Federal government says its expectation is that the tax revenue be shared with local governments

When Canada legalized cannabis in 2018, Port Coquitlam, B.C., like many other municipalities, began to quickly develop the framework for dispensaries to set up shop.

Mayor Brad West said his city was eager to jump on board, not only to tackle the black market, but also because many municipalities believed they would be sharing in the excise cannabis tax revenue being collected by the federal government from producers.

"That turned out not to be the case for anyone, because regardless of whether you have stores or you don't, there's no revenue," said West.

Cannabis has been legal for almost four years, yet despite federal expectations for the tax revenue to be shared with local governments, municipalities have yet to receive a single dime from the province.

Municipalities are now calling on the province to finally establish a sharing agreement.

"It's the fair thing to do given that local government has been really important to the establishment of this industry," said West.

Cannabis revenue has 'fallen short': province

The province says its agreement with the federal government on excise tax never stipulated that revenue be shared with municipalities.

But Canada's Department of Finance, in a written statement, said its expectation is "that a substantial portion of the revenues" be transferred to local communities.

Selina Robinson, B.C.'s minister of finance, declined an interview but admitted in a statement that cannabis revenue has fallen short of projections.

"While cannabis revenue is growing, the market is still maturing. Associated costs to the province from legalization remain. This includes costs related to licensing, regulation and enforcement," she said.

The province has also collected $91.3 million in PST on cannabis sales in that timeframe.

West would like the province to share the wealth.

"Seems to make sense and would be fair that at least a portion, even a small portion, would be returned to the level of government that has been able to make this happen on the ground," said West.

Expectations vs reality

Ahead of legalization, the federal government decided that excise cannabis tax revenue would be split 25/75 between Ottawa and the provinces and territories, respectively.

In the 2018 budget, then-finance minister Bill Morneau offered insight into one of the reasons Canada was giving away the biggest piece of the pie.

"It is the federal government's expectation that a substantial portion of the revenues from this tax room provided to provinces and territories will be transferred to municipalities and local communities, who are on the front lines of legalization," he wrote.

That expectation hasn't been forgotten by B.C. municipalities.

Laurey-Anne Roodenburg, president of the Union of B.C. Municipalities, said resolutions calling for a sharing agreement from the province have been endorsed four times in the past five years at the union's annual convention.

"The question is, when are they going to make good on delivering a portion of the cannabis taxation as the federal government intended them to do?" she said.

So far, only Ontario, Quebec and Alberta have passed on excise cannabis tax revenue to local governments.

Municipalities say they carry 'significant' burden

While the City of Port Coquitlam was quick to introduce the framework to allow retail cannabis stores, West admits it was a significant investment.

Municipalities were responsible for developing the entire application and approval process, along with public consultation, local enforcement, planning and zoning, and municipal administration.

That's work local governments weren't initially expecting to have to do, he said.

"But then we found out, as the province laid out their framework, that our role was going to be significant and almost decisive in the fact that if the local government doesn't put in place a process, then there's no mechanism for retail outlets to come into a city," West said.

And while the initial setup was intensive, it also wasn't a one-time expense.

A 2019 report by the UBCM estimates that the legalization of cannabis and the opening of dispensaries would cost local governments $11.5 million per year in incremental costs.

Given those extra burdens, Roodenburg says it's only fair that municipalities see a portion of the tax revenue.

"It would give us another tool in our finance toolbox. It's another opportunity that isn't based strictly on [property] taxation," she said.

West agrees it could go a long way to deliver on municipal responsibilities like developing and maintaining parks, keeping the city clean, and repairing potholes without having to raise property taxes.