The federal government released its 2018 budget on Tuesday and with it, more details on how legal marijuana will be taxed.
The budget reaffirmed plans to apply an excise duty on marijuana, but confirmed that not all marijuana products will be affected.
Low-THC cannabidiol oils and other low-THC therapeutic products will generally not be taxed, according to the budget. Prescription drugs derived from marijuana also won’t be taxed.
When marijuana is taxed, the tax will apply to federally-licensed producers, and will be either a flat rate on the quantity of cannabis in a given product or a percentage of the sale price of a marijuana product – whichever is higher.
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So, this could mean that marijuana will be taxed at $1 per gram, or 10 per cent of a product’s price, whichever is higher – according to an agreement reached with most provinces in December 2017.
The only holdout is Manitoba so far.
Finance Minister Bill Morneau said that the government’s first concern with marijuana legalization is protecting Canadians.
“My approach is to make sure that the taxation of cannabis is consistent with the goal of keeping cannabis out of the hands of kids and out of the black market. That means keeping the taxes low so we can actually get rid of the criminals in the system.”
But Dan Kelly of the Canadian Federation of Independent Business isn’t sure that the taxes are low enough.
“While it’s certainly fair game for the government to tax these products, the worry of course is if you don’t get the taxation levels exactly right, it stimulates the underground economy.”
“Many have suggested that the level of taxation that’s being proposed would mean that the above-ground price will be higher than the black market price and that may encourage and basically keep the industry below ground.”
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He worries that the government is trying to grab too much in tax and as such, might not achieve its goal of bringing marijuana out of the underground economy.
“I think a smarter strategy would be to start with a very reasonable level of taxation to ensure that we get the business above ground before we start ratcheting it up,” he said.
Marijuana is expected to be legalized this summer but the federal government has wavered on the specific date.
The federal government will keep one quarter of the revenue from the excise tax and the provinces will get the rest. However, if the federal government’s share is more than $100 million a year, the provinces will get the excess.
The federal government expects that the provinces will transfer most of this cash to municipalities, who the federal government says are “on the front lines of legalization.”
The budget does not however mention how much revenue it expects these taxes to generate.
For at least the first two years, the federal government won’t be able to keep more than $100 million per year because of their agreement with the provinces, but there are no estimates on the total size of the pot.
The government will also invest in a public education campaign to tell Canadians about the risks of marijuana use.
Addressing the opioid crisis
The federal government is planning to invest $231.4 million over five years in fighting the opioid crisis. The biggest share of that, $150 million, is a one-time emergency investment to improve access to treatment programs.
Some of the other measures will help border guards better detect incoming shipments of fentanyl and improving public health data on the opioid crisis, though it doesn’t give specifics on either of these measures.