Opinion: Current Blue Box system concerns must be addressed

By Kelvin McCulloch

Buckerfields

To British Columbians:

Re: The Administration of Blue Box Recycling in British Columbia

Introduction

The preparation and release of this article into the ‘court of public opinion’ is the very first step I will take to try once again since 2014 to convince the government of the province of British Columbia to correct serious matters of concern in the administration of Blue Box recycling by government in this Province.

There is a very long list of very serious issues that British Columbians should be concerned about in the administration of Blue Box recycling by the B.C. government, in my opinion. But the very first issue to address openly and honestly is the matter of the former government of this province using its regulatory authority to force private B.C. companies to sign private contracts with MMBC.

The second issue is far less stinging, while it is much more instructive of the difference between reality and the reality that can be created in the minds of people through skilful marketing.

I submit these two matters below for consideration by the court of public opinion and I commit to deliver a much longer list of issues next week.

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Assertion 1: The former government of the Province of British Columbia used its regulatory power inappropriately to require hundreds of British Columbia companies to sign contracts with MultiMaterial BC/ Recycle BC.

The principle of freedom of contract: In 1875, the following legal principle was first espoused most succinctly by Sir George Jessel, a well-known British Judge who was one of the most influential commercial law and equity judges of his time:

“If there is one thing which more than another public policy requires it is that men (persons) of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by Courts of justice.

Therefore you have this paramount public policy to consider – that you are not lightly to interfere with this freedom of contract.”

The above principle or ‘freedom’ seems to conflict with the assertion below:

“The former government of the province of British Columbia used its regulatory power Inappropriately to require hundreds of British Columbia companies to sign contracts with MultiMaterial BC/ Recycle BC.’

But in my opinion, the above assertion is absolutely true. The strategy was used by the government to finance Blue Box recycling in the hands of private interests without going through the British Columbia Legislature to raise the money in the form of taxes. It was a ‘dodge’ of the normal channel for raising taxes and being accountable for the money.

In my opinion, what was done and how it was done must be disclosed publicly, not by the government, not by the Office of the Auditor General, but by an independent judicial public inquiry. A public inquiry is required to survey and interview the companies that the Government ‘brought to compliance’, to find out what the circumstances were that led them to sign contracts with MMBC and whether in their opinion they had any other alternative under the Packaging and Paper sections of the B.C. Recycling Regulations.

Then and only then can the matter be resolved factually and openly, so that we can get on to shoring up the freedom to contract and financing Blue Box recycling properly.

Background

The government of the province of British Columbia brought into full force the Packaging and Paper section of the B.C. Recycling Regulation for the first time on May 19, 2014.

That regulation stated that substantially all the B.C. businesses in the province of British Columbia that flowed packaging and paper through to their customers had to have a government approved ‘Extended Producer Responsibility Plan’.

The above plans involved collecting back 75% of the packaging and paper products flowing through their businesses from their customers’ driveways and ‘managing the material to its end use, whether landfill or otherwise.’

The government called the businesses ‘producers’ in the regulation. The term ‘producer’ was a value-laden term which suggested to British Columbians that somehow these businesses were ‘responsible’ for something and should be ‘taxed’, basically in any way the government chose.

The regulation contained a second alternative, whereby the businesses could appoint someone who already had an approved plan to be their ‘agent’ for purposes of complying with the regulation.

The Construction of a Sham

Here is the problem with all of that.

First, the deadline for submitting an application to the government to get approval for an ‘Extended Producer Responsibility Plan’ passed on Nov. 19, 2012 when many of the companies knew nothing about any of it.

Second, when the companies looked at the wording of the regulation, it became very evident, very quickly, that:

  1. The first option under the regulation, to get approval for an ‘Extended Producer Responsibility Plan’, was deliberately impossible,
  2. and the second option, to appoint an agent, came down to appointing MMBC because it was the only entity that the Government had approved for this purpose. MMBC’s ‘Stewardship Plan’ to take over all Blue Box recycling in the province was approved on April 15, 2013.

The result that the government intended to produce was that every British Columbia company caught by the regulation would have to sign an MMBC contract.

