On Tuesday, October 3, 2017 the Government of Canada unveiled its proposal for a federal excise tax on the sale of cannabis. Under the proposal, a $1 tax would be levied on prices up to and including $10 per gram and a 10% tax would be levied on prices over $10 per gram. The proposal is for the tax revenues to be evenly split between the Federal and Provincial Governments.
Ottawa’s proposal is likely good news for licensed producers of cannabis (LPs). The tax is lower than expected and should not represent a significant barrier to competition with the black market. Further, it should not meaningfully impair the ability of LPs to remain profitable or to manage costs effectively.
The proposal also indicates that the Federal Government’s principal objective, at least initially, is not to generate the maximum amount of revenue possible, but rather to address public health and safety issues and to eradicate the black market. While it is unclear whether other taxes such as HST will also be levied on cannabis sales, the proposed tax rate is markedly lower than those found in U.S. jurisdictions that have legalized cannabis for adult-use, including: Colorado (25%), Oregon (17% plus an optional 3% municipal tax), Washington (15% on wholesale cannabis and 8% on retail sales), and Nevada (33% - 38%).
However, Ottawa’s proposal was met with opposition from premiers who are concerned that it does not adequately compensate them for bearing the bulk of the costs associated with legalizing cannabis, such as developing infrastructure and establishing regulatory and enforcement frameworks. Some, like British Columbia Premier John Horgan, worry that provinces will be forced to split revenues with the Federal Government despite incurring more than half of the costs. Others, like Manitoba Premier Brian Pallister, fear that unanticipated costs could result in the Federal and Provincial Governments splitting losses rather than gains.
While the Federal Government’s proposal has not been finalized, it remains to be seen what impact, if any, it will have on provinces who have yet to implement their cannabis distribution and enforcement regimes. For instance, the Alberta Provincial Government unveiled part of its proposed framework today, October 4, 2017 which indicates that while sales will be limited to specialized cannabis stores, pricing has not yet been determined and will depend on the taxation framework that is implemented by the Federal Government.
Highlights of the Alberta Provincial Government framework include:
o government-owned and operated stores similar to the framework in Ontario (see prior blog post here); or
o licensed and regulated private retailers consistent with Alberta’s current system for alcohol distribution;
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