Canada’s federal government has unveiled a federal tax plan that would impose an excise tax of $1 for every gram of cannabis or 10% of the purchase price, whichever of the two is higher. This proposed excise tax plan comes as Canada prepares for the legalization of recreational cannabis by July 2018.

The plan has earned the ire of patient advocate groups and medical marijuana proponents, as well as of licensed cannabis producers in the country. This is mainly because the proposed excise tax will apply to both recreational and medical cannabis and it will be applied on top of the sales tax that is already currently imposed on medical cannabis.

The government announced the federal tax proposal to the public last week, giving just enough time for public consultations before the provincial, federal, and territorial finance ministers discuss it on December 10 and 11. These public consultations will end on December 7.

Estimated tax revenues

Liberal MP Bill Blair, parliamentary secretary to the minister of justice, said that the government is committed to keeping a functional medical cannabis system, but it also does not want taxation levels to become an incentive for people to inappropriately use this system. This is why the government is proposing that the taxation levels for medical and non-medical cannabis be aligned.

He further contended that the level of taxation determined as appropriate in this particular instance will keep the price of cannabis sufficiently low so as to stay competitive with any illicit market, yet at the same time, does not create an incentive for users to purchase medical cannabis for recreational purposes.

Tax revenues are going to be split 50-50 between the federal government and the provinces. According to Blair, a rough estimate of the total tax revenues governments stand to raise from this plan is $1 billion a year. He clarified, however, that this amount is at the high end of the scale and it still depends on how many people are going to buy cannabis when it becomes legal.

He noted that the current cannabis market is still an almost entirely illicit market and those who control it do not share data on their market’s size. This, he explained, is the reason why the government is operating on mere estimates right now.

Furthermore, these estimates are under the assumption that every province approves the federal cannabis framework. Those who live in the provinces that do not sign this framework can still buy legal marijuana with a federal excise tax of 50 cents per gram or 5% of the final retail price and GST (Goods and Services Tax), plus whatever amount of tax their provincial government decides to impose or nothing if it decides on not adding excise tax.

Pro-cannabis groups are fuming

In a joint statement, the Arthritis Society and the Canadians for Fair Access to Medical Marijuana said that medical cannabis should be treated just as any other prescription medication and accordingly exempt it from taxation. Applying excise tax to medical cannabis, they said, unfairly disadvantages patients.

Jonathan Zaid, executive director of CFAMM, said that patients today make treatment choices based on their finances, including having to switch to less effective medications that carry severe side effects. The proposed excise tax to medical marijuana, he said, is going to further compound these issues, as well as impose barriers for patient access.

Professional cannabis producers also voiced out their concerns and think that patients do not need the added cost burden.

Some politicians are not eager about the proposal, too

Many politicians are not convinced that the plan is the right way to go for the provinces. For one, Charles Sousa, Ontario Minister for Finance, said that the revenue-sharing plan is not sufficient nor reasonable because it is the provinces that shoulder most of the costs – not Ottawa – that are associated with legalizing cannabis, including justice, enforcement, public education, and road safety.

According to Alberta Finance Minister Joe Ceci, he is not against the 10% tax, but he does not agree with the proposed 50/50 split. According to him, 100% of the tax revenues, or at least close to that percentage, should be given to the provinces because they are the ones who will do the dirty job and the heavy lifting when recreational marijuana is legalized.