B.C. communities losing millions on legal cannabis

Municipalities bear major costs, but province yet to share revenue

Local governments in B.C. are spending millions on administration, planning and enforcement related to recreational cannabis, but are still waiting for the province to share the spoils of legalization.

Today marks a year since cannabis was legalized in Canada, and the issue of how B.C. will share with municipalities the provincial percentage of the federal excise tax that’s applied to cannabis has been outstanding since before legalization.

“It’s very important to our members,” said Sooke Mayor Maja Tait, president of the Union of B.C. Municipalities.

“Many scrambled to provide the framework, to have it in place, and we were all under the understanding that we would receive some of this revenue.”

Earlier this year, at the request of the province, the UBCM surveyed its members and received responses from 34 communities representing 44 per cent of B.C.’s population about the costs they had incurred related to legalization. It showed

that over three years, 2018-20, those municipalities together expected to pay $15.2 million in capital and operating costs. Policing was the biggest bill for local governments, at 33 per cent of all reported incremental costs. Municipal administration and support, bylaw enforcement, and planning and zoning each made up 19 per cent of local government costs.

Business licensing fees offset those costs to a small degree, the UBCM said, but it varies widely depending on how much municipalities decided to charge for marijuana business licences.

Using the reported costs, the UBCM estimates that altogether B.C. local governments will incur an average of $11.5 million per year in incremental costs due to cannabis legalization.

Vancouver, the largest city to respond, had a three-year cost estimate of almost $7.6 million. Policing was the biggest expense for Vancouver, at $3.2 million, followed by municipal administration and support at almost $2.2 million. Bylaw enforcement costs are pegged at almost $1.5 million. Human resources and labour relations, planning and zoning, and fire and emergency services were also included in Vancouver’s tab.

Mayor Kennedy Stewart, a former NDP MP, said cannabis legalization was one of the last items he voted on as a federal elected official.

“While I was in Ottawa, I never thought about how this would impact municipalities, but now (that) I’m on the other side of it, I see that municipalities are doing the vast majority of the work when it comes to the transition for legal cannabis,” Stewart said.

“It has been an ongoing expense to the city, both in time and resources.”

Vancouver has 12 licensed private cannabis retail outlets, 10 that have development permits and are in the process of becoming legal retailers and five that are illegal.

Stewart said he expects the UBCM will eventually come to a deal with the province on excise tax revenue sharing, and he’s willing to be patient. However, it will be on his agenda when he goes to Victoria in a few weeks.

“We need help because, again, it comes right out of property tax bases and it wasn’t our decision, it was a federal decision, and they made provisions in the act that municipalities would have some revenue. We just need to work out that agreement and see the money start flowing,” Stewart said.

On the other end of the spectrum, the District of Tofino, which has a population of about 2,000, has a three-year cost estimate of $35,627, or about one per cent of the municipality’s annual tax revenue. Most of that figure is one-time operating costs, and more than half of the total was spent in 2018. About $24,000 is administration costs, and the rest is planning and zoning. The district has approved applications for two private retail stores, though neither has opened.

Mayor Josie Osborne said the amount of work that went into policy making and planning was significant.

“You could look at that as extra costs. The other way that I look at it is, we haven’t changed our staffing, so that just means less work being done in other areas,” Osborne said.

B.C. Finance Minister Carole James said, in an emailed statement, that there have been “significant costs” associated with the provincial cannabis regulatory framework and she doesn’t expect revenues to exceed initial expenses from legalization.

The province had estimated that it would receive $125 million over two years — $50 million in the first year and $75 million in the second — but that estimate was lowered this spring when it received its first payment from the federal government. Now, it’s expected the province will receive $132 million over three years.

Tait said it’s her understanding the shortfall is one reason why municipalities still don’t have a deal with the province.

“While we appreciate that … we have costs and we know the province does, as well, but certainly the province didn’t have to justify their costs to the feds when they received the flow through,” Tait said.

James said the province will continue to work with municipalities on cannabis revenue sharing.

In the short term, the UBCM wants to see a two-year agreement that sees 40 per cent of the projected provincial excise tax revenue given to B.C. local governments.