Proceedings of the Standing Senate Committee on
National Finance
Issue No. 67 - Evidence - May 23, 2018
OTTAWA, Wednesday, May 23, 2018
The Standing Senate Committee on National Finance met this day at 4:33 p.m. to study the subject matter of all of Bill C-74, An Act to implement certain provisions of the budget tabled in Parliament on February 27, 2018 and other measures.
Senator Percy Mockler (Chair) in the chair.
[English]
The Chair: Honourable senators, I welcome you to this meeting of the Standing Senate Committee on National Finance. My name is Percy Mockler, senator from New Brunswick and chair of the committee.
[Translation]
I would like to welcome everyone who is here with us today, as well as all the Canadians who are watching these proceedings on television or online.
[English]
As a reminder to those watching, the committee hearings are open to the public and also available online, on the Senate website at sencanada.ca.
At this time I would like to ask senators to introduce themselves.
Senator Duffy: Mike Duffy from Prince Edward Island.
[Translation]
Senator Moncion: Lucie Moncion from Ontario.
[English]
Senator Mitchell: Grant Mitchell, Alberta.
Senator Marshall: Elizabeth Marshall from Newfoundland and Labrador.
Senator Deacon: Marty Deacon, Ontario.
[Translation]
The Chair: I would also like to introduce the clerk of our committee, Gaëtane Lemay, as well as our two analysts, Sylvain Fleury and Alex Smith, who, together, support the committee’s work.
[English]
Today we want to discuss the subject matter of Bill C-74, the budget implementation act, 2018, no. 1, more specifically, Part 3, which implements a new federal excise duty framework for cannabis products.
To do so, we welcome, honourable senators and the viewing public, we welcome Bill Blair, M.P., Parliamentary Secretary to the Minister of Justice and Attorney General of Canada and to the Minister of Health.
[Translation]
I would also like to introduce Gervais Coulombe, Director, Sales Tax Division, Tax Policy Branch, at the Department of Finance Canada, as well as Shane Baddeley.
[English]
He is a Policy Analyst, Sales Tax Division, Tax Policy Branch.
Mr. Blair, I am informed that you have an opening statement. Following your opening statement, questions will be asked from the senators.
On this, sir, thank you for accepting our invitation so that you can share your vision, your comments and also answer the questions from the senators on the subject matter, excise duty framework for cannabis products.
[Translation]
Mr. Blair, the floor is yours.
Bill Blair, M.P., Parliamentary Secretary to the Minister of Justice and Attorney General of Canada and to the Minister of Health: Thank you, Mr. Chair.
[English]
Honourable senators, thank you very much for inviting me here to discuss the cannabis excise taxation framework that is contained in the budget implementation act. As you can see, I’m joined by senior officials from the Finance Department who will assist in answering your questions so that we can be certain that we give you information that is as accurate as possible.
I will try to be brief, because I think it’s important that we leave as much time as possible for your questions and our answers. But I’d like to begin with a brief overview of what our government’s commitment has been and what we have done in response.
First of all, two years ago upon our election, we made a commitment to Canadians. Our commitment was to change the system of cannabis control in this country from a failed system of criminal sanction to legalize, regulate and strictly restrict access to cannabis. I think it’s very important to clarify and to be very clear here. It is our intention to impose a very comprehensive and more effective system of regulatory control over the production, distribution and consumption of cannabis than is currently afforded by the existing criminal sanction.
We recognized at an early stage that it is impossible to regulate a prohibited substance. That’s where essentially the word “legalize” comes into this discussion. We must lift the prohibition, repeal it and replace it with a far more effective and comprehensive system of strict regulation. The reason for doing this, I believe, is pretty straightforward. The fact is, in this country, we have cannabis rates among our young people that are among the highest rates in the world, based on Ontario student drug usage studies and other studies done by the UN and others that strongly indicate that young people in Canada are using cannabis. And the cannabis they’re using is unregulated, untested and unsafe.
The current market of production and distribution is 100 per cent controlled as a criminal enterprise and it is therefore without regulation, without control. The cannabis is often untested, unregulated, unsafe. It’s of unknown potency, unknown purity and unknown provenance. All of that is because it comes from a criminal enterprise that profits in the billions of dollars every year. It is estimated that this illicit retail market amounts to about $20 million a day, the easiest money that organized crime ever made.
So our government set two significant policy goals — actually nine policy goals were articulated in the act and to our task force, but I’ll highlight just a few. The first is that we know we need to do a better job of restricting the access our children have to this drug, and we believe that can be done through a combination of the imposition of strict restriction on its distribution and consumption, but also significant investments in public education to help our youth and their parents, teachers and health care providers with the type of information that they need to make healthier, safer, more socially responsible choices.
We also have set as a goal for ourselves the displacement of the illicit market to drive organized crime and to reduce the profits that they currently get. The easiest money, as I’ve said, that they make in the criminal world is through the illicit production and distribution of cannabis.