This was how the former Liberal government planned to finance $80 million a year to pay MMBC for Blue Box recycling outside the jurisdiction of the B.C. Legislature.

The Scorecard

Four years later, as of July 15, 2018, the scorecard for ‘Government-approved Extended Producer Responsibility Plans’ under the B.C. Recycling Regulation, is set out below:

(Note: In March 2018, the government approved an ‘Extended Producer Responsibility Plan’ in the hands of the newspaper industry. This was nothing more than a settlement of an ongoing dispute. This is one of the ‘other matters’ that will be addressed in future submissions to the Court of Public Opinion.)

The scorecard for approved ‘Extended Producer Responsibility Plans’ shows zero approved plans from inception on May 19, 2014, to today. In contrast, there are 1,142 contracts between BC businesses caught by the Regulation and MMBC.

If the ‘Extended Producer Responsibility Plan’ option under the Regulation had any legitimacy to it, the scorecard would have showed a significant number of such plans, approved and in the hands of private businesses. But there are literally none after four years There never have been any. There weren’t supposed to be any.

The government intended to funnel all the B.C. businesses into contracts with MMBC. It did not intend for any company in the province to have an approved ‘Stewardship Plan’ or and approved ‘Extended Producer Responsibility Plan’ of its own. And it made sure that none did although it has never accepted responsibility for what it did.

What it did is set out below.

Bringing ‘ProducerCo’ to Compliance

Please examine the attached letter from the Compliance Policy and Planning Division of the Ministry of Environment to a British Columbia company that I will call ‘ProducerCo’ dated Feb. 20, 2015.

‘ProducerCo has 27 store locations in British Columbia and is very well-known and much appreciated.

At the time ‘ProducerCo’ was trying to deal with the issue of complying with the Packaging and Paper sections of the Recycling Regulation, the vice president and legal counsel for the company called me to find out more about the regulation and what to do about it. She and everyone else in the management of the company, including the owners, could not believe they were being pushed into a contract with MMBC to pay for Blue Box recycling.

I met with her and a colleague from the company. After reviewing the regulation, we came to the same conclusion once again, that every company had to sign a contract with MMBC to comply with the regulation and there were no other valid alternatives to comply.

ProducerCo signed the MMBC contract.

And the vice president and legal counsel for this company has been waiting for an opportunity to explain exactly how the government pushed her into signing the MMBC contract ever since.

Summary

Based on the case above, it would appear to be fair to repeat the assertion above that the government of the Province of British Columbia has been using its regulatory authority to force British Columbia companies to sign private contracts with MMBC/RecyleBC.

The ProducerCo experience is one of many documented examples.

The Auditor General

In further support of the above assertion, I submit the following comments of the BC Auditor General from her November 2016 Report on Product Stewardship as follows:

  • p. 6 – ‘The ministry told us that as of January 2016, its compliance and enforcement efforts have resulted in approximately 250 additional obligated producers signing on’
  • P. 6 – ‘Since 2013, the Ministry has brought in almost 500 non-compliant producers including 100 since the OAG review was first initiated’.
  • P. 6 – ‘By the end of 2017, the Ministry anticipates having all producers in compliance with the Recycling Regulation’.

In view of the comments above:

  1. Every single company referred to above was ‘brought into compliance’ by the government of the day using various ‘compliance letters’ and threats of fines and penalties.
  2. Every single company that was brought into compliance recognized that it was impossible to obtain approval for an ‘Extended Producer Responsibility Plan’ under the regulation and the only way to comply with the Regulation was to sign a contract with MMBC.
  3. Every single company that eventually ‘complied’, signed a private contract with MMBC.
  4. No company ever achieved compliance with the Packaging and Paper Sections of BC Recycling without signing an MMBC contract.

Conclusion

It no longer matters what the government has to say about this, the government has no credibility in this matter whatsoever.

It no longer matters what the Auditor General has to say about this. That office (OAG) had the opportunity to report this situation and was asked to do so at the time it undertook its 2015/2016 review. It failed to do so in its November 2016 report even though the situation was properly and fully presented to it.

