Marijuana Taxes in Canada

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Marijuana taxes in Canada Part one of a two-part series exploring the problems around taxing cannabis in Canada

There were notable omissions from the Liberal government’s announcement of their marijuana legalization. No mention was made of plans for a distribution model, whether or not edibles would be permitted, what will constitute permissible advertising, or taxes. The legalization bill contained information that was essentially considered a given before it was even released, and doesn’t consider the two most important issues that will affect producers and consumers: the eventual distribution model and taxes. Although discussing taxes is rarely fun, this isn’t the first time taxes and marijuana have made news in Canada.

Last year’s Federal Court of Appeals decision to uphold the original 2014 decision enforcing GST taxes on medical marijuana was a blow for medical marijuana proponents in Canada. Unlike most other necessary or prescribed medicines, GST will continue to be charged on marijuana sales to patients whether they source their medicine from Licensed Producers under the ACMPR or from ‘grey market’ dispensaries (whether your local dispensary chooses to adhere to this ruling is another question). So with at least GST already in place, what other taxes can we expect in 2018?

Taxes in a recreational market

With legalization looming, Canadians understand that there will be taxes imposed on a recreational market. But to what degree? GST/HST will most definitely apply to recreational customers regardless of whether or not there is a movement to repeal these taxes for medical marijuana. But what will policy makers consider when setting excise and sales taxes? There was no indication of any federal tax scheme in the recent liberal announcement.

Fortunately, this isn’t uncharted territory. With multiple states that already have years-old recreational markets—let alone the recent passing of Proposition 64in California, a state with a population larger than all of Canada—there are examples with plenty of information that can be gleaned from down south.

Marijuana taxes in the United States

In the U.S. there is the District of Columbia and eight states with legal recreational markets: Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, and Washington. Each area has set different tax rates to varying degrees of success. Washington and Colorado were the first to legalize in 2012 and as such provide possibly the best examples to study.

Washington began with exorbitantly high excise tax rates: 25% from producer to processor, another 25% from processor to retailer, and again  25% from retailer to purchaser. That, along with an initial inability to meet demand, drove prices to as high as around $25 dollars a gram. More recently a straight 37% tax was applied across the board – there was no segmentation of excise or sales tax.

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