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Ontario marijuana producers hit by minimum pay rate hike

Aphria Inc. says if the new $14 per hour minimum wage had been in place during its latest quarter, this would have raised its all-in costs to sell dried cannabis by 12 cents, or nearly six per cent, from $2.13.
Aphria Inc. says if the new $14 per hour minimum wage had been in place during its latest quarter, this would have raised its all-in costs to sell dried cannabis by 12 cents, or nearly six per cent, from $2.13. THE CANADIAN PRESS/Chad Hipolito

Coffee chains and restaurants aren’t the only businesses under pressure from Ontario’s minimum wage hike — marijuana companies say the higher provincial pay rate is driving up the cost to produce and sell cannabis products as well.

Licensed medical marijuana producer Aphria Inc. has calculated that the province’s 21-per-cent minimum pay jump from $11.60 to $14 per hour would add another $600,000 to its overall wage costs each year.

“If this increase had been in effect in the current quarter, the company’s ‘all-in’ cost of sales of dried cannabis per gram would have increased by approximately $0.12 per gram,” the Leamington, Ont.-based company said in recent financial documents.

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That’s an increase of nearly six per cent from its all-in cost of $2.13 per gram during the quarter ended in November.

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Aphria said in its management’s discussion and analysis that when the provincial minimum wage goes up to $15 on Jan. 1 2019, it expects overall company wages to go up by another $300,000 per year.

Southern Ontario-based pot producer Newstrike Resources Ltd. said it’s also feeling the financial pressure, and anticipates its all-in costs to sell cannabis will rise by roughly 10 cents per gram due to the provincial wage hike.

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The province has both relatively high labour costs and electricity costs, which will likely weigh on producers’ decision making when setting up a new facility, said its chief operating officer Kevin Epp.

That could mean consumers will pay more for their weed.

“For a while, you could probably absorb it by having reduced margins,” Epp said.

“But eventually, in any competitive industry, costs have to be passed through or people would exit the industry.”

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Beacon Securities analyst Vahan Ajamian said the cost increases are meaningful. He added that Ontario’s higher pay rate will make it more difficult for marijuana producers in the province and others with rising minimum wages to compete with those in Quebec, where both labour and power costs are lower.

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Ontario’s minimum wage hike, which took effect Jan. 1, has already prompted other businesses to adjust how they operate.

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For instance, some Ontario Tim Hortons’ franchisees eliminated paid breaks, fully-covered health and dental plans and other perks for their workers to offset the added costs. The move drew protests at some of the coffee chain’s Ontario locations earlier this month as well as a few locations in cities across the country.

Meanwhile, Freshii chief executive Matthew Corrin said the eatery took steps to help franchisees offset the increase, such as raising prices on some items in the fall ahead of the hike.

But not all marijuana producers in Ontario are grappling with rising minimum wage rates — at least, not yet.

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Beleave Inc.’s chief executive officer Andrew Wnek said its relatively smaller operation is comprised largely of specialized workers who make more than minimum pay.

However, he notes, as the Hamilton, Ont-based pot producer grows in scale and additional harvesting staff is required for larger facilities, a higher minimum wage will factor in.

“There’ll be an impact for sure,” he said. “But, again, for the smaller LPs at this point in time, they won’t see that until they get into the larger facilities.”

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