• The unbearable burden of the excise tax
  • The unbearable burden of the excise tax

Le poids insupportable de la taxe d'acciseCanada

Publié le 5 mars 2024 par AQIC

The Canadian House of Commons Standing Committee on Finance (FINA) issued a report in late February outlining several recommendations regarding the country’s regulated adult-use cannabis industry, including the recommendation to adjust the tax structure of the beleaguered market. Recommendation 329 in FINA’s report calls on legislators to “make adjustment to the excise duty formula for cannabis so that it is limited to a 10% ad valorem rate, and to the operation of the duty, including the requirement to apply an excise stamp on cannabis products.”

In other words, the recommendation, in part, is to address Canada’s outdated price-based tax structure that has caused taxes to spike as the cost of cannabis has declined since the country’s 2018 legalization.

While any government-driven push to address what has become a crippling tax structure for many businesses is welcome news, what comes next may be cause for more measured expectations. 

The Current Tax Structure and Its Challenges

The existing tax structure requires that licensed producers (LPs) pay a federal excise duty tax and an additional cannabis duty on packaged products that are “delivered to a purchaser (for example, a provincially authorized distributor/retailer or final consumer),” according to the Government of Canada. For dried cannabis flower, the total tax is CA$1 per gram. That tax was set when the average price per gram for dried flower, prior to adult-use legalization and under the pre-existing medical cannabis market, was $10 per gram, said Pierre Leclerc, president and CEO of the Association Québécoise de l’Industrie du Chanvre et du Cannabis (AQIC, translated to the Quebec Association of the Hemp and Cannabis Industry), which works with the industry and Canadian government to advance the Quebec cannabis and hemp industries.  

But in the March 2023 Cannabis Business Times cover story, several LPs commented that as prices declined significantly in the years following adult-use legalization, taxes took increasingly larger percentages of LPs’ revenue pie. “[The tax rate] makes sense at $10 [per gram], and everyone was OK with that, but then the prices have gone down by 50 percent, 60 percent, 70 percent—maybe more on some products—[and] then all of a sudden, a flat [rate] doesn’t make a lot of sense,” said Phil Niles, executive vice president of GreenSeal Cannabis Co., an LP based in Stratford, Ontario. 

“If the market price per gram dips from $10 to $4, for instance, then the effective $1-per-gram excise tax rate increases from 10% to 25%,” CBT reported.

For some producers, “what used to be around 10 percent is now in some cases up to 75 percent of the product’s retail price,” Leclerc said. “So it is a big, a big problem for us. It’s really hard for the legal industry to compete against the illegal market when you have up to 75 percent of your product price … that is directly made out of taxation. It’s virtually impossible.”

TO CONTINUE READING: Cannabis Business Times