues that this process creates excess waste, costing time, money, and resources, while Health Canada and the Canada Revenue Agency already track shipments through other means.
While cannabis industry groups argue that these regulations place an unnecessary burden on small producers, Health Canada maintains that its framework was designed to ensure public safety and regulatory compliance.
Health Canada said in a statement it “enables a diverse, competitive cannabis industry composed of small and large businesses,” and has taken steps to reduce administrative burdens, including a recent proposal to increase production limits for micro-producers.
Unhealthy Competition
Meanwhile, illegal producers bypass any regulatory hurdles, allowing them to sell cannabis for far cheaper. As a result, licensed businesses are forced into a price war, with some selling below production cost to stay competitive.
This reality hit hard for Giroux.
The cheapest ounce of legal cannabis sells for around $80 in Alberta. But Giroux says that once you account for excise taxes and regulatory fees, producers make as little as $8 per ounce.
“It’s the biggest problem in the industry. Nobody is pricing things at a level where they can actually make money,” Giroux says. “I wish I had never gotten into the business.”
Giroux says retail pay-to-play schemes add another layer of difficulty.
In many provinces, cannabis stores require producers to pay unofficial fees just to get their products on shelves – a practice insiders say is widespread despite being illegal. Large corporations can afford to undercut the legal market, making it even harder for smaller producers to compete.
The Cannabis Council of Canada has proposed several policy reforms, including adjusting the excise tax, removing the excise stamp system, and increasing enforcement against illegal sellers. Health Canada has acknowledged some of these concerns, but many in the industry argue that without tax relief and retail reform, small cannabis producers will continue to struggle.
Many of Alberta’s independent cannabis producers say they are in survival mode, waiting to see if regulatory changes come before they’re forced out of the industry entirely.