To that end, we formed a task force about two years ago. We brought forward experts from the areas of justice, public safety, public health and problematic substance use under the leadership of the chair, former Deputy Prime Minister Anne McLellan, to conduct an examination and review of the current situation of cannabis control, to make recommendations to the government on how we might reduce the social and health harms of cannabis use in our country, particularly as it pertained to vulnerable populations, youth, those suffering from mental illness and how we can ultimately displace the illegal market. In furtherance of their task they conducted online surveys of Canadians over 30,000 participants. We received written submissions from nearly 700 organizations such as the Canadian Medical Association, Canadian Pediatric Society, Canadian Public Health Association, a number of private citizens, academics and organizations. We also conducted round tables across the country where we invited experts to come in before the task force and to address concerns with respect to the current system of cannabis regulation and control using criminal law and criminal sanctions and make recommendations to the government on how we could do a better job of protecting our kids and keeping our communities safe. That task force also looked at other jurisdictions, notably in the United States, in Colorado and Washington, but also received reports of other experiences in other countries with respect to how they were managing this issue, and we learned from those experiences.
The task force then reported to the government, making a significant number of recommendations, which the government took very much to heart based on the advice and the evidence presented by the task force and we began to bring forward a series of regulations in order to do a better job of controlling this drug. We also worked very much in consultation with the provinces, territories, municipalities and law enforcement across the country and with our First Nation and Indigenous partners to ensure that by legalizing and regulating cannabis it can be done in a responsible way that respects the provincial and First Nation jurisdictions across the country. In bringing forward Bill C-45, we will move through I think a very important process of moving this country to a formal comprehensive and effective system of regulation and that bill, as you are well aware, Bill C-45, has moved through the House of Commons at third reading and it is now before the Social Affairs Committee of the Senate. We await the results of the Senate’s really important work on Bill C-45.
As a companion piece to that legislation, we recognized that there is a problem with impaired driving today. Almost one third of adults between the ages of 18 and 24 in this country report they’re using cannabis. Many of them also advise that they’re operating a motor vehicle while using cannabis. Many believe it did not impair their ability to drive and in fact some reported to us that they believed it improved their driving. So we brought forward what we believe is to be comprehensive new drug impaired legislation, as well as making significant improvements to the alcohol impaired legislation. That is also currently before the Senate committee on Legal and Constitutional Affairs.
Bill C-74, the bill that we are discussing here today, takes another step forward and I’d like to discuss with you briefly the way in which that framework was brought about. There were important discussions that took place.
First of all, at the first ministers’ meeting between the Prime Minister and premiers of the provinces and territories and then through significant consultation among senior officials from our respective finance departments and finally a meeting of our finance minister with his provincial and territorial counterparts. There was also significant engagement with municipalities, the Federation of Canadian Municipalities and others in the establishment of a framework that supports the government’s twin goals of keeping cannabis out of the hands of kids and taking the profits away from criminals.
We believe the federal government and most of the provinces have agreed that the taxation framework would involve 75 per cent of the excise tax revenues which would be $1 per gram — that could rise in the price of what was being sold was above $10 — but on average it’s $1 per gram and the split would be 75 cents to the provinces and 25 cents to the federal government. Part of that discussion in coming to that determination was based on an acknowledgement and recognition that there are costs associated with the implementation of this new legislation borne by municipalities and communities which are funded by the provinces. So in our discussions we made it very clear that we would make more of the excise tax revenue available to the provinces to offset and pay for the costs experienced in municipalities.
We also acknowledge that for the first two years after legalization any federal revenue in excess of $100 million per year will flow back to the provinces and territories. The proposed duty will generally apply to all cannabis products available for legal sale and this includes fresh and dried cannabis, cannabis oils, seeds, and seedlings from home cultivation.
We also recognize that the non-addictive potentially therapeutic role of low THC cannabinoid oils that are sometimes authorized by health-care practitioners for use in treating children with certain medical conditions. They are products which have less than one third of 1 per cent THC yield and not subject under this legislation to excise duty.
Pharmaceutical products derived from cannabis will also be exempt from excise duty provided they have been acquired through a prescription and have a drug identification number. I can also confirm that it is also indicated in Budget 2018 that work will be undertaken by Health Canada to evaluate the drug and approval process so that Canadians in need of access to a range of medicinal options containing cannabis, that are safe effective and high quality, will have access to those products.
As part of this work, the government will examine options for establishing a rebate program to retroactively reimburse Canadians for the federal portion of the proposed excise duty imposed on cannabis products for products that subsequently receive a drug identification number and are identified to be prescribed. The government has been engaging with Indigenous groups to seek their views and access to tax revenues. It is part of a wider discussion on the development of a new fiscal arrangement with First Nations Indigenous communities that’s taking place currently with the government.
I want to acknowledge, chair, the very diligent work that has been taking place at many Senate committees as we’ve dealt with all of the important issues of cannabis legalization and we look forward to the important work and advice of the Senate that will be forthcoming. We remain committed to following through on our promise to Canadians that this summer we will implement, repeal the existing criminal prohibition and implement a comprehensive system of regulatory control of the production, distribution and consumption of cannabis that we believe will do a much better job protecting our kids, fighting organized crime, keeping our communities safe and protecting the health of all Canadians. Thank you very much.
The Chair: Thank you, Mr. Blair.
Before we recognize the first senator, I would ask Senator Day, please, to introduce himself.
Senator Day: I apologize for being late. Senator Joseph Day, from New Brunswick.
Senator Marshall: Thank you for being here today.
I wanted to talk about clause 77 on the recordkeeping and I also wanted to ask some questions on clause 76.
What’s the requirement now for records? Where would I go to find out what records are required to be kept by producers and retailers? Where would that be laid out?
Mr. Blair: The records to which you refer I don’t believe are in the budget implementation act.
Senator Marshall: No, that’s why I’m wondering. Where is it? There are no regulations yet, are there?
