Plunging cannabis prices add fuel to efforts to lower tax rate for Canadian producers

Calls are growing for the Canadian government to lower taxes for cannabis producers amid falling prices for marijuana products and rising costs for businesses.

The British Columbia and Ontario chambers of commerce have joined their national counterpart in calling for Canada’s federal levy on cannabis to be reassessed, saying the current system is stifling efforts to curb the underground marijuana market.

Calls to reform the tax come as the average selling price per gram of marijuana crashed 26% over the past 13 months, according to fresh data from New York-based investment bank Jefferies Group and Seattle-based data-analytics firm Headset.

In particular, the B.C. Chamber wants the provincial government to work with federal authorities to revamp the national excise tax for cannabis producers, which the organization says applies a financial burden to both cultivators and consumers.

Last year, the Canadian Chamber of Commerce called the federal excise tax system “untenable.”

The federal government’s excise duty on dried cannabis flower is either 1 Canadian dollar ($0.75) per gram or 10% of the value of the gram, whichever is greater.

However, increased competition has resulted in the minimum taxation threshold expanding well beyond 10% of a producer’s revenues, the business chamber said.

“The current excise system keeps the black market alive. Costs trickle down to the consumer as well as pose business viability risks to producers,” according to a recent B.C. chamber report, “Unlocking BC’s Cannabis Industry.”

“Regulatory changes are needed to enable the market price of legal cannabis to be as competitive as possible.”

The B.C. Chamber made 12 other policy recommendations in its report, which aims to help grow the legal cannabis industry, improve economic competitiveness and diversify the economy.

Those include:

• Creating an economic mandate for cannabis at a ministerial level in the province.
• Introduce retail changes to improve regulated consumer access to cannabis.
• Work with the federal government to create a single excise tax stamp.

Calls grow for tax change

Dan Sutton, who is spearheading a campaign calling on the government to reform the cannabis excise tax regime, said price compression has changed the equation in recent years vis-a-vie the excise tax.

Recent statistics bear that out.

Retail prices declined throughout 2021 on a price-equivalized bases, according to Headset’s data.

The biggest declines were seen in:

• Concentrates, -35%.
• Vape pens, -35%.
• Capsules, -20%.
• Pre-rolls, -19%.
• Flower, -16%.

“Outside of legalization, average wholesale price of cannabis was CA$8 per gram,” Sutton said in a phone interview.

“Most of us built our financial models not assuming that would persist, but I don’t think anyone could have predicted at the outset that, today, it would be below CA$5 per gram wholesale.”

Sutton is the public face for the Stand For Craft campaign, which is seeking an end to a flat minimum per-gram tax.

Sutton, who is also CEO of B.C.-based cannabis producer Tantalus Labs, wants to see licensed producers pay a percentage-based per gram levy.

He said the current system gives an advantage to large producers and disadvantages smaller ones.

“It’s my position, that right now, the excise burden unfairly falls on those small businesses, to a larger degree, in a way that inhibits their survivability, than their large publicly traded, well-heeled counterparts,” Sutton said.

“It’s a function of economies of scale. If it’s cheaper for a larger organization to be able to produce, I think that needs to be represented in the taxation structure. These are two completely different businesses. And they should be treated as two completely different entities in the way that we tax them,” he said.

The Stand For Craft proposal, which is separate from the B.C. Chamber proposal, calls on the government to apply a percentage-based excise tax based on “different tax tiers” for micro-cultivators, craft-scale standard growers, small to medium cultivation enterprises and large cultivators.

“I think it’s against the nature of the desires and aspirations of Canadian legalization to have perhaps inadvertently built a tax structure that is punitive to small enterprises or disproportionately punitive to small enterprises,” he said.

Ontario chamber on board

In a statement to MJBizDaily, the Ontario Chamber of Commerce’s Cannabis Policy Council said it seeks “evidence-based, common sense policy reforms that champion the economic growth of the cannabis sector while safeguarding public safety.”

“Three years into legalization, it is prudent for government decision-makers to look at the policy environment with an aim toward evolving and modernizing regulations where appropriate,” said Daniel Safayeni, vice president of policy at the Ontario Chamber and co-chair of the group’s Cannabis Policy Council.

Safayeni said the current national excise stamp is an “administratively cumbersome and inefficient process.”

He wants it replaced with a single, standard stamp for all Canadian jurisdictions.

Safayeni also supports a reassessment of the federal levy on cannabis.

“Similarly, the current rigid tax structure puts independent producers and retailers at a competitive disadvantage and should be amended to ensure legal actors can effectively displace the illegal market,” he said.

Matt Lamers can be reached at mattl@mjbizdaily.com.