What matters now is what the 500 or so companies that were that were forced to sign contracts with MMBC have to say about this. ProducerCo is waiting for its turn, so are all the others.

A Judicial Public Inquiry into the Administration of Blue Box Recycling in British Columbia

The only way to answer the question of whether the government of the province of British Columbia routinely forced B.C. companies to sign private contracts with MMBC is to ask them, especially the ones who were ‘brought to compliance’. Their responses need to be considered fairly, independently, and away from all the vested interests that are now established.

These steps are required to restore the integrity of the B.C. government insofar as it has consistently refused to take responsibility for forcing, coercing, or otherwise funneling companies into private contracts with MMBC (see attached letter).

The public Inquiry is also necessary to repair the damage done by the former government of the province to the legal principle of ‘Freedom to Contract’. The government has acted to weaken and even invalidate that principle. It needs to be restored and buttressed.

The Discrepancy in the Numbers

Assertion #2: There is a serious problem with the recovery rates reported for Blue Box Recycling in British Columbia

This assertion addresses the matter of the oft-quoted 75% recycling or ‘recovery rate’ for Blue Box recycling in British Columbia.

Introduction

Over the history of the Packaging and Paper section of the B.C. Recycling Regulation, much has been made of the idea that under the new MultiMaterialBC/RecycleBC system, great progress was made over the former municipal system in the form of an increase in the ‘recovery rate’ for Blue Box contents.

Those who paid attention to the issue would be familiar with the oft-quoted statistic that the former municipal Blue Box system operated at a ‘collection rate’ of 53% to 60% and a ‘recycling rate’ of 50% to 57%. The impression left to the public was that much improvement was required because the provincial recycling program under municipal administration did not compare favourably with other jurisdictions.

After the former Liberal Government transferred responsibility for Blue Box recycling out of municipal jurisdiction into the hands of Multimaterial BC, suddenly the reported ‘recovery rate’ for Blue box recycling jumped from the lower municipal rates to 75% and higher. These higher ‘recovery rates’ have been reported by MMBC ever since.

From the standpoint of the public, all of this might have sounded like a dramatic improvement. Indeed, even the Auditor General of the province made a point of noting in her report in November 2016 that MMBC’s recovery rate was 80.1% in 2014 and 77% in 2015, although she was very careful to note that she “… did not audit this reporting”. Still, the mere publication of the 80.1% and 77.0% recovery rates in her report, together with various congratulatory comments about how well ‘stewardship’ was working in the province, lent all kinds of credibility to the proposition that everything was progressing very well over the former system.

But there is a serious problem with the numbers.

The recovery rate of the former municipal system

The 53% to 60% ‘collection rate’ of the former municipal Blue Box system was developed originally by Glenda Gies & Associates in her report prepared for Multi Material BC entitled ‘Current System for Managing Residential Packaging and Printed Paper in British Columbia’ dated March 2012.

In that report, Gies based her calculations on estimated volumes of 350,000 to 400,000 tonnes of packaging and printed paper available for collection in British Columbia annually, and 210,700 tonnes of material actually collected per year. Using these numbers, Gies reported the above ‘collection and recycling rates’ for the former municipal system. These statistics are set out in the table in the next section below.

MMBC’s ‘Stewardship Plan’ strongly suggested that the above rates were ‘low’ by comparison with other jurisdictions (Ontario, Manitoba, Germany).

The former Liberal government used this concept as partial justification for handing the entire system over to MultiMaterial BC.

The Blue Box recovery rate of MultiMaterialBC

Under its newly approved ‘Stewardship Plan (effective April 15, 2013) MMBC committed to achieve a 75% ‘recovery rate’ after it took over Blue Box recycling in the province.

The numbers MMBC reported in its annual reports since then are set out below.

As shown above, MMBC has reported 75% ‘recovery rates’ or better every year since it took over.

Taken on face value, the ‘recovery rates’ reported by MMBC look like dramatic improvements.

In reality, either the original Gies statistics of 350,000 to 400,000 tonnes of available material were wildly incorrect, or MMBC isn’t reporting on the same basis as the Gies Report. Or something else has happened to create the difference.