Mr. Blair: No, senator. There are regulations being developed. We have put out consultation papers that were done on a 60-day consultation on the regulations. We’ve made a number of public pronouncements with respect to that but those regulations will come into effect with Royal Assent. Through order-in-council and those regulations, there are aspects of Bill C-45 that allow for significantly enhanced financial transactional information for licensed producers. It will facilitate greater oversight and accountability and for the financial transactions.
I know there have been a number of concerns expressed by various jurisdictions about the possibility of illicit money coming into those businesses. Right within the bill itself, but also within the regulations, there are significantly enhanced financial transaction provisions and reporting conditions for how much is produced. Its storage and who it has been sold to, where it’s been shipped from.
What we’re putting in place with these regulations is a seed-to-sale tracking system so we can maintain a high level of accountability and oversight. I think that’s one of the things that’s made possible by this new strict regulatory approach in that it enables us now to have much better control over the finances of the licensed producers and the distribution model, but also to track the production so that we can prevent illicit diversion or even inversion into those markets.
Senator Marshall: For example, if I’m a producer or a retailer, the producers are already up and running. Where would they go to determine exactly what records they have to keep? Where is it prescribed? If you look at the Canada Revenue Agency, you know exactly what documents you have to keep so that when Canada Revenue Agency comes in to audit, you have all the proper records.
So for a producer or a retailer that’s getting ready to do business, where do they go to say, okay, this is how you have to keep a record of whatever transactions you have? Where would you go?
Mr. Blair: You would go into the Health Canada regulations. The regulations that were produced in 2013 for the medical marijuana licensed producer system, that has been in place now for nearly five years in this country. Currently there are no other licensed producers for non-medical. All of the licensed producers currently have their licences through the MMPRs that were introduced in 2013.
Frankly, we’re building upon our experience. We’ve had a very positive experience with regulating production, very closely monitoring precisely each transaction and the movement of product that is produced. There is rigorous oversight, accountability and transparency within those regulations and those same regulations are being built out and applying for strict security requirements.
Senator Marshall: So all the forms and all the records you’re saying are in the Department of Health?
Mr. Blair: Yes, madam.
Senator Marshall: And producers and retailers know this?
Mr. Blair: Actually, they’re quite familiar with it. They have to make a commitment and demonstrate their willingness and ability to comply. There’s a process whereby they have to produce everything before the first of any amount of cannabis can be shipped as medical marijuana. They have to be able to demonstrate compliance. They’re subject to inspection and oversight by Health Canada on a regular basis.
Senator Marshall: Is there anything in the budget implementation act that directs retailers and producers to this requirement in the Department of Health’s legislation?
Mr. Blair: Yes, ma’am. My understanding is if you go on the Health Canada website, there’s a comprehensive articulation of exactly what is required, the forms and what information is required to make application for a licence, and the requirements of the licence are articulated on the website for the understanding of those who have the licence.
There are currently approximately 100 licensed producers. If I may, I believe my friend has some additional information that may be useful.
Gervais Coulombe, Director, Sales Tax Division, Tax Policy Branch, Department of Finance Canada: Thank you, Parliamentary Secretary Blair. To complement what Mr. Blair said, in addition to that, there are notices that are being published by the CRA as we speak, because cannabis licensees will also have to comply with the new excise duty framework. In that respect, the amendments that have been proposed under clause 77 are similar to the obligations that are upon tobacco licensees.
Senator Marshall: So is that on the Canada Revenue Agency website now?
Mr. Coulombe: It is.
Senator Marshall: If I go to the Canada Revenue Agency website, I will find that?
Mr. Coulombe: You should find three notices that have been published recently.
Senator Marshall: That would provide direction?
Mr. Coulombe: That would provide further guidance and direction. Of course, as we’re getting closer to the legalization date, more information may become available and outreach activities will also be conducted by the CRA to ensure they have a proper understanding of those new taxation obligations.
Senator Marshall: As an example, to extend what you’re telling me now, if you look at clause 76, you can get a refund of duty for destroyed cannabis. What kind of evidence would a producer have to provide or would anybody have to provide in order to get a refund? How will you verify that once something is destroyed? It says:
. . . provides that the Minister of National Revenue may refund the duty paid on a cannabis product to a cannabis licensee if that cannabis product is re-worked or destroyed . . . .
How will that be verified?
Mr. Coulombe: The cannabis licensee would have to report on the use of each gram of flowering and non-flowering material from the cannabis plants they use. They have to file returns to the CRA that would detail that use and this is similar to what happens in the tobacco world in respect of raw leaf tobacco. The CRA would ensure, through various audits, that the reporting from cannabis licensees are in line with the spirit of the law.
Senator Marshall: Is that on the Canada Revenue Agency website? Where do I go to find information on that?
Mr. Coulombe: For the forms and returns —
Shane Baddeley, Policy Analyst, Sales Tax Division, Tax Policy Branch, Department of Finance Canada: The three forms currently describe the regime in general with some more technical information. That’s one notice. Another notice is on requirements around licensing. The third notice is around the excise stamping regime. But our understanding is that more notices will become available as the bill progresses.
Senator Marshall: Time is getting short. Okay. So I understand that and I accept all that you’re saying there.
My next question is this: Who will audit this? I’m sure there will be periodic checks on retailers and producers. Who will do that? Will that be the Department of Health or will that be the Department of Finance or the Canada Revenue Agency?
