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Michael DeGiglio, Village Farms:

CAN: "Fixing the excise duty rate is the biggest thing we can do to help struggling producers"

"We are big believers in the global cannabis industry and, for Canada, have advocated for excise tax reform to enable a sustainable industry. Seeing these recommendations in the House of Commons Standing Committee on Finance's report to the government shows what we've been saying is starting to land with the government. While only 20% of us are lucky enough to be profitable under the challenging taxation framework today, fixing the excise duty rate to the originally conceived 10% is the biggest thing we can do to help set struggling producers in Canada on the path to profitability and sector success," says Michael DeGiglio, Founder and CEO of Village Farms.

Last week, the Canadian House of Commons Standing Committee on Finance released changes to the current Cannabis Excise Duty model. Those recommendations include adjustment to the excise duty formula for cannabis so that it is limited to a 10% ad valorem (proportionate to value) rate.

When the Cannabis Excise Duty model was first adopted, it envisioned a retail selling price of cannabis much higher ($10-plus per gram) than is currently prevalent in today's market, such that the $1 per gram duty would have effectively been aligned to a 10% ad valorem tax rate. The reality of a much lower than anticipated price per gram has resulted in licensed producers reporting effective excise duties 100-250% higher than originally intended. This dynamic has created a cost structure that threatens the industry's long-term viability and achievement of the primary goal of the Cannabis Act – the establishment of a safe, legal industry that keeps profits out the hands of the illicit market.

Village Farms believes that the Standing Committee's recommended adjustment to the excise duty would benefit the industry, including enabling licensed producers to invest more in innovation, support the creation of well-paying jobs, and provide better access to capital to further invest in sustainable industry growth. "These benefits, together with enforcement, would further the conversion of illicit sales, which some estimates say represent as much as 50% of the current total market."

Related to excise duty payments, Village Farms also notes recent reports with respect to the Canadian Revenue Agency's (CRA) collection enforcement of the growing past-due excise tax balances. "As a company with cannabis revenues throughout Canada, Village Farms fully supports these actions to ensure a level playing field for licensed producers to contribute to a fiscally responsible industry, including the payment of income tax."

The Finance Committee recommendations, published in its report, 'Shaping our Economic Future: Canadian Priorities' are expected to be considered for legislation by Parliament for Canada's Fiscal 2024 (commencing April 1) Federal Budget and could potentially be implemented before legislation is formally passed. The report is available to the public here.

For more information:
Village Farms International Inc.

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