Ontario eyes CA$600 million cannabis windfall, pledges online crackdown

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Ontario’s provincial government is budgeting for a record windfall of more than 600 million Canadian dollars ($442 million) in the next fiscal year from cannabis wholesale profits and its portion of the federal excise tax.

The windfall comes after a federal report to Canadian Finance Minister Chrystia Freeland revealed that “after five years of legalization, there are no licensed producers of legal cannabis products that are consistently profitable.”

According to the provincial budget released Tuesday for the fiscal year April 2024 to March 2025, the government said it expects to receive CA$379 million from its portion of the federal cannabis duty, a 22.2% increase over the 2023-24 fiscal year.

That’s despite the fact that cannabis producers in Ontario had federal excise debt totaling roughly CA$100 million as of December 2023.

The number of federal tax-delinquent cannabis companies in Ontario increased from 65 on Jan. 27, 2023, to 80 as of Dec 29, 2023.

Ontario’s portion of the federal excise duty is paid via the Coordinated Cannabis Taxation Agreement, which the province signed with the federal government before legalization.

The deal effectively grants 75% of the excise duty collected by the federal government from Ontario wholesale cannabis sales to the provincial government.

The federal government keeps the rest.

Ontario also dips into cannabis industry coffers via the province-owned Ontario Cannabis Store (OCS), which has a monopoly over adult-use wholesale sales in the province.

The OCS also makes a small amount of money from its online sales channel.

The province is forecasting that the OCS will earn a profit of CA$225 million for the 2024-25 fiscal year.

That’s a slight decrease from the CA$234 million profit generated in the previous year.

The OCS has come under fire for reporting profits beyond what some industry sources consider to be reasonable, considering the provincial Crown corporation has been the most profitable enterprise in the cannabis industry.

For comparison, Ontario’s expected CA$604 million cannabis windfall would exceed what the province is expecting to collect from taxes applied to beer, wine and spirits combined.

Separately, Ontario’s budget committed CA$31 million over the next three years to crack down on illegal cannabis businesses, especially those which operate online.

“The government is committed to combatting the illegal cannabis market to ensure the integrity of the regulated private retail model and address the significant health risks associated with illegal cannabis products that do not meet government safety standards,” according to the provincial budget.

The new cash will go to what Ontario’s so-called Provincial Joint Forces Cannabis Enforcement Team, which is an initiative led by the Ontario Provincial Police targeting illegal marijuana storefronts.

The province said the money would enable the police to respond to the challenge of illegal online operators and crack down on the online sale and distribution of illegal cannabis.

“As the CEO of a cannabis retailer with 58 legal stores and more than 600 employees in Ontario, I welcome the Ford government’s decision to take aggressive action against illegal online cannabis dispensaries, who blatantly target kids and sell unsafe products,” High Tide CEO Raj Grover said in a statement on X, formerly Twitter. Grover was referenced Doug Ford, premier of Ontario.

“Today’s move makes it clear that Ontario is committed to safety and supporting its legal cannabis industry.

“We look forward to continuing to work with Attorney General (Doug) Downey and (Finance) Minister (Peter) Bethlenfalvy on further legislative and regulatory reform to help bolster Ontario’s regulated cannabis sector as it continues to convert consumers away from a resilient illicit market.”

Matt Lamers can be reached at matt.lamers@mjbizdaily.com.