Mr. Blair: If I may, senator, my understanding is that the responsibility for oversight and accountability of the production of cannabis is the responsibility of Health Canada. Health Canada has staff to conduct inspections and audits on production and, as part of the regulations, have very strict control.
As has been indicated by my colleague, every gram must be accounted for because we’ve put in, I think, very strict regulatory control to avoid diversion into the illicit market. There are significant oversights. That’s Health Canada’s responsibility. There is also information clearly that would be needed by the Canada Revenue Agency and that information would be available under this regulation.
Senator Marshall: So is there a group already established? Mr. Blair, you were saying that, most likely sometime this summer, the bill will pass based on what you’re saying. Is there a group of people already organized?
Mr. Blair: Yes, ma’am.
Senator Marshall: So that when this takes effect, there will be checks on the producers and retailers to make sure that the cannabis is not going to the illicit market and you know that taxes are being collected on everything that’s sold. Who is doing that?
Mr. Blair: It’s already been put in place. In the beginning of 2013, Health Canada established a cannabis secretariat that has now been significantly staffed up. So they are the part of Health Canada responsible for the issuance of licences and then the ongoing inspection and regulation of that industry. So there has been significant increase in staff at the Health Canada cannabis secretariat specifically for that purpose.
As I said, there are currently 100 licence holders, but all of the current licensed producers in Canada are licensed under the medical marijuana access regime. With the passage, when it comes, of Bill C-45, and coming into Royal Assent, then those licence holders may be authorized to produce for non-medical purposes to supply what is often referred to as the adult or recreational market, but they will be subject to the same rigorous oversight.
Senator Marshall: One last question: We’ve heard a lot from First Nations people. Is there any consideration given to establishing a government-to-government relationship with First Nations for Canada?
Mr. Blair: I will tell you we’ve been involved in very significant and continuous engagement with First Nations communities. There are a number of significant issues that we’re working towards a resolution for. They’re complex; I’ll certainly acknowledge that. Now we’re looking at issues of jurisdiction. We’ve also heard from a number of First Nations communities that they seek an opportunity to participate fulsomely in this new emerging industry, and to take advantage of the economic opportunities for their communities. We’ve hired a navigator to assist them in the application for licences so that they may more fulsomely participate in this opportunity.
We are involved in continuous engagement on issues of jurisdiction, and also on culturally appropriate public education and training materials and services with respect to drug use in those communities. I think that the fiscal discussion that’s taking place is part of a larger discussion. There is a process — and quite frankly perhaps financial officials could more fulsomely describe it — and the Prime Minister spoke a number of times about the establishment of a new fiscal arrangement with Indigenous and First Nations communities as part of that important nation-to-nation discussion that’s currently taking place. I believe the cannabis revenue and taxation issues are more appropriately dealt with within the context of that larger framework rather than as a single event.
Senator Moncion: You mentioned that medical cannabis is exempted from taxes?
Mr. Blair: No, ma’am. Let me be very clear. With very few exceptions, and I can speak of the exceptions, there are three preparations that have been given a drug identification number and are prescribed, but they’re low-THC products. Medical cannabis came about as a result of a legal determination to create an exemption from the criminal prohibition, and it’s an exemption authorized by a medical professional. It is not a prescription of the drug. Save and except those, medical preparations go through the comprehensive clinical trials and testing which would qualify them, first of all, for a drug identification number and then a determination by Health Canada by standards that are in place for all drugs to determine whether it would be prescribed, then it is not exempt under schedule 6 of the Excise Act.
This is a matter litigated by the tax courts and the federal courts previously in a case called R. v. Hedges. It was determined by the federal courts and frankly I agree, if I may, that the medical authorization is not a prescription and therefore does not qualify for the exemption for GST or for the Excise Act.
The way it would become exempt is if it went through those clinical trials, it was given, under those appropriate processes, a drug identification number and if it was determined that it was a medication that should be prescribed. Tylenol has a DIN but is not prescribed, and therefore it is not exempt under that schedule. But certain antibiotics or opioids, for example, are prescribed and therefore are exempt. If cannabis, in any of its preparations, went through those trials and was given a DIN and was determined to be a prescribed medicine it would be exempt.
Senator Moncion: There’s been a lot of lobbying done over exempting medical cannabis from the excise tax. You’re aware of that?
Mr. Blair: Quite aware of it, yes.
Senator Moncion: My second question is about the drug-impaired legislation. You said you have things in place now. We hear from experts that, to this day, we haven’t found the mechanism to be able to identify. You can suspect that someone is driving under the influence of cannabis, but there’s not necessarily any testing or accurate information that can be provided. So you’re saying you have legislation in place. Could you elaborate?
Mr. Blair: Yes, ma’am. I think it’s really clear. There is technology available that is extremely helpful for law enforcement in the detection and subsequent prosecution of these offences. It’s also important to be clear on what that technology provides.
What we have currently is a situation where impaired by drug has been a criminal offence in Canada since 1923. The police have authority to lay that charge, but historically the evidence that is necessary to gain a prosecution for that offence has been very difficult and challenging for the police to obtain.
Beginning in 2008 with then Bill C-2 in the Thirty-ninth Parliament there was new legislation brought forward which acknowledged and made mandatory a demand for a driver to submit, on reasonable suspicion, to a test by a drug recognition expert. That’s a series of motor skill and other physiological responses that the drug recognition experts are trained, authorized and accredited to do. The courts have litigated and accepted that evidence.
