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Whitney Abrams posts "Health Canada released Proposed Approach to Cost Recovery for the Regulation of Cannabis" on Canada Cannabis Legal

Jul 20, 2018

Cannabis lawyer Whitney Abrams discusses the recently released Consultation paper on the proposed approach to cost recovery for the regulation of cannabis by Health Canada.​

Health Canada released Proposed Approach to Cost Recovery for the Regulation of Cannabis​

 Originally published on Canada Cannabis Legal by Whitney Abrams on ​July 18, 2018.​

Whitney Abrams - Litigator and Cannabis Law LawyerOn July 12th, 2018, Health Canada released a Consultation Document titled, the “Proposed Approach to Cost Recovery for the Regulation of Cannabis”, available here.

The fees proposed in the Consultation paper would apply to licensed cultivators, processors, nurseries, and sellers of cannabis. Health Canada will commit to discounting some fees with respect to new categories of licenses including micro-cultivators, micro-processors, and nursery license holders.

Those who hold licenses for industrial hemp, research, analytical laboratories, and individuals registered with Health Canada to produce cannabis for their own medical purposes would be exempt, according to the Consultation paper.

Section 142 of the Cannabis Act provides the Minister of Health with the authority to establish fees to recover federal government costs through a ministerial order.  The purpose of the cost recovery proposal, according to Health Canada, is to recover the costs of activities required by Health Canada, the Border Services Agency, the RCMP, and Public Health agencies to control access to cannabis.  Health Canada believes that its proposed approach will allow 100% recovery of annual regulatory costs by 2020-2021.

The proposed approach suggests four fees:

  1. An “Application Screening Fee” to contribute to the costs of intake, screening, acceptance, and rejections of new licensed activity applications;
  2. An “Import/Export Permit Fee” to contribute to the cost of screening, processing, issuance and refusal of import and export permits;
  3. A “Security Screening Fee” to contribute to the cost of screening,, processing, and issuance of security clearances for key personnel; and
  4. An “Annual Regulatory Fee” to recover costs not covered under the first three fees.

The Annual Regulatory Fee is the most significant fee and addresses activities of the industry generally. The proposed fee for “standard cultivation” i.e. licensed producers in Canada, is suggested at 2.3% of gross revenue calculated on the amount of cannabis sold or transferred to another license holder less the amount purchased or transferred in or $23,000.  The consultation suggests a lower percentage Annual Regulatory Fee for micro-cultivators and micro-processors with revenue of less than $1 million a year.  Licensees who do not pay the fee in full will not be permitted to begin or continue operations.

The practical outcome of the Annual Regulatory Fee is licensed producers facing additional “tax” above the 10% already proposed by the government. Many licensed producers who have signed long term supply agreements with provinces worry about additional costs that were not accounted for while making these deals over the last couple of months.

The Consultation will be open up to August 13, 2018. Participants may provide input on the consultation online, via e-mail, or by mail up until that time.

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