Canadian cannabis operators are urging lawmakers to amend current excise taxes as weed prices drop. With the decline of marijuana prices, the flat-fee tax structure is disadvantageous, to say the least, reported The Globe and Mail.
According to marijuana business leaders, the current tax structure was based on expectations of the legal cannabis market, but prior to legalization. It turns out, that regulators’ projections failed. The most important presumption was made on the price of marijuana per gram, expecting it to be $10. The excise tax for dried cannabis flower was set as either 10% or a $1 flat fee per gram – whichever was higher.
Considering that marijuana now sells for less than $10 per gram, and the excise tax is imposed at the time of production, not retail, it ends up taking a significant amount of the producer’s profits.
George Smitherman, president of the Cannabis Council of Canada, explained that sometimes cannabis producers end up paying between 20 and 45% tax, instead of 10%.
If the excise tax was amended to address the issue, he said, marijuana operators could lower their prices to compete with the illicit market, while also maintaining larger portions of the profits.
“The sense of urgency in the industry is extreme because the financial conditions are very, very tough,” Smitherman said.
Research has shown that producers at times end up with only a fifth of the proceeds from the sale of their products, writes the outlet. A report from EY’s global strategy consulting arm revealed that for each gram of value-priced cannabis sold via an Ontario dispensary, just 22.7% of the total proceeds went to the producer. Where did the rest go? Some 35% of the value was paid in a combination of excise duties and harmonized sales taxes, while the Ontario Cannabis Store and the retailer each took around 20%.
Some Are Optimistic But Others Not So Much
Organigram OGI CEO Beena Goldenberg is not optimistic about seeing “wholesale changes.” She is pushing lawmakers to gradually lower the charges on marijuana businesses. One way to do that, Goldenberg says, is to eliminate the 2.3% regulatory fee that Health Canada charges on cannabis revenue.
“They’re getting so much from the taxes,” she said. “Why burden us with an extra fee to cover the regulatory costs of this industry?”
CEO of Delta, B.C.-based producer Pure Sunfarms Corporation, Mandesh Dosanjh doesn’t have such optimistic expectations for changes in the tax structure.
“I’m a realist. I’ve never seen a government agency suddenly reduce their incoming revenue streams,” Dosanjh said.
He explained that his company regularly pays 50% of its income toward taxation.
Canada’s marijuana industry brought in $15.1 billion in tax revenues since 2018, out of which $2.9 billion was from sales and excise taxes, according to recent data provided by Deloitte.
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