To determine what drug, and to determine its quantity in the blood, that requires blood toxicity tests, the drawing of blood in that test for that evidence. But there have been no limits for drugs per se as there has been for alcohol. We’ve had per se limits for alcohol offences for decades in this country. It’s proven, first in the indication of a roadside screening device, but the proof is in a breathalyzer test that is administered with an approved device for that purpose.
In the legislation we brought forward in Bill C-46, it affords some important things. It allows for the authorization by the Attorney General of Canada for an approved device. I will tell you that these devices, oral fluid test kits, have been in use in other jurisdictions — in Australia since 2003 and the U.K. since 2015. I understand there are 18 European countries that use these devices. Bill C-46 would allow the police, upon reasonable suspicion, to administer those devices.
It’s also important to understand what the results of that test would be. It is not presumptive evidence of that level of THC in the blood — or other drugs because they will also test, I believe, for cocaine, methamphetamine and other things — but it is a strong indication that would give the police reasonable, probable ground to make a demand to submit to a drug recognition expert, or to attend for the purposes of drawing blood. It would only be the evidence from the blood toxicity levels that would be applied as evidence to conclusively prove that a person was in violation of the per se limits that are established in this legislation. Bill C-46 has three per se offences, one summary conviction offence for between 2 and 5 nanograms, an indictable offence for over 5 nanograms, and a third offence which involves a combination of THC and alcohol in the blood.
In addition to the technology we’re making available to the police, there are significant investments being made in police officer training for standardized field sobriety testing. The best explanation of that is walk the line, touch your nose and motor coordination tests administered by the police at roadside. Those can be used to form reasonable and probable grounds to make further inquiries and gather further evidence. The oral fluid test kits can also help identify the precise drug, but there are other ways they can come to that on reasonable and probable grounds. Admissions, the smell of the drug, observing the drug itself, the driving evidence and then there are two opportunities of criminal investigation. One is for impaired driving by drugs which is based primarily on the driving evidence and the activities, signs and symptoms on the individual and the per se limit offences, which could only be proved as a result of blood toxicity tests.
That’s the legislation we’re bringing forward. We’re making significant investments in training police officers in standardized field sobriety testing, significantly increasing and as much as doubling the amount of drug recognition experts in the country and in providing this legislation. I used to do this for a living.
The Canadian Association of Chiefs of Police has urged successive governments of Canada to make available this particular technology to them, because it will enable them to detect this offence far more effectively and reliably than what they have available to them now. There’s also an opportunity — and this is significant — because licensing is a privilege, one must be licensed and one must be sober. It is possible, on the evidence of either a roadside screening device for alcohol or the oral fluid test kits, for the province to introduce legislation with respect to its licence, so that an individual found on reasonable suspicion to have that drug in their system, they can suspend the licence, administer a fine and tow the vehicle.
In many jurisdictions in Canada most of the provinces are introducing legislation that would enable the police to pursue a criminal investigation, but what they can do, even if they’re unable to form reasonable grounds to make a demand for blood, they are able on their observations, the standardized field sobriety testing and the oral fluids test kit, to suspend the licence, to tow the car, to render the situation immediately safe. In our experience, that’s a very significant enhancement in the police officer’s ability to maintain road safety.
Senator Moncion: Can they do that now?
Mr. Blair: It’s problematic for them, ma’am, because it’s difficult for them to determine exactly what may be causing the impairment. They can administer a roadside test for alcohol because they have that equipment and authority for its use, but after passage of Bill C-46 and the approval of such devices by the Attorney General which are currently being analyzed and recommended by the Drugs and Driving Committee and researched by the National Research Council. We’re getting ready to make those available with the passage of Bill C-46. It’s possible but extremely difficult for the police to come to that reasonable determination that the person’s ability is impaired by drug. It’s going to be far more —I won’t say easier — but far more accurate in making that determination and therefore much more defensible in the action of suspending a licence, administering a fine and towing the vehicle.
Senator Mitchell: Thanks, Mr. Blair, for being here. I’m just sort of following this through. You said the federal government will limit its take to $100 million, at least to begin with.
Mr. Blair: That’s per year, sir.
Senator Mitchell: That assumes for two years?
Mr. Blair: Yes, sir.
Senator Mitchell: That assumes the total take would be $400 million between the provinces and the federal government if that’s the level. That assumes, given 10 per cent, that it would be about $4 billion of retail value in this market in addition to whatever is numbered and prescribed.
Is that your estimate, $4 billion of recreational market, or is it likely to be more than that?
Mr. Blair: A couple of things I would respond to that, sir. First of all, it’s a little challenging to determine what the existing market is today. Organized crime does not share its data with us, they really don’t. There’s been a number of estimates. The Parliamentary Budget Officer, CIBC, others have made a number of estimates. We know from self-reporting usage studies that have been conducted in this country that generally the amount of usage we’re dealing with, we believe that 400,000-kilo estimate, which would add up to the math of the $400 million. That is a conservative estimate. It’s a careful, thoughtful estimate and we think it’s a reasonable one.
It’s important to acknowledge pushing the illicit market out, taking organized crime out of this, is much more of a process than an event. They will not get up and walk away on the day the law comes into effect. That would be absurd to suggest. That’s certainly not what we’re suggesting.
Law enforcement has been clear that it’s going to remain a challenge, but it’s important also to recognize that we are retaining all of the authorities that law enforcement currently has. Illegal production, illegal distribution, illegal import, export will remain serious criminal offences with precisely the same authorities that the police had previously to investigate and lay charges as they have always had, at least they’ve had for almost a century. They’re retaining that ability to deal with organized crime.