In fact, MMBC is not reporting on the same basis as Gies, and the original estimates of Gies warrant closer examination going forward as well.

The remainder of this report will focus on the difference between Gies’ 350,000 to 400,000 tonnes and MMBC’s reported high of 243,191 tonnes reported by its ‘members’ in 2015, etc.

The difference between the two recovery rates

The Gies Report attempted to estimate the total amount of packaging and printed paper available for collection in the province, to calculate the ‘recovery rate’ at the time.

In contrast, MMBC uses only the amounts reported by its ‘members’ to calculate its ‘recovery rate’.

The MMBC statistic is a subset of the entire volume of material available for collection in the province. As such, the calculation is guaranteed to produce a much higher ‘recovery rate’ than if the entire amount of material available for collection was used in the calculation.

In fairness to Glenda Gies, she acknowledged openly in her report that there were difficulties associated with her numbers, namely that the numbers had to be quantified and estimated from various data sets and that they were only estimates. She went on to advise that the real numbers would not be known until after MMBC started collecting information from its stewards.

The problem is that Gies assumed MMBC’s ‘stewards’ would be reporting the entire volume of material available for collection, just as she had tried to estimate it. At the time, this was probably a fair assumption because it was anticipated that every business that put packaging and paper into the hands of British Columbians would be covered by the Packaging and Paper sections of the B.C. Recycling Regulation. So, if all the businesses reported completely and accurately, this would produce a more accurate measure of the material available. And the resulting ‘recovery rate’ would be more accurate than the one Gies estimated.

The Small Business Exemption

Between the time that Gies & Associates produced the 2012 Report and the time when MMBC took over, the former Liberal Government gave in to enormous pressure from the small business community and exempted a large (unknown?) number of small businesses from the Packaging and Paper sections of the BC Recycling Regulation.

Accordingly, none of these businesses would be required to do anything under the regulation. None of them have to report the volumes flowing through their businesses to consumers. All of them still continue to flow packaging and paper through their businesses into the hands of British Columbians. British Columbians continue to deposit the material indiscriminately into their Blue boxes along with all the material coming from MMBC’s ‘members’.

So, when MMBC calculates a recovery rate using the volumes of material reported by its ‘members’ only, it is not calculating a recovery rate that is directly comparable to the original Gies rate. And it is not reporting a ‘provincial’ recovery rate. It is actually overstating the provincial ‘recovery rate’ by the amounts of material coming from the small business segment that aren’t included in MMBC’s calculation of material ‘available’.

Despite the difficulties Gies experienced in measuring or estimating the ‘provincial’ ‘collection rate’, at least Gies attempted to include everything available, not just what MMBC’s ‘members’ reported. And it is not surprising that in doing so her annual volumes of material ‘available’ at 350,000 to 400,000 tonnes per year, are much higher than any of the volumes reported by MMBC since then.

Accounting for everything ‘available’ is the correct approach to be taken for determining ‘provincial’ recycling rates’ to be reported to British Columbians. A ‘recovery rate’ that is based solely on volumes reported by MMBC’s ‘members’ doesn’t mean anything from a public policy perspective. It’s a subset of the whole and a miscalculation as long as the volume of ‘material collected’ includes the amounts that were made available by the ‘small business segment’.

Adjusting the Numbers – Comparing Apples to Apples

The table below serves to illustrate how the two recovery rates differ and what they might be if the missing small business segment was accounted for.

All the numbers in the table are the same as the numbers reported by Gies and MMBC except the estimates of volumes of available material from the missing small business segment. Volumes from 50,000 to 100,000 tonnes a year have been used for illustrative purposes. These volumes are totally fictitious. However, they are indicative of the fact that the ‘provincial recovery rate’ for Blue Box recycling simply has to be lower than what MMBC reports and the actual statistics could very well look much more like what Gies & Associates reported in 2012.

As can be seen from the table above, once estimated tonnages from the missing small business segment are added back, the total volumes of material could be very close to the original Gies numbers. And the current ‘provincial recovery rate’ could actually be very similar to the rate reported by Gies in 2012. At a minimum, the ‘real provincial rate’ has to be lower than what is currently being reported and it is almost guaranteed to be well below the 75% level which is based solely on what MMBC’s ‘members’ report.

