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This article was published 21/3/2019 (235 days ago), so information in it may no longer be current.
A special excise tax regime for the next wave of legal cannabis products reflects the wishes of Canada's licensed cannabis industry, according to two industry lobbyists.
The current excise tax applies to dried cannabis bud and cannabis oils meant for oral ingestion, and is paid by cannabis producers when they deliver their products to distributors. The products are taxed at the higher of two possible rates: $1 per gram, or 10 per cent of a product's wholesale price. That revenue is then divvied up between the federal government and provincial governments.
But legal concentrated cannabis products expected to go on sale later this year — cannabis-infused edibles and beverages, as well as products such as vape pens — will get their own special excise tax scheme, as revealed in this week's federal budget.
Instead of taxing those products based on the weight of cannabis that goes into them, or their price, cannabis concentrates will be taxed based on the amount of total THC they contain. Ingestible cannabis oils will be taxed in the same manner, beginning May 1.
Each milligram of THC contained in those products will be subject to an excise duty of $0.01. A cannabis manufacturer that makes an edible containing 10 mg of THC, for example, would pay 10 cents worth of excise tax duty on that product when it's sold to a distributor.
The new excise tax regime for cannabis concentrates shows Ottawa is listening to the cannabis industry, said consultant and lobbyist Ivan Ross Vrana, national director of the cannabis practice at Hill+Knowlton Strategies.
"I think they want it that way because it properly reflects the actual inputs going into the final product or the concentrate," said Vrana.Advertisement
Allan Rewak, who represents major licensed producers as executive director of the industry group Cannabis Council of Canada, said the new excise tax approach specifically reflects industry concerns about the types of cannabis that will likely be used to make edibles and concentrates.
Many producers are planning to use "lower-grade product that's not viable for sale as dried flower" to make concentrated cannabis products, Rewak said. (In industry jargon, this type of loose cannabis is generally known as "trim" or "shake". Although some producers sell it to consumers at a discount as "milled" cannabis, there have been hints that consumers are more interested in buying whole cannabis bud.)
By way of an alcohol analogy, Rewak explained how the new excise tax structure could benefit licensed producers looking to turn low-value cannabis trim into high-value cannabis concentrates.
"Under the old regime, we would, in essence, for edibles and ingestible products, be charged for the amount of barley we used to brew the beer, as opposed to the alcohol content we use to brew the beer," he said.
"Large volumes of that lower-grade material are required to create a premium, finished value-added product, such as a vape pen or an ingestible beverage or an edible product. It would have been cost-prohibitive, because the (initial excise tax regime was) based on volume as opposed to the final (THC) content."
The new excise tax structure, Rewak explained, "allows us to use larger volumes of that lower-grade product in an economical way, and not put pressure on inventories of high-grade flower, which can be sold directly for combustion."
Rewak believes the adjustment to excise taxes for cannabis concentrates could also have a slight benefit for some medical cannabis patients by lowering the excise duty applied to certain ingestible cannabis oils that contain more than a negligible amount of THC.
"If you were doing a THC oil that's (one) per cent THC and 16 per cent CBD or something like that, this just lowers the tax burden significantly, and it allows us to not have to pass that onto any patients."
Still, Rewak said the cannabis industry is unhappy the Liberals' 2019 budget didn't remove excise taxes from THC-containing cannabis products used for medical purposes.
"We're disappointed, but we're hopeful for the future, and we know this issue isn't going to go away because patients are very passionate about it, and we'll continue to take that message forward," he said.
Cannabis consultant Ivan Ross Vrana, who previously worked in medical cannabis regulation at Health Canada, also said it doesn't make sense for the federal government to treat THC used for medical purposes as "the bogeyman."
"I know what the worry is from a government point of view. They're worried, and they've said this publicly, that… people are then just going to go on the medical side to avoid the tax," Vrana said.
"People who want to consume it for recreational purposes are simply not going to go through that route.
"(If) we are considering this as a therapeutic benefit product, why is it not consistent with all the other therapeutic products we have out there that are not taxed?"