Cannabis produced and sold commercially in Canada is subject to tax and not an insignificant amount.
Cannabis is subject to both excise duty and sales tax, which can reduce producers’ earnings and profit margins and make it harder for smaller companies to compete.
Most of all, even though prices of legal cannabis have come down over time, it can still hinder efforts to combat the illicit market.
Cannabis tax in Canada is relatively uniform by province, but we will describe specific differences between provinces.
Interestingly, the Cannabis Act in Canada does not establish cannabis tax law or prescribe taxes. That is the function of the federal Excise Act (2001) (for excise duty) and the Excise Tax Duty (for HST/GST). While there is no specifically defined Cannabis Excise Tax, the way these existing taxes are applied to cannabis is unique and certainly contentious.
You’re probably wondering - how much is cannabis tax? So, let’s dive in!
Excise Duty
When cannabis is packaged and sold by a licensed processor (or medical seller) to a purchaser, whether that be to a wholesaler or a medical patient, excise duty is payable to the federal government.
Excise duty has a federal component and a provincial component.
Excise duty on fresh cannabis or dried cannabis (i.e. flower or flower pre-rolls) is the greater of (a) $0.25 per gram (federal component) plus $0.75 per gram (provincial component) - referred to as the flat rate, or (b) 7.5% of the selling price (federal component) plus 2.5% of the selling price (provincial component) - referred to as the ad valorem rate.
Because cannabis is rarely, if ever, sold at wholesale for $10 or more per gram, and the same can generally be said for medical cannabis sold to patients, the flat rate typically applies.
The excise duty framework was intended to tax cannabis sales from producers at around 10%. But because the wholesale price of cannabis has been consistently below $10 per gram and has since continued to drop, there is generally a $1 per gram excise duty on dried flower. Wholesale prices of cannabis before the excise duty are generally $1.50 per gram—an effective excise duty rate of 75%!
On top of that, sales to purchasers located in certain provinces is subject to additional excise duty - an adjustment. The adjustment rates are as follows:
- Alberta, 16.8%
- Nunavut, 19.3%
- Ontario, 3.9%
- Saskatchewan, 6.45%
Seeds are taxed similarly, but the flat rate is taxed on a per-seed basis, not a per-gram basis, and cannabis plants are taxed on a per-cannabis plant basis, not per seed.
Other forms of cannabis, such as oil, edibles, extracts, and topicals, are taxed similarly as well, except the federal flat rate is $0.00025 per milligram of total THC of the cannabis product, while the provincial flat rate is $0.00075.
For products high in THC, the excise duty on such a product, by some calculations, may be up to four times higher than on its dried cannabis equivalent - artificially inflating consumer prices for products taxed on a per MG basis and making it harder for small producers to compete.
Conversely, for a dried flower product that is low in THC content, it is advantageous for producers to be subject to a per MG of THC excise duty rather than the per-gram rate applied to dried cannabis. That has led to producers of high-CBD, low-THC products to sprinkle in a bit of kief or other form of cannabis extract. The mixture - a product that contains what would otherwise be dried flower but now has some cannabis extract - is now wholly considered an extract and is now subject to a lower excise duty than it otherwise would have been by it being taxed on a per MG of THC basis rather than an on per gram of material basis.
Low-THC cannabis products, as defined, are not subject to excise duty. These are products that consist entirely of fresh cannabis, dried cannabis, or cannabis oil and must not contain more than 0.3% THC. This is a very low amount of THC, particularly for dried cannabis. The vast majority of cannabis strains don’t come in under this amount. Curiously, Low-THC cannabis products do not include any extracts beyond cannabis oil, even if they are below 0.3%.
The provincial cannabis excise rates are chargeable because every province and territory had entered into agreements with the federal government such that the feds would charge the provincial portion and remit it to the province. Free tax revenue for the provinces - who can say no? While the provincial rates are currently the same in each province - there was one hold-out: Manitoba. Manitoba decided not to have a provincial excise rate imposed on purchases in their province. Instead, Manitoba collected a “social responsibility fee” from cannabis retailers in their province, but curiously, it has ended that program now as well.
Sales Tax
Sales tax is charged on the purchase of cannabis. In provinces with harmonized sales tax, HST generally applies to all cannabis purchases. In provinces where sales tax is not harmonized, both provincial and federal sales tax are typically payable on non-medical cannabis purchases, except that such purchases in Manitoba are not subject to PST.
In British Columbia, since 2020, most vape products (whether cannabis or non-cannabis) are subject to a PST of 20% instead of the regular 7%. This has sparked backlash because it taxes nicotine vapes and vapes containing cannabis similarly.
Medical Cannabis
Curiously, medical cannabis produced and sold in Canada is subject to the same excise duty as non-medical cannabis and is subject to full GST/HST. In Ontario, First Nations may be eligible for a rebate on the provincial portion of the HST they pay on medical cannabis.
Canada Cannabis Tax Reform
That’s despite prescription drugs generally being “zero-rated” and thus not to GST/HST, and excise duty not being imposed on health products typically.
The Federal Court of Appeal in the 2016 Hedges case confirmed the imposition of sales tax on medical tax. The court found that doctors did not technically “prescribe” medical cannabis, and medical cannabis was not made available to patients under an “exemption” by the Health Minister. Curiously, this ruling was under the former medical cannabis framework. That means that, based on today’s framework, the outcome of Hedges may have been ruled differently. But that’s far from certain, seeing as the “medical documents” that prescribers sign today could still be viewed akin to a “doctor’s note” rather than a “prescription.”
Such splitting of hairs is generally meaningless to patients who want to use cannabis for medical purposes.
There’s been a push by some in the space to eliminate tax from medical cannabis: After all, those consuming cannabis are often using it as an alternative to pharmaceuticals that aren’t taxed.
For now, this is the reality for Canadians using medical cannabis: Face tax on your purchases that you may not have.
It would be apt for a federal political party or its leader to advocate for the removal of taxes on medical cannabis to bring it in line with taxation or lack thereof on pharmaceutical products.
Besides medical cannabis, there has been a push to reform excise duty on all cannabis products sold in Canada, not just non-medical.
It was recently reported that excise duty on cannabis products on a per-consumption unit basis is six times higher than on beer and nine times higher than on wine. The industry feels that isn’t right and that it’s time for change. That’s on top of the industry’s challenges with obtaining and affixing stamps on products based on where the ultimate consumer purchaser is. This entails a complex reporting framework and byzantine requirements for retaining and destroying stamps if a processor seeks to re-work or otherwise re-package a product.
Conclusion:
It should be evident to readers now that cannabis is subject to a robust taxation system. At the very least, calibrations need to be made so that governments’ tax revenue is balanced by the need to tackle the illicit market for compliant producers to survive and for us to create a thriving industry that includes small cannabis businesses.
It’s unclear if there is a political appetite by parties for cannabis taxation reform - cannabis is not a high priority for politicians, let alone cannabis taxation. But with the right lobbying and public awareness campaigns, we may soon see movement.