House of Commons Standing Committee on Finance calling for changes to cannabis tax

| David Brown

The federal House of Commons Standing Committee on Finance is recommending a change to how cannabis excise taxes are applied.

The change calls for moving from a rate of $1 per gram or 10% of a producer’s selling price (whichever is higher) to a 10% ad valorem rate. This rate currently applies to dried or fresh cannabis, cannabis plants and cannabis plant seeds.

Tax on cannabis extracts, edibles and topicals is a flat rate of $0.01 per milligram of the total THC of the cannabis product. These products would not be subject to an ad valorem duty rate, unlike dried cannabis, fresh cannabis, cannabis plants and cannabis plant seeds.

The committee also calls for investments for First Nations engagement in the Cannabis Act review, with the Assembly of First Nations calling for $50 million over the next five years.

The recommendations from the House of Commons Standing Committee on Finance (FINA) are part of the recent Report of the Standing Committee on Finance. The report is based on meetings launched in June 2023 in anticipation of the 2024 budget due in April. 

The Committee also held pre-budget hearings in the fall between September 21, 2023 and November 17, 2023. In addition to meetings in Ottawa, the committee travelled across Canada to hear from a range of Canadians.

The Committee also invited other House of Commons standing committees for the purpose of holding meetings and providing recommendations for its pre-budget consultations.

The committee heard nearly 170 presentations and received over 850 written briefs, the largest number ever received for that process.

You can read that report here

The cannabis industry has been calling for reforms to the federal excise tax rate for years now, arguing it ends up being a tax rate of as much as 30 percent or more of their revenue. 

The most recent figures show the federal government has collected more than $2.5 billion in cannabis excise tax. Nearly $2 billion of tax has gone back to the provinces, which collected 75% of the excise, while more than $566 million went to the federal government. 

Also, the Canada Revenue Agency is owed more than $200 million in unpaid taxes.

“As at March 31, 2023, the total amount receivable for Cannabis duties is $221,238,299,” Sylvie Branch, a CRA spokesperson, told StratCann earlier this year. “This outstanding balance represents funds owed to the CRA and is not broken by federal, provincial, and territorial components.”

A recent report also says that the CRA is now calling on provinces to garnish payments to cannabis producers who have not paid their excise taxes.

In a statement to the committee last October, then-President and Chief Executive Officer, Cannabis Council of Canada’s (C3) George Smitherman told the committee the issue with cannabis taxes was dire. 

“We need adjustments to the excise tax formula and to costly matters about how the formula operates. We need the elimination of a special tax of 2.3% in the name of a regulatory fee charged by Health Canada that neither alcohol nor tobacco pay. This is about $75 million off the bottom line of companies.”

Smitherman also called for the elimination of Health Canada’s 2.3% regulatory fees on cannabis products, as well. He recently stepped down from his role with C3.

Despite ongoing lobbying efforts, Budget 2023 did not include any changes to these taxes.

Budget 2022 called for a more streamlined approach to the cannabis industry, which included the creation of a “Cannabis Strategy Table” led by the Department of Innovation, Science and Economic Development (ISED), with the goal of providing an opportunity for the federal government to hear from industry leaders and identify ways to work together to grow the legal cannabis sector in Canada.

ISED announced a cannabis industry “forum” recently for those purposes.

Health Canada’s quarterly financial report for the quarter ended December 31, 2023 calls for $131.1 million for the renewal of the federal framework for the legalization and regulation of cannabis in Canada.

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