Other Factors to Consider in Calculating a Provincial Recovery Rate for Blue Box Recycling

There are several other factors to consider in calculating a ‘real recovery rate’ for Blue Box recycling in British Columbia. Two additional sources of potential error in the current method are discussed below.

The Measurement Methodology of MMBC’s Members

A number of MMBC’s members like ProducerCo struggle with the reporting requirements they face under their contracts with MMBC. Put simply, they are not equipped to quantify and report packaging and paper materials in the manner MMBC requires.

How is a retailer supposed to weigh the various kinds of plastic and paper that flow through its business, accurately? Retailers have enough difficulty accounting for their inventory properly using bar codes, scanners, POS terminals and dedicated inventory management systems without having to track the weights of the various kinds of packaging, paper, cardboard, newsprint and plastic that their customers are going to throw away after they get the products home?

Second, from the ‘members’ standpoint the entire purpose for reporting these weights is to provide MMBC with the basis for charging them fees. The entire billing system is a ‘self-reporting’ system which results in significant costs to the members. In 2017, these costs amounted to $83.4 million.

Under these circumstances, as in all ‘self-reporting systems’, the ‘bias’ is always going to be in favour of lower costs, therefor lowering what drives costs. In this case, what drives costs is the reported weights of the packaging and paper that the members flow to their customers.

When you combine the two considerations above, the severe difficulties associated with weighing individual packaging and paper components for thousands of products flowing through a business, together with the self-reporting bias in favor of lowering costs, how likely is it that the volumes reported by MMBC’s stewards are complete and accurate? What is the error rate likely to be?

To the extent that MMBC members under-report their plastic and paper volumes, deliberately or otherwise due to the difficulties in trying to figure out the actual volumes, the error is likely to understate what is actually available and thus overstate the ‘provincial recovery rate’.

This is by no means a ‘criticism’ of MMBC or its ‘members’. It’s just an important potential source of error to consider in assessing the accuracy of reported ‘recovery rates’ for recycling in British Columbia.

The non-compliant producers

Much has been made of the possibility that there is still an undisclosed number of ‘non-compliant’ producers under the regulation.

In 2016, the Auditor General highlighted that there were ‘non-compliant producers’ who needed to be ‘brought into compliance’. Presumably, the problem was significant enough to bring to the attention of the Legislature.

All of the non-compliant producers will be flowing packaging and paper into the hands of British Columbians. None of them will be reporting their volumes to MMBC. Their volumes should be taken into account in calculating a ‘provincial’ recovery rate. Their volumes would have been included in the Gies report estimates because at that time, there was no such thing as a ‘non-compliant producer’.

Again, lacking these volumes of ‘available material’, any calculation of a ‘provincial recovery rate’ will once again be overstated.

Other observations

Other observations arise in looking at the statistics reported by MMBC:

  1. MMBC has reported steadily declining volumes of material since 2015. At no time have the reported volumes ever equalled what was reported in the Gies study which benchmarked the original municipal system in 2012.

    One would have expected that with population and economic growth over the five-year period since 2012, tonnages of collected material would have increased substantially.

  2. Although MMBC calculates its ‘recovery rate’ based solely on volumes reported by its ‘members’ instead of having to take into account all the packaging and paper flowing to British Columbians, it is still nevertheless considered to be in full compliance with the BC Recycling Regulation simply because of the wording and interpretation of the regulation itself.

    Perhaps the wording of the regulation needs to be amended to hold MMBC accountable for all the available packaging and paper flowing to British Columbians, not just the amounts that its members report. This would be consistent with its overall mandate for Blue Box recycling in British Columbia and the methodology of the original study (Gies) that was used as the rationale for the program.

  3. In 2017, it doesn’t appear that MMBC actually achieved a 75% recovery rate, even on the basis of what its members reported.

    Based on the numbers reported in its 2017 Annual Report, (174,942 divided by 234,847), the ‘recovery rate’ was only 74.49%.

    It appears that the 75% target rate was achieved by rounding the numbers up.

