How damaging are excise taxes in the cannabis industry? Canadian cannabis producers are again calling on the federal government to review its excise tax on cannabis. As cannabis prices fall, they argue the flat-fee tax structure is negatively affecting their profitability.
The Cannabis Council of Canada (CCC) has released a report outlining the harm the tax does to the industry. This report is similar to the white paper Stand For Craft put out. One major exception is that the CCC is headed by George Smitherman and represents large producers.
How the Government Expected Excise Taxes in the Cannabis Industry to Work
The federal government and its bureaucracy made many assumptions regarding legalization. Many of these assumptions have been proven wrong. The biggest miscalculation has been with excise taxes in the cannabis industry. They expected the price of dried cannabis per gram to be around $10. Therefore, the excise tax was set at 10 percent or $1 per gram.
But cannabis is selling for less than $10 a gram. And unlike other “sin” taxes, the excise tax in the cannabis industry is levied from manufacturers, not retail. Many producers are paying up to 45% on excise taxes, as opposed to the 10% initially expected.
Smitherman argues that a more realistic excise tax would allow cannabis producers to lower prices. Lower prices mean more consumers patronizing legal shops than underground farmers.
Who is George Smitherman?
George Smitherman is a former Ontario deputy premier. He is one of the many former politicians who have cashed in on legal weed, despite the excise taxes in the cannabis industry. And despite spending his career looking the other way while people were unnecessarily caged and fined for a harmless plant.
Smitherman once called for the government to “zap up the black market” instead of recognizing BC Bud’s contributions to cannabis in Canada.
Before legalization, he argued with cannabis lawyer Kirk Tousaw about home-growing. Smitherman said, “a model that allows people to grow their own is going to be confusing and runs counter to the core principle [of legalization].” When Tousaw called him out on this lunacy, he called legalization with home-growing an “extreme vision.”
Smitherman asked Tousaw and the audience, “do we really want, as a foundation, the entrenchment of the people who have been operating in the shadows?”
Since day one, Smitherman has been against “creating roles” for the peaceful members of Canada’s underground cannabis community.
Are Excise Taxes in the Cannabis Industry to Blame?
No doubt, among smaller craft producers, excise taxes in the cannabis industry are to blame for harming their business. The details outlined in the white paper presented by Stand For Craft prove this.
But what about the large, corporate producers?
Their report finds that, for each gram of cannabis sold in Ontario, only 22.7% of the proceeds make it back to the producer. Thirty-five percent goes to taxes, including excise taxes and sales taxes. The government regulator, the OntarioCannabis Store, and the private retailer take about 20% through markups.
Revamping (or even eliminating) excise taxes in the cannabis industry will go a long way to helping out everyone – not just large producers.
But are excise taxes the reason they’re struggling? Or does it have more to do with multi-million dollar investment boondoggles, balance sheets that have never been cash-flow positive, and rising interest rates?
The corporate cannabis bubble has popped. So what is the real motivation behind this initiative?
Cannabis Tax Revenue
Since legalization in 2018, the Canadian cannabis industry has forked over $15.1 billion in tax revenue. $2.9 billion came from sales and excise taxes. The federal government is unlikely willing to forgo these revenue streams until the situation hits a crisis.
But it’ll likely be too late when the crisis hits. The government will notice a fall in revenue from excise taxes in the cannabis industry. When they go to investigate, they will find most producers have closed shop permanently, unable to stay afloat given the counterproductive tax regime.
Most hope it doesn’t make it this far. The 2022 federal budget proposed changes to excise taxes in the cannabis industry. These included lowering the payment rate to quarterly contributions instead of monthly. They also promised an industry roundtable to discuss cannabis-related issues.