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Workers produce medical marijuana at Canopy Growth Corp.’s Tweed facility in Smiths Falls, Ont., on Feb. 12. This week’s budget confirmed the excise tax of roughly 10 per cent on cannabis will apply to many medical-marijuana products.Sean Kilpatrick

The federal government estimates that it will take in $100-million from an excise tax on cannabis in the first full year of legalization, with this money steadily increasing to $220-million in just a few years as Canadians spend billions on the drug.

This week's budget outlined these figures and confirmed the excise tax of roughly 10 per cent will apply to many medical-marijuana products, a decision that outraged patient groups and licensed commercial growers who say they wanted all forms of medical cannabis to be exempted from a sin tax, just like all other prescription medicines are.

The federal government previously announced the excise tax for recreational cannabis, which will be legalized later this year, of $1 a gram or 10 per cent, whichever is higher. Ottawa will keep 25 per cent of that tax revenue and pass the rest to the provinces, while also capping the federal share to $100-million during the first two years.

In 2020-21, the federal government expects to bring in $135-million in taxes, according to the budget, which translates to about $5.4-billion in sales. By 2022-23, federal tax revenues are projected to be $220-million, meaning nearly $9-billion in sales.

How much of that revenue comes from sales of the drug through the federal medical system will depend on the level of THC, the prime psychoactive compound in cannabis.

The budget says the federal government will not apply the new sales taxes to cannabis-based pharmaceutical products or oils low in THC but high in the compound cannabidiol, or CBD, which emerging research suggests is effective in treating epilepsy and a range of other ailments.

These "non-addictive, potentially therapeutic" products high in CBD "are sometimes used with children facing certain medical conditions," the budget document says.

David Barnabe, a spokesman for the federal Finance Department, said the government crafted this system based on the recommendations of an independent federal panel on legalization, which advised that recreational and medical cannabis be