Taxing Marijuana: Plans From Ottawa and the Provinces

Taxing Marijuana: Plans From Ottawa and the Provinces

THE CANADIAN PRESS/Joe Mahoney

UPDATED November 22, 2017 9:34amET


The federal government has confirmed its plan for an excise tax on legalized cannabis: $1 per gram up to $10, with a 10% rate on prices above $10.

That’s in addition to existing sales tax.

Ottawa is proposing a 50/50 revenue split with the provinces, who argue they will bear more responsibility in implementing the legalization of cannabis — from health care to policing — beginning next year when Bill C-45 is expected to take effect.

The excise tax, paid by manufacturers, would apply to all legally available cannabis products. That includes flowers, seeds, and seedlings for use by home growers. It also includes the sale of cannabis for medical use, which the NDP opposes as “misconceived, unfair to patients, and damaging to public health.”

Consumers would be responsible for paying GST and HST. Retail products would require a federal excise stamp, similar to what you see on a pack of cigarettes.

So according to Ottawa, one gram of dried cannabis with a price of $8 would see a $1 excise duty, followed by the application of sales tax, for a final retail price of $10.17:

Dried Cannabis: one gram pre-duty price  $8.00
Excise Duty  $1.00
Subtotal  $9.00
GST/HST (13%)  $1.17
Total  $10.17

Seeds or seedlings would be taxed on a dollar-per-seed basis. And “a lower rate per gram will be applied for trim in relation to flower.”

Bill C-45 makes Ottawa responsible for duty collection and the licensing of cannabis cultivation and manufacturing. The provinces and territories oversee distribution and the retail market, according to Finance Canada.

Residents of a province or territory without a retail system in place by the time of legalization would be able to buy online from a federal license holder.

Cannabis imports or exports would be banned, except for government-authorized medical or scientific use.

Read Health Canada’s proposed regulations for cannabis cultivation and distribution

Here’s what Trudeau told journalists in October after raising the issue with premiers:

And the response from Nova Scotia Premier Stephen McNeil:

The parliamentary budget officer concluded last year that:

On revenue:

  • “the government may have little fiscal space to apply tax without pushing the price of legal cannabis significantly above the illegal market price.”
  • “At the outset of legalization, fiscal revenues from regular retail sales taxes (HST/GST/PST) are expected to be modest – in the hundreds of millions of dollars, rather than the billions of dollars. About 60 per cent of sales tax revenues will accrue to provincial governments, and the remaining 40 per cent to the federal government.”
  • As the legal cannabis market matures, the potential for government to capture fiscal revenues will grow. Production costs for the legal industry are expected to decline, creating space for government to collect a portion of the cost savings without increasing the legal retail price. Further, a potential consumer shift to more value-added cannabis products could create a larger tax base. Finally, as the legal market becomes more entrenched, more Canadians may opt into the legal market, resulting in higher revenues.

On the market:

  • “When the average legal price is less than or equal to the average illicit price, almost all consumption (98 per cent) is projected to shift to the legal market in 2018. However, as the legal price increases above that of the illicit price, the market share of legal cannabis progressively decreases. One, two and three dollar legal price premia are associated with declining estimated legal market shares of about 65, 56, and 42 per cent respectively.”
  • “The impact of price on consumption may be even more pronounced among young users. They are likely to be more sensitive to higher prices than the user population as whole, Therefore, higher prices may cause a disproportionately larger decrease in youth consumption compared with the rest of the user population.”

On an excise tax:

  • “If government also applies excise tax to cannabis, and the federal/provincial revenue sharing is similar to that for tobacco, then the provinces will collect most of the revenues. In 2016, PBO estimates approximately two thirds of tobacco excise tax revenue goes to provincial governments; the remaining third is collected by the federal government.”

Not all provinces and territories have formally announced their plans for cannabis distribution and sales. Here’s what five provincial governments are offering:

ALBERTA

Bill 26, introduced on Nov. 16, would make the Alberta Gaming and Liquor Commission (AGLC) responsible for distribution and oversight.

There would be a combination of government online sales and AGLC licensing of privately-owned and operated cannabis stores.

MANITOBA

Private retail sales would be permitted in cannabis-only stores, but distribution and licensing would remain under the provincial government’s auspices (Manitoba Liquor and Lotteries Corporation and the Liquor and Gaming Authority).

NEW BRUNSWICK

The newly-formed Cannabis Management Corporation would oversee sales. NB Liquor would operate online sales and stand-alone retail operations through a subsidiary: up to 20 locations in 15 communities.

ONTARIO

Under November’s Bill 174, the Liquor Control Board of Ontario (LCBO) would oversee a subsidiary with sole responsibility for both distribution and sales (the Ontario Cannabis Retail Corporation), through online transactions and cannabis-only retail stores. (40 in 14 cities by July 2018, 80 by July 2019, and 150 by 2020.)

Medical and recreational cannabis would be regulated separately.

The proposed penalties for unlicensed cannabis sales: a fine up to $250,000 for businesses, and up to two years in jail and a $100,000 fine for individuals.

QUEBEC

Bill 157, introduced in November, would create the Société québécoise du cannabis (SQC) as a monopoly for buying and selling marijuana, with sales outlets and an online portal.

Fifteen stores would open by July 1, 2018, with the number rising to 150 over the subsequent two years. The SQC would be a subsidiary of the SAQ, Quebec’s Crown corporation responsible for alcohol sales.

The bill would also institute a ban on growing plants at home for personal consumption.

What taxes have American states implemented for marijuana sales?

COLORADO

A 15% sales tax for retail marijuana sales – though medical customers only pay the state’s regular 2.9% sales tax. Colorado also has a 15% excise tax for transactions between growers and retailers.

WASHINGTON

Consumers pay sales tax plus a 37% excise tax. Certain medicinal sales are exempt from tax.

CALIFORNIA

Consumers pay a 15% excise tax, while growers pay a per-ounce cultivation tax. Certain medicinal sales are exempt from tax.

OREGON

Consumers pay a 17% state tax. Municipalities can add an additional 3% tax if voters approve.

ALASKA

A per-ounce excise tax on marijuana transferred from a grower to retailers or a manufacturing facility.

NEVADA

Consumers pay sales tax and a 10% excise tax. Medical users are exempt from the latter. There’s also a 15% excise tax for wholesalers.

-Andrew Thomson