What’s new here is we’re offering Canadian adult consumers a safer, more socially responsible choice. We believe that a significant portion of them, when given the choice which is competitive in price, quality, access, and choice, most will choose not to deal with the guy in the stairwell or the schoolyard but rather go to the legitimate retail market or order it online through the provincial distributor. But it’s not going to happen overnight. The estimate we’ve made is based on what I think is a prudent, careful estimate.
Frankly, in my conversations with my provincial counterparts, I’ve encouraged them not to be focused on the revenue, but to focus on doing a better job of keeping it out of the hands of kids and displacing that illicit market. That’s the reason we said we want to establish a taxation framework which will keep the price low to be competitive with the illicit market and to impose regulations and distribution which has rigorous oversight and accountability to make sure it’s not being sold to children.
Senator Mitchell: Thank you very much. I’m glad you emphasized that last point that compared to cigarettes, the tax on marijuana and cannabis will be quite low. It’s 10 per cent per gram at 10 bucks a gram.
Mr. Blair: But on top of the 10 per cent, which is the dollar per gram, it also includes harmonized sales taxes. So the total taxation imposed probably is in the neighbourhood of 25 or 26 per cent.
Senator Mitchell: Still lower than cigarettes.
Mr. Blair: It is lower than in other jurisdictions such as Colorado and Washington. Washington for example implemented a taxation regime of about 37 per cent.
Senator Mitchell: That’s geared to reducing or pushing the illicit market —
Mr. Blair: Quite frankly, in those American jurisdictions they had initiatives that said legalize and tax. So the focus overwhelmingly was on revenue generation and ours is a public health framework aimed entirely at reducing social and health harms.
Senator Mitchell: The public education is a particular issue. It’s an issue for many. With respect to First Nations, that’s an issue and consideration in the debate surrounding all of this. I’m aware of some research that I have done that roughly 55 per cent of Canadians were smoking cigarettes or other forms of tobacco when we got serious about reducing it. Now it’s somewhere between 9 and 12 per cent. So it works. Public education was really pushing on that. Can you give us an idea what sort of programs are in place and where we are in the development of those programs?
Mr. Blair: We weren’t waiting for the revenue. We invested in public education. It was important to begin that program. We’ve had two significant education streams with respect to the new cannabis legislation; about $46 million dedicated to public education around impaired driving, and I think you’ll see that. You’ll see that in television ads, also online. It’s been a robust campaign.
The education campaign is aimed primarily at young people. I’m hoping you’ve seen it. We’ve had literally tens of millions of hits online among young people, but we’re not showing it during the intermission at the hockey game, for example.
We’ve also partnered with a couple of organizations, one called Drug Free Kids Canada, an outstanding organization. They produced a really outstanding public education document not only for young people to read but for their parents to have an understanding about how to talk to their kids about this drug. I believe about 180,000 of those have now been distributed to schools and parents and kids across the country. I mentioned the total of $108.5 million has been allocated for a public education campaign around the social and health risks of cannabis for all Canadians, but particularly among youth. There are specific carve outs. I apologize, I don’t have specific amounts for you.
We’ve been meeting with Indigenous communities. We also heard Northwest Territories, Nunavut and Yukon and among First Nations communities about the importance of culturally appropriate public education materials in the languages spoken in those communities. So we’re working in partnership with them. They told us clearly you can’t produce that in Toronto or Ottawa and translate it and drop it. It has to be culturally appropriate. So we’re working with elders and First Nation leaders in the development of those public education products. Investments are also being made in addiction and mental health services in those communities. Those are important investments.
One of the things I wanted to share right at the outset, we’ve said that revenue generated from the collection of excise tax for cannabis, the Prime Minister said it in the House of Commons and we’ve said it a number of times, it will be dedicated to investments in research, prevention, treatment and rehabilitation. It’s part of our government’s ongoing commitment to ensure we focus on the reduction of social and health harms as part of a public health approach to the strict regulation of cannabis. So for us this isn’t really a source of revenue. It’s an opportunity to make investments that are long overdue.
Senator Deacon: Thank you for being here. This question is framed with the mindset of readiness, the collection of other Intel and perhaps learning from other jurisdictions.
I know that you have attended the Standing Senate Committee on Social Affairs, Science and Technology and we have spent the last few hours here this afternoon really taking a look at challenging our learning on legislation. Many things have been discussed this afternoon. The standards that are in place — and I’m referring to medicinal cannabis — the work done thus far, and just the incredible diligence. We have focused on two areas of manufacturing and distribution in Gatineau and in Smiths Falls that you may be aware of.
I think what was interesting for the committee was to hear about the standards you talked about, the rigour, the questions around the rigour, the diligence and the reporting and having to be able to account for every ounce of a plant coming in and going out. There are some incredible standards there, and I recognize that it’s in the first three to five years and it’s medicinal cannabis.
I do wonder, though, certainly on behalf of all of us, what the learnings are from what we’re seeing happening in the medicinal cannabis area around the standards and around some of the incredible data that’s being collected as it guides the work for these next steps. We will have either parallel markets or parallel complementary markets, but we do have something we’re moving towards. What is your take on that from your experience?
Mr. Blair: I will share a personal experience. In the early 2000s, with the implementation of what was then the MMAR regulations, the courts authorized marijuana for medical use, and we did not have a licensed system of production.