Summary

In summary, currently reported ‘recovery rates’ for Blue Box recycling in British Columbia are not comparable with the rates attributed to the original municipal system because several significant components are being omitted from the current calculations.

If the missing components were added back, it is very likely that current recovery rates for Blue Box recycling would be well below 75% and would be much more in line with rates attributed to the original municipal system.

Currently reported recovery rates are not representative of a true ‘provincial recovery rate’ for Blue Box recycling because the current calculations only take into account what MMBC’s members report, as opposed to taking into account all packaging and paper flowing to British Columbians from all sources.

Overall Conclusions

This concludes my first submission to the Court of Public Opinion.

The purpose of the submission is to publicly state two of the most serious reasons why in my opinion a Judicial Public Inquiry into the administration of Blue Box recycling in British Columbia is required.

We cannot stand idly by while the government uses it regulatory authority to force us to sign contracts, thereby encroaching on, and diminishing our ‘freedom to contract’.

If we allow the government to do this to ‘corporate citizens’, we invite the government to do this to ‘private citizens’. Freedom to contract and the admonition not to interfere with it lightly, applies equally.

Second, we cannot stand idly by while the government uses its regulatory authority to raise money to pay for public sector programs outside the BC Legislature. Legislative control over taxation and the results of government expenditures has been fundamental to our democracy since the days when we took the power of arbitrary and preferential taxation away from kings. We must not allow the return of such arbitrary and totalitarian practices in our province.

Third, we are entitled to be provided with complete, valid and accurate performance measurement information about every public-sector program that we pay for. If the information we are provided is incorrect from a public policy standpoint, we need to demand and receive the correct information so we can assess the merits and the shortcomings not only of the program themselves, but of the governments that administer them.

More matters will be disclosed on Friday, July 20, 2018.

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Bio: Kelvin McCulloch

Kelvin McCulloch became the President of the Buckerfields chain of nine retail stores in British Columbia in 2005. Buckerfields is a BC heritage business started by Ernest Buckerfield in 1919.

Mr. McCulloch is a Certified Public Accountant (CA/CPA). He holds a Masters Degree in Public Administration and a Bachelors of Arts and Sciences Degree in Political Science from the University of Victoria.

Mr. McCulloch was a Legislative Intern in the BC Legislature in 1979.

Prior to joining Buckerfields, Mr. McCulloch served as a professional auditor and consultant in British Columbia and internationally. He was a Principal in the consulting practice of Ernst & Young Chartered Accountants, later KPMG in Victoria. In KPMG, his consulting career took him to Singapore where he served as Managing Director for KPMG’s Asia Pacific Regional Business Performance Improvement Consulting Division.

Mr. McCulloch later joined Oracle Corporation as the Consulting Practice Director for Singapore. He went on to become Director of Special Projects for Asia Pacific. In that capacity he was seconded to the Asian Development Bank in Manila for one year and the Head Office of Matsushita Electric in Osaka, Japan for 18 months where he directed the world wide re-implementation of Oracle’s Supply Chain Management software in Panasonic television factories in China, Czechoslovakia, Thailand and Mexico.

Mr. McCulloch’s BC government consulting and auditing assignments included:

  • conducting first-ever procedural audits of 41 diagnostic medical facilities for the BC Ministry of Health including Vancouver General Hospital, Jubilee Hospital and Island Medical Labs
  • Financial Advisor to the BC Gaming Commission for five consecutive years
  • accountant and advisor to Board of Duke Point Development Corporation
  • follow-up investigation of BC Government advertising expenditures flagged by the Office of the Auditor General
  • various consulting and forensic investigations for the BC Ministry of the Attorney General
  • field auditor for the BC Ferry Corporation, Federal/ Provincial Young Offender Act Cost Sharing Agreement, Canada Tungsten Mining Corporation, Cypress Anvil Mines, etc.

Mr. McCulloch is an outspoken critic of the BC Government’s transfer of Blue Box recycling out of municipal jurisdiction into private sector hands and the way in which the BC Government administers the Packaging and Paper Sections of the BC Recycling Regulation.

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