While several provinces have announced their plans for recreational cannabis distribution and retail operations, industry stakeholders have been waiting for an announcement on the Canadian cannabis tax framework and that moment has now arrived.
On Nov. 10, 2017, the Department of Finance Canada released a proposed excise duty framework for cannabis, with the framework open for a public consultation period until Dec. 7.
According to the proposed framework, the combined federal and excise duty rates on cannabis, both medical and recreational, would place a maximum total excise tax on cannabis flower of C$1 per gram or 10% of the producer’s final sale price, whichever is higher. Tax revenue from the excise tax would be split equally between the federal government and the province or territory of sale, with Canada estimating $1 billion in tax revenue per year.
In addition to the excise tax on producers, cannabis would be taxed under the Goods and Services Tax/Harmonized Sales Tax, which the consumer would pay at the point of sale. For example, 1 gram of dried cannabis at a pre-duty price of C$8 would have an excise tax of C$1 and then a GST/HST of C$1.17, so the consumer would pay a total of C$10.17.
“I’m very comfortable that the level of taxation that has been determined as appropriate in this case achieves our goals of keeping the price sufficiently low to be competitive with an illicit market, while at the same time not creating an incentive for the consumption and purchase of this drug,” said Bill Blair, Parliamentary Secretary to the Minister of Justice, as reported by CTV News.
One of Canada’s major players in medical cannabis believes that the proposed excise rate is acceptable for the legal market.
“Today’s proposed rate, ten percent on top of existing HST falls within the limit of an acceptable tax framework and is in line with Management’s expectation,” said Bruce Linton, CEO of Canopy Growth Corporation (TSX: WEED), in a press release. “The proposed rate should allow Canopy Growth and other industry players of various sizes to compete with the black market on price point.”
While Canopy Growth found the proposal acceptable, the same can’t be said for some of Canada’s provinces.
“The provinces believe that level of clawback from the federal government is unacceptable because really they’re not doing anything, they’re not doing anything major; the provinces will be responsible, the municipalities too, for regulation, for implementation, for things like education and ongoing work to implement all of this stuff,” said Alberta Finance Minister Joe Ceci, as reported by CTV News. “I’ll be sending a letter immediately on behalf of all of the provinces back to the federal government saying that’s unacceptable and we need to get in a room together to work this out.”
Individuals and organizations can submit feedback on the proposed Canadian cannabis tax framework to firstname.lastname@example.org by Dec. 7.
Canadian cannabis stocks rallied on today’s news, with the Canadian Marijuana Index increasing 4.74% by market closing. Emerald Health Therapeutics (TSXV: EHA) and Aurora Cannabis (TSX:ACB) both gained more than 10% today, with increases of 10.65% and 14.85%, respectively.
You can watch the Alberta Finance Minister’s full response to the proposed Canadian cannabis tax framework below: