Excise Taxes in the Cannabis Industry – Cannabis News, Lifestyle

How Harmful Are Excise Taxes In The Cannabis Industry? Canadian cannabis producers are again urging the federal government to review its excise tax on cannabis. As cannabis prices fall, they argue that the flat tax structure is negatively impacting their profitability.

The Cannabis Council of Canada (CCC) has released a report detailing the damage the tax is doing to the industry. This report is similar to the white paper published by Stand For Craft. A major exception is that the CCC is headed by George Smitherman and represents major producers.

How the government expects excise taxes in the cannabis industry

The federal government and its bureaucracy have made many assumptions about legalization. Many of these assumptions have been proven wrong. The biggest misjudgment came with excise taxes in the cannabis industry. They expected the price of dried cannabis to be around $10 per gram. Therefore, the excise tax was set at 10 percent, or $1 per gram.

But cannabis sells for less than $10 a gram. And unlike other “sin” taxes, the excise tax in the cannabis industry is levied on manufacturers, not retailers. Many manufacturers pay excise taxes of up to 45%, as opposed to the 10% originally expected.

Smitherman argues that a more realistic excise tax would allow cannabis producers to lower prices. Lower prices mean more consumers are patronizing legitimate stores than underground farmers.

Who is George Smitherman?

George Smitherman is a former Deputy Prime Minister of Ontario. He’s one of the many former politicians who made money off legal weed despite excise taxes in the cannabis industry. And though he’s spent his career looking the other way while people were jailed and fined unnecessarily for a harmless plant.

Smitherman once called on the government to “destroy the black market” instead of acknowledging BC Bud’s contributions to cannabis in Canada.

Before legalization, he argued with cannabis attorney Kirk Tousaw about home growing. Smitherman said: “A model that allows people to breed their own will be confusing and contrary to the core principle [of legalization].” When Tousaw pointed out this madness to him, he called home-growing legalization an “extreme vision”.

Smitherman asked Tousaw and the audience, “Do we really want to base our entrenchment on the people who operated in the shadows?”

From day one, Smitherman was opposed to “creating roles” for the peaceful members of Canada’s underground cannabis community.

Are excise taxes to blame in the cannabis industry?

Undoubtedly, for smaller craft businesses, excise taxes in the cannabis industry are to blame for hurting their business. This is proven by the details outlined in the Stand For Craft white paper.

But what about the big, corporate producers?

Their report finds that for every gram of cannabis sold in Ontario, only 22.7% of the proceeds go back to the producer. 35 percent goes to taxes, including excise and sales taxes. The state regulator, the Ontario Cannabis Store, and the private retailer take in about 20% through mark-ups.

Revising (or even eliminating) excise taxes in the cannabis industry will go a long way in helping everyone — not just the big producers.

But are excise taxes the reason they are struggling? Or is it more to do with multi-million dollar investments, never cash flow positive balance sheets and rising interest rates?

The corporate cannabis bubble has burst. So what is the actual motivation behind this initiative?

cannabis tax revenue

Since legalization in 2018, Canada’s cannabis industry has generated over $15.1 billion in tax revenue. $2.9 billion came from sales and use taxes. The federal government is unlikely to be willing to forego these revenue streams until the situation reaches a crisis point.

But it will probably be too late by the time the crisis hits. The government will see a decrease in revenue from excise taxes in the cannabis industry. If they do any research, they will find that most manufacturers have permanently closed their operations and are unable to stay afloat in the face of the counterproductive tax regime.

Most hope it doesn’t come to that. The 2022 federal budget proposed changes to excise taxes in the cannabis industry. This included lowering the payment rate to quarterly instead of monthly contributions. They also promised an industry roundtable to discuss cannabis-related issues.