Recreational Cannabis Isn’t the Cash Cow the Government Hoped For

Article by Michael J. Armstrong, National Post

Recreational cannabis isn't the cash cow the government hoped for Opinion: B.C. — the only province so far to disclose its excise tax revenues — had expected $50M this year. It will be lucky to get $3M Cannabis plants are cultivated in a grow room at Up Cannabis Inc. in Brantford, Ont., on Jan. 16, 2018. Chris Young/CP Governments worry tax exemptions for medical marijuana could tempt recreational users.Richard Vogel/AP

This month the federal government sent the first cannabis excise tax payments to the provinces. But almost none of the amounts was disclosed. That’s likely because the cheques were smaller than officials had expected. But perhaps it’s also because medical cannabis clients think the taxes are unfair.

British Columbia is the only province so far to disclose its excise tax revenues: $1.3 million for October to December 2018. It had expected $50 million total this fiscal year, but now will be lucky to get $3 million. Other provinces haven’t disclosed their receipts. Manitoba didn’t even mention cannabis revenues in last week’s budget.

We can, however, estimate pot tax revenues using other data. First consider the federal government’s share.

Health Canada data shows producers sold 20.3 tonnes of medical cannabis last quarter. They also apparently shipped 42 tonnes of recreational cannabis to distributors. The federal cannabis excise tax portion is $0.25 per gram or 2.5 per cent of wholesale value, whichever is higher. This implies Ottawa received some $16 million in excise taxes last quarter. During that period, Statistics Canada says legal cannabis sales totalled $307 million. The five-per-cent federal goods and services tax would have generated $15 million from that. This suggests Ottawa earned about $31 million in GST and excise taxes on cannabis last quarter.

Estimating provincial revenues is trickier, as only recreational sales are broken down by province. But Health Canada reports medical shipments by province. Those can serve as rough indicators of sales.

For example, Nova Scotia sold $17.2 million of recreational cannabis last quarter, or 11 per cent of Canada’s total. Its most recent medical cannabis shipments represented four per cent of the national total. That implies medical sales were around $6.3 million. The province’s excise tax is $0.75 per gram or 7.5 per cent of value, while its harmonized sales tax share is 10 per cent. These imply Nova Scotia received roughly $6.2 million in excise and sales taxes.

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