I will tell you from a law enforcement standpoint — I was a police officer then. I was at that time the head of the detective branch in Toronto and subsequently became the chief of police. My experience with the grow-ops that sprang up in the early 2000s as a direct result of this emerging medical access to cannabis was really problematic. What we saw in Toronto was as many as 10,000 single-family residences were given over to the illegal production of cannabis. They were rendered uninhabitable. There were hydro bypasses and lousy humidity controls. The house was left mouldy, with holes punched in the walls and there were fire traps.
Law enforcement and the fire department hated having to deal with them. The places would burn down on us occasionally. When we did have to go in, my officers used to have to wear hazmat suits because of the health hazards of going into these places. So my experience with grow-ops was a negative one as a police officer.
When I first came to Ottawa, I actually went to one of the licensed producers. I had not been to one before, and the difference between my experience in these disasters that were in our neighbourhoods and were really hugely problematic and the licensed production facility was absolutely shocking. First of all, the security is penitentiary-like. All the cannabis is stored in what is essentially a bank vault, which is required in the regulations. You could eat off the floor. There was no smell venting outside. The air quality control, the safety, sanitation, security and the chemicals being used were all rigorously controlled, and there was a great deal of oversight on that so they are not those things that are unfit for human consumption.
What was actually being produced — and I would echo your comments that it’s not only down to the ounce but to the gram and the microgram, everything. Nothing hits the floor that isn’t measured and accounted for. It was because, I think, Health Canada and the government of the day in 2013 exercised extraordinary efforts to create an accountable system of regulatory control for the production.
I think the learning from that, to go to your question more accurately, is I don’t believe we would be where we are today in the development of these regulations had we not had that experience at the beginning of 2013 and had it not been demonstrated to us that this could be done right. I will tell you that people have come from all over the world to see how those regulations are applied in those facilities.
There are other countries authorizing marijuana use in their jurisdictions, and they’ve visited those facilities. Frankly, by ministerial permit they are acquiring cannabis from those places because not only is there great regulatory and strict control, but what is produced and available in those facilities is, for the first time, of verifiable potency and verifiable purity. We know precisely what’s in it. We know what chemicals have been used in its production. We know its potency so we know the THC levels.
Frankly, if you buy cannabis on the street from a drug dealer, it’s a crap shoot. You have no idea what you’re buying. You have no idea of its potency or dangerous chemicals that have been used. You don’t know if it has been adulterated with other dangerous products. It’s all unknown.
But for the first time under this regulated regime, with medical marijuana, which we can apply to a non-medical production system, we can now regulate so we can put with confidence information on front-of-package labelling so people know exactly the potency and the purity of what they’re consuming. We can tell them precisely what its THC or CBD levels are or any other chemical or substance in that cannabis. That allows people to make better-informed, lower-risk choices with respect to cannabis, and that’s what we have learned from the medical system.
I think it has also been demonstrated, because of the rigour put into the regulations, that we have not had any significant problems that I’m aware of, and I would know, quite frankly, of diversion of that which is produced under licence into the illicit market.
The Chair: Mr. Blair, would you speak a little bit slower? The translators tell me we will have better translation.
Mr. Blair: I will do my very best. Thank you for the reminder.
Senator Deacon: Just on that final piece, your thoughts on the theories of folks saying we need to move forward on this and there will be a difference if we can control and grow our cannabis indoors, in these controlled settings that you referred to versus, I suppose, large, open-air fields of cannabis and some of the concerns expressed that are coming forward in that area. Can you comment on that?
Mr. Blair: All the licences that have been issued, the current licence application requires indoor plants to be grown under glass. In those conditions, the uniformity and the quantifiability of those conditions so they know precisely how much light, water and what fertilizers have been applied, and that growth cycle is replicated quite precisely within those facilities, and there is also testing that takes place, but they’re able to determine with a high degree of reliability the potency and the purity of what is subsequently produced.
Senator Deacon: Thank you.
Senator Duffy: Thank you, Mr. Blair, for coming. You have been persuasive in your constant references to concerns about health. I’m sure you agree that smoking causes cancer. I find it interesting, and we’ve had representations from the Non-Smokers’ Rights Association, Physicians for a Smoke-Free Canada and numerous other medical groups that are concerned that their funding has been cut — some of them cut by the feds years ago and more recently by the provinces — that we’re talking about a gushing load of cash, and people who have had experience in helping bring down the rate of smoking find themselves cut off. Why did you do that?
Mr. Blair: Quite frankly, sir, we have actually made some significant investments and continue to do so, and it is actually Health Canada’s declared goal of reducing smoking usage. As the senator alluded to earlier, we have seen a significant reduction, down to between 9 and 11 per cent of smoking usage, to reduce that further to 5 per cent. That’s the goal by 2030.
The Senate also recently passed, I think, really important legislation with respect to plain packaging and other important regulatory measures with respect to tobacco control which will further those efforts. I believe there is also an opportunity to continue to invest. Certainly it is the government’s goal.
Senator Duffy: But why would these groups be cut off? Here we have a whole new wave, the Good Housekeeping Seal of Approval for smoking from the Government of Canada, this new product coming out, and at the same time you’re cutting funding to groups with years of experience in convincing young people especially not to smoke. I find it incongruous.
Mr. Blair: There are a number of different things that have taken place in the last 15 to 20 years in Canada which I think significantly contributed to the reduction in smoking rates. I think it’s a tragedy that those reductions are not proportionate across the country. We find places in the far north where there are still terribly unacceptable high rates of high tobacco usage that exist in many of those northern and remote communities.
