Canada Proposes THC-based Tax Rate for Edibles in 2019 Budget

As the Canadian federal government releases its budget plan for the year, the marijuana industry is reacting to new taxes for upcoming products.

On Tuesday (March 19), the Liberal government tabled its 2019 budget; in it, a few cannabis reforms attracted the attention of the market.

Based on recommendations from the cannabis task force set up en route to legalization in 2018, the government is proposing a tetrahydrocannabinol-based (THC) tax rate for the incoming edible and topical products.

The new system will be implemented starting in May and, according to the government, will not affect the already designated revenue-sharing deals with “most provincial and territorial governments.”

The government made it clear that existing legal products such as dried flower, seeds and seedlings will see no changes to their current excise-duty framework.

As a way to “alleviate compliance issues that producers have encountered with respect to the tracking of the quantity of cannabis material contained in cannabis oils,” the government is proposing this system for the new products.

In the final document, the government indicated:

“Budget 2019 proposes that edible cannabis, cannabis extracts (including cannabis oils) and cannabis topicals be subject to excise duties imposed on cannabis licensees at a flat rate applied on the quantity of total tetrahydrocannabinol (THC), the primary psychoactive compound in cannabis, contained in a final product.”

As indicated by the Cannabis Act, marijuana edibles, extracts and other topical products are set to be legalized this year on or before October 17.

Terry Lake, the vice president of corporate and social responsibility with licensed producer Hexo (NYSEAMERICAN:HEXO,TSX:HEXO), tweeted his support for the tax on THC items, saying it “makes for good public health policy.”

However, the former BC minister of health signaled this would represent another cost for patients who need high-THC products.

Several advocates, including executives in marijuana companies and associations such as Canadians for Fair Access to Medical Marijuana (CFAMM), have called out the government for its initial taxing system on medical cannabis.

In a message to supporters, CFAMM said the association is “disappointed” in the government’s decision to include sales and excise taxes on medical cannabis as part of its new budget.

Emerald Health Therapeutics (TSXV:EMH,OTCQX:EMHTF) issued an update to shareholders announcing that this tax could improve its profit margins on some of its hemp products.

“We believe that the federal government’s recommendation to revise the cannabis excise tax will reduce taxes on the low-THC products Emerald intends to produce from its contracted hemp harvest for medical use,” Avtar Dhillon, president and executive chairman of the firm, said in a press release.

“We expect that this proposed revision to the excise tax calculation will enhance our opportunity to utilize our purchased hemp in an economically viable way as feedstock for new cannabinoid-containing ingestible products,” he added.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.