How Cannabis Will Be Taxed in Canada

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Posted on December 3, 2018

If you’re wondering how legal marijuana will be taxed, we’re hoping to clear up some of the confusion. In accordance with the 2018-2019 Canada federal budget, there are established guidelines regarding how cannabis will be taxed.

Any low-THC oils or low-THC therapeutic products will not be subject to tax. Thus, this would include any CBD oils that are low in THC or any similarly high-CBD, low-THC products sold in the marketplace. Subsequently, all prescription drugs manufactured from parts of the marijuana plant will not be subject to any federal tax.

Taxing cannabis will apply primarily to federally-licensed producers, either to be issued in a flat rate format or a percentage of the sales price of the marijuana product. Whichever is the higher amount will be the selected tax amount. According to a December 2017 agreement established between the federal government and Canada’s provinces, this equates to approximately $1 per gram or 10 percent of a product’s price.

Regarding where the funds derived from these taxes will go, the government has made that very clear. A lot of the focus has been on ensuring cannabis does not land in the hands of children and to ensure tax remains competitive enough to prevent stimulation of an underground marijuana economy as some have worried.

Taxes procured from legal marijuana will be divided up, with 25 percent of it provided to the federal government and the remaining 75 percent given to the province. If the federal government receives more than $100 million per year in tax revenues from cannabis, the surplus above this amount will be provided back to the provinces.

There is no clear expectation in terms of how much tax cannabis is expected to generate. Federally speaking, there are plans to invest some of it into a marijuana public education campaign sharing the risks of prolonged cannabis use. The federal government has also committed to investing $231.4 million over a five-year period in fighting the opioid crisis, though it’s unclear how much of this will be taken direct from cannabis products.

As we look ahead towards the next year of legal recreational marijuana purchases, it will be interesting to see what sort of revenues this brings in by province and where those revenues go. Little is known about the exact sales figures across Canada, though some provinces have published sizeable first-day revenues including Alberta with $730,000 and $630,000 in Nova Scotia. Though BC’s cannabis revenues are thus far unknown, the province has reported 9,137 first-day orders via its website and an additional 795 transactions at BC’s only legal retail marijuana shop in Kamloops.