Touring FIGR’s sprawling Charlottetown manufacturing facility, it would be easy to assume that the PEI-owned hemp company is booming.
Everywhere you turn, employees are busy filling bags and cartridges with cannabis flowers and oil, or loading the products into boxes that will end up in stores across the country.
But as busy as the company and its 130 employees are and as solid as sales are, the CEO said that hardly translates into profit.
“If you look across the industry, I don’t know that you’d find a licensed producer making a profit at this point. And as a local company competing in this industry, we’re certainly not immune to that,” he said. Alex Smith, CEO of FIGR. “The industry is not currently viable for licensed producers.”
High taxes, low prices
Smith said the biggest problem is the excise tax placed on cannabis producers. For every gram of cannabis they sell to distributors, they owe the government $1 or 10 percent of the price per gram, whichever is greater.
Since pot became legal four years ago, manufacturers across Canada have had to lower their prices to compete with illegal growers and sellers who don’t face the same overhead or taxes.
When hemp products first hit store shelves, many licensed producers began selling their products for $7-$8 per gram. Now most sell for $4 or less per gram, and $1 of that is lost to excise tax.
“So it results in a tax of 25-35 percent of our income, which is restrictive,” he said. “If you look at any business that is giving up 25-35 percent of revenue, that’s simply not a sustainable business model.”
Adding to the challenge? The rising price of almost everything – except cannabis.
“It’s kind of a double whammy. Our costs are going up. But we can’t simply raise prices or consumers will go into an unregulated and potentially dangerous area of the market and go back to those channels,” Smith said.
A hemp group lobbying in Ottawa
These are all issues the Cannabis Council of Canada raised with members of parliament and federal officials this week in Ottawa.
Council President George Smitherman said many cannabis businesses across the country are on the verge of closing.
His council is calling on the federal government to simplify the cannabis law review, including excise duty. Meanwhile, he wants Ottawa to drop a separate regulatory tax of 2.3 percent that manufacturers must pay.
“We’re saying to the government, ‘in the short term, back off a bit and together we can grow the pie,'” Smitherman said. “Otherwise, we run the risk, especially in many parts of rural Canada where cannabis is associated with economic recovery, that we’re going to see some setbacks.”
While FIGR’s CEO said the company has avoided laying off any employees, it has started to eliminate some positions as people have left them.
In fact, the number of staff at FIGR has dropped from 160 to 130 over the past two years.
“We’ve had to make some very difficult decisions — moderate our growth, reduce staff over time to remain competitive in this space,” he said.
About a year ago, the company was taken over by a group of local investors. Smith said they are determined to make it a profitable business.
“We have a team that will create something very special on the Island. We just need the government’s support.”
No one from Auxly Charlottetown, another PEI hemp processor, would be interviewed, but the publicly traded company continues to post financial losses.
CBC News spoke to five former Auxly employees, who all say they and several others were recently fired.
In an emailed statement, CEO Hugo Alves said Auxly “also experienced some challenges with continued accelerated price compression and an unbalanced tax regime” and that it had to make “some adjustments to our workforce.”
The company said it “remains focused on achieving our goal of achieving profitability.”
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