There has been a combination of factors that have significantly reduced the incidence of smoking, particularly in public places, over the past several years. Part of that is public education, and I think it’s an important one. But there are other factors that have equally contributed to a better environment, and I think that’s strict regulations.
As an example, in the City of Toronto we began with municipal regulations that made it an offence to smoke in a public space, in a bar, a restaurant and in public spaces. And with increasingly restrictive by-laws and regulatory offences we have been able to change — not only through public education but by changing the social norm around public use of tobacco. Not that many years ago, people likely would have been even smoking in this room. Now no one would presume to do that in a public building. They would have to go many feet from the door and stand out in the rain and part of that was achieved through regulation.
Senator Duffy: For the regulation, it was these voluntary groups —
Mr. Blair: I have good things to say about them as well. I think they have done an outstanding job. I also want to be really clear: It is not the Government of Canada’s intention to promote the use of this drug by anyone. Certainly we want to restrict the access that kids have to it but not to promote the use of this drug among adults. But we want to, through public education and through strict regulation, ensure that can be done in a lower-risk way and in a more socially responsible way.
Senator Duffy, I’m fortunate to be with very smart people who tell me that the Government of Canada, to enhance the federal tobacco control strategy, is proposing to provide an additional $80.5 million over five years, and $17.7 million ongoing in order to continue those important programs.
Senator Duffy: Do we know the groups that will receive the money?
The Chair: Mr. Blair, we have a time frame with you. If, following the questions you have heard from Senator Duffy or any other senator, you want to add some comments or opinions, please do not hesitate to do so through the clerk.
In order to respect the time frame with Mr. Blair, senators, on the second round, there are three senators who have requested a question. If you each take one question, short and to the point. And, Mr. Blair, if you want to answer now, it’s your liberty. If not, because of the time frame, you can answer in writing through the clerk.
Senator Marshall: Thank you very much. We talked about education earlier. I’d like to know exactly how much money has been spent so far on education.
Mr. Blair: I can tell you that we budgeted $108.5 million. I want to give you an accurate answer, but I don’t have it readily available to me. We have made significant investments in the public education campaign, impaired driving and for the social and health risks of cannabis. Again, they’re pointing out to me that we have launched public education campaigns and have invested $46 million so far on the impaired bill. I don’t have the precise number on how much has been spent so far.
Senator Marshall: I would like to know what has been spent so far.
Mr. Blair: Yes, ma’am. I will endeavour to get you that information.
Senator Moncion: I have questions about price sensibility. Because the illicit market produces cannabis at 20 or 30 cents a gram and the licit market produces it between $1 and $3 a gram, how effective is black market eradication going to be when you’re just looking at price per gram?
Mr. Blair: First of all, I’m not sure where you got your estimate for black market production because black market sales are selling it. Depending on what information StatsCan indicates, it averages about $7.50 a gram. There are different prices in different parts of the country. I was in Nunavut two months ago, and they tell me the price there is $40 to $50 a gram. It is rather exploitive, but that is the price the black market and the traffickers are charging there.
What we’re seeing in other jurisdictions and in Canada is a significant reduction in the price of production, the cost of production as a result of economies of scale. For example, in Colorado, among the legal market price, they have seen a 2 per cent reduction each month since they implemented their new regime.
Dealing with licensed producers, we have seen very significant reductions reported to us by the licensed producers about their cost of production. Some of these licensed producers are significantly investing in large capitalization of additional growing space, and they do not face the pressure of enforcement and detection because they’re operating under licence and because of the scales achieved. Under these large new commercial operations of licensed production, we have seen a very significant reduction.
I’m increasingly confident at the ability of licensed producers to provide consumers with a very competitive price, competitive also in choice and quality, and which will enable them to compete in the market. We’ve also worked with the provinces and territories to establish taxation and pricing frameworks. The taxation framework is a result of a harmonized tax agreed upon by the federal government along with the provinces on excise and harmonized sales taxes as they exist, but in addition to that the provincial distributors and the territorial distributors hold the price lever to determine the price. But there is, in my experience, considerable consensus among the provinces and territories upon the goal of displacing and eliminating that illicit market. They recognize the importance of price but also quality, choice and access.
The Chair: Mr. Blair, I have a question. When we look at stopping a person, and there’s a cost to test, would the cost be included in the fine to the individual who is impaired?
Mr. Blair: Administrative fines are administered by provincial authority and that’s often based on cost recovery. I can tell you, I made a commitment to make available $274 million to address law enforcement capacity issues that had been identified, so $113 million of that $274 million will be allocated to the RCMP and CBSA. The RCMP, to improve their ability to respond to organized crime and deal more effectively with that. For CBSA, to bolster their resources to maintain border integrity issues as it pertains to cannabis. We also have $161 million that will be used to provide training and access to technology for police services, and that’s a commitment over the next five years.
We will assist in making sure that those devices, technology and training are accessible and affordable for police services, certainly for the RCMP. About a third of all police officers in the country work for the RCMP, but close to 65 per cent work either for provincial services, the OPP, the Sûreté, municipal or Indigenous police services. And we’re making sure all of them have access to this technology and this training.
The Chair: Mr. Blair, thank you. It has been very informative. You have been very generous with your time, sir.
If you wish, Mr. Blair, please do not hesitate to add additional information.
(The committee adjourned.)