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Cannabis Legislation Challenges faced by South Island First Nations

By March 28, 2023No Comments

Our Executive Director Christina Clarke presents a comprehensive overview of the challenges faced by First Nations in operating cannabis businesses.

Challenges faced by First Nations communities in setting up cannabis businesses.

There are a number of First Nations communities on the Island engaged in the cannabis industry. 

As an example, Cowichan Tribes partnered with Costa Canna and United Greeneries Ltd as a majority shareholder to operate a production facility and 4 cannabis retail outlets on Southern Vancouver Island.

Songhees Nation partnered with Seed & Stone and are minority shareholders in 6 stores on the lower mainland and Victoria. Songhees is also the majority owner of Songhees Cannabis Store on Songhees reserve. 

Despite the opportunities inherent in the cannabis industry, Indigenous cannabis businesses are facing a raft of challenges, many of which were highlighted when the Province of BC hosted four Cannabis engagement sessions with First Nations earlier this year as part of their cannabis legislation review process. 

Existing cannabis legislation

Cannabis is regulated by both Federal and Provincial Governments. A federal licence is required to produce cannabis and a provincial licence is required to operate a cannabis store in B.C. British Columbia is the sole wholesale distributor of cannabis within the province.

Canada passed the Cannabis Act in 2018, legalizing non-medical cannabis and asserting its authority to regulate commercial cultivation and processing and delegating the Provinces and Territories authority to regulate non-medical distribution and sale under national minimum standards. 

In 2018, B.C. passed two cannabis laws: the Cannabis Distribution Act, which establishes a provincial cannabis wholesale distribution and public retail system; and the Cannabis Control and Licensing Act, which establishes a framework for licensing private cannabis stores, and for the possession, consumption and personal production of cannabis in B.C.

How does existing legislation impact Indigenous cannabis licence holders?

First Nations communities and organizations have expressed disappointment for not being adequately engaged in the development of federal and provincial cannabis laws with joint statements sent to national and provincial governments asserting their rights in relation to cannabis. 

An early criticism from First Nations is that they should be sharing in cannabis excise tax as economic reconciliation and to fund the cost of cannabis education and research, public health and bylaw programs and support economic development in the cannabis industry.

First Nations participating in the engagement sessions also disagree with BC Cannabis stores competing with retailers and taking up market share with unfair price competition. They also disagree with the provincial government asserting provincial laws on reserve, which are meant to be regulated by Nation to Nation agreements with the Federal government. 

Under section 119 of BCs Cannabis Control and Licensing Act, the minister may enter into an agreement with an Indigenous nation relating to the sale of cannabis subject to the requirements in section 119(3) of the Cannabis Control and Licensing Act.  

Several First Nations have entered into section 119 agreements including Cowichan Tribes, Snuneymuxw First Nation, Williams Lake First Nation and Lhtako Dene Nation.

Narrow mandates make for difficult navigation, decrease likelihood of efficiency

Stakeholders say the Province’s mandate for section 119 agreements is narrow, mostly exemptions from the clauses most likely to be changed in future versions of the act such as allowing sale of regionally produced Indigenous arts and crafts and shared advertisement and branding for production and retail.

Several section 119 agreements include exemption from the ‘Tied House Rule’ which limits a cannabis producer from owning more than 20% of retail stores – limiting vertical integration.  

Cowichan Tribes’ cannabis company Costa Canna LLP acquired United Greeneries Ltd in 2020 to produce cannabis products for Costa Canna stores. They asked the Province to remove its 15% Direct Delivery Fee on inventory they sell directly to their own stores, calling the fee a tax, since the Province is not distributing the product in this case. Removal of this fee would improve profitability providing direct economic benefit for Cowichan Tribes. 

Songhees Nation asked the Province to eliminate or reduce the 51% ownership requirement in order to participate in section 119 agreements. Songhees strategy is to be a minority shareholder for 8 or more stores to benefit from economies of scale and limit risk, partnering with a majority shareholder who is expert in the cannabis industry. Songhees argues this rule disincentivizes partnerships. 

How First Nations are enacting solutions

Some First Nations have passed cannabis bylaws under the First Nations Lands Management Act to regulate cannabis on their reserve lands in a manner aligned with their health and safety priorities. 

The B.C. Assembly of First Nations (BCAFN) released a Cannabis Tool Kit in 2021 that provides information and resources regarding the legalization and economic development aspects of cannabis from a First Nation perspective, and explores case studies from First Nations already operating cannabis businesses. 

In early 2022, the BCAFN, the Union of B.C. Indian Chiefs, and the First Nations Summit, working as the First Nations Leadership Council developed a B.C. First Nations Cannabis Strategy Framework based on engagement sessions held in 2021. 

This Strategy Framework was approved in principle by First Nations leadership through resolutions at Chiefs meetings of the BCAFN, the UBCIC and the FNS. Actions identified in the Framework are organized under six priority areas: 

  • Advancing the recognition of First Nations inherent jurisdiction over cannabis.
  • Advancing First Nations taxation and revenue sharing jurisdiction. 
  • Support First Nations cannabis Businesses and Entrepreneurs 
  • Prioritization of community safety
  • Strengthening health and wellness advocacy work through First Nations institutions
  • Advancing the development of the necessary infrastructure, institutions, and other supportive resources 

The First Nations Leadership Council is advocating for a new First Nation institution to support cannabis related economic development, provide testing services, act as a regulatory authority, and facilitate relationship building and information sharing between First Nations.  

Canada has several successful examples of First Nation Institutions under the First Nations Fiscal Management Act, including the First Nations Tax Commission, the First Nations Finance Authority and the First Nations Financial Management Board. 

Some First Nations chose to operate, or allow their members to operate, cannabis production or retail outside of the regulated market, based on their sovereignty and inherit rights, such as Frankies Trading Post at Tseycum First Nation.  

Others chose to submit a Provincial licensing application for on-reserve in order to participate in the regulated market and access regulated products. Songhees said it was a business decision for Songhees cannabis Store, despite their disagreement with Provincial licensing on reserve lands.

The Province of B.C. responds to concerns

B.C. launched two programs in 2022 in response to requests from First Nations for support to participate in the federally and provincially regulated cannabis industry: the B.C. Indigenous Cannabis Product Program which uses a logo to highlight cannabis products from B.C., and the B.C. Indigenous Cannabis Business Fund, an application-based grant program designed to support First Nation communities and Indigenous entrepreneurs establish new cannabis businesses and/or expand existing cannabis businesses, both on and off reserve. 

Cannabis legislation under review 

In September 2022 the federal Minister of Health and the Minister of Mental Health and Addictions launched a review of the Cannabis Act. Among other key areas, the review will focus on the impact of cannabis on First Nation people and communities. The Ministers have mandated an independent Expert Panel to engage with First Nations to inform this legislative review. 

With four engagement sessions in early 2023, the Province undertook “an initial engagement to identify how the Province and First Nations can work together to advance a collaborative approach to cannabis governance and jurisdiction. This engagement will enable all interested First Nations to share their perspectives and experiences with each other, and with the Province, to help identify shared priorities and inform decision making on the future of cannabis governance and jurisdiction in B.C.”

South Island First Nations Songhees Nation and Cowichan Tribes participated in the engagement with presentations about their cannabis businesses and feedback on the legislation. 

The First Nations Leadership Council attended every session, supplied written materials and gave a presentation and encouraged First Nations to participate in both the Provincial and Federal government cannabis legislation review processes. 

What needs to change, according to the First Nation Leadership Council?

The First Nation Leadership Council Cannabis Act Review states: “First Nations have inherent rights and jurisdiction to govern the cultivation, processing, sale, and consumption of cannabis in their territories. However, this has not been reflected or recognized within Canada’s current legislative framework. 

The exercise of these rights is supported by Articles 4, 20, 21, 23, 26, and 32 of the United Nations Declaration on the Rights of Indigenous Peoples, which is affirmed in both provincial and federal legislation. These articles set out the rights of Indigenous peoples to maintain and develop their political, economic, and social systems and activities. 

First Nations governments are also excluded from cannabis tax revenue sharing. Currently, Canada receives 25% of excise tax revenues, and the provinces receive 75%. Federal and provincial governments also receive PST and GST. At the same time, the legalization and regulation of cannabis in Canada has created an additional financial burden for First Nations governments as they seek to regulate cannabis and promote public health and safety in their communities. 

The lack of jurisdictional space for First Nations creates a potential risk to public safety and is inconsistent with the United Nations Declaration. First Nations have been taking a wide variety of approaches to the governance and economic development of cannabis within their territories. The restrictive nature of current regulations has also posed a barrier to First Nations’ economic success. 

Licensing processes are highly bureaucratic and inaccessible. Capital availability for cultivation, retail, a micro facility or almost any part of the vertical integration, is almost non-existent. 

Most recently, it has been noted that investors are looking for asset-based mortgage instruments, something that most First Nations do not have ready access to on reserve.”

Several section 119 agreements include exemption from the ‘Tied House Rule’ which limits a cannabis producer from owning more than 20% of retail stores – limiting vertical integration.  

All of the First Nations who provided feedback in the sessions stated that overtaxation is squeezing profits from production and retail of cannabis. 

What is the path forward?

Cannabis legislation reviews offer an opportunity to meet commitments under the Declarations on the Rights of Indigenous Peoples. It’s clear that this legislation should recognise the jurisdiction of First Nations over their lands and the safety and wellbeing of their members.

It’s also an opportunity to address economic reconciliation with Indigenous People, righting the wrongs of the past by creating better conditions for economic prosperity and generational wealth. We hope the Province is listening, and we look forward to seeing how they enact a much needed overhaul. 

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