By: Ryan Chua of Minden Gross LLP
On November 10, 2017, the federal government released its consultation document on its proposed federal excise duty framework on cannabis products, first announced on October 3, 2017.
The Minister’s introductory letter acknowledges the Government’s objective of keeping prices low enough to eliminate the black market. The proposed framework is intended to come into force when the retail sale of cannabis for non-medicinal purposes is proposed to become legal in July 2018. What follows is an initial summary of the consultation document and accompanying draft legislation.
The proposed excise duty framework on cannabis involves amendments to the Excise Act, 2001 (the “Act”). The excise duty will apply to all cannabis products available for legal purchase, including fresh and dried cannabis, cannabis oils, and seeds or seedlings for home cultivation. The framework will also apply to the sale of medical-use cannabis; however, personally grown cannabis for medical use will not be subject to the excise duty.
The proposed excise duty rate is 50 cents per gram of cannabis, or 5 per cent of the producer’s sale price of that product. An additional provincial rate would apply and the total of federal and provincial duties is proposed to be set at a level of the greater of $1.00 per gram, or 10 per cent of the sale price of a product. Excise duties will be payable by federally licensed producers/manufacturers. The last federal licensee in the supply chain who packaged the cannabis product for final retail sale will be liable to pay the applicable excise duty.
All Health Canada-licensed cultivators and manufacturers of cannabis products must also obtain a cannabis licence from the Canada Revenue Agency (“CRA”). Licensees will also be subject to certain reporting requirements and must submit to the CRA a monthly duty and information return (containing information relating to the quantity and type of products produced/exported, inventory levels, and the quantity of excise duties payable).
All cannabis products entering the Canadian retail market must meet special packaging requirements and will be required to have an excise stamp indicating that the excise duty has been paid (similar to the current tobacco stamping program). Under the Act, the possession or sale of unstamped cannabis products will be prohibited, unless the person is permitted to do so in the circumstances prescribed by regulation (e.g. transportation or personal cultivation).
It should be noted that in addition to the excise duty tax, the sale of cannabis products (including seeds and seedlings) will also be taxable under the GST/HST, which is payable directly by consumers at the point of sale.
The federal government is accepting submissions on these proposals until December 7, 2017, and we will continue to review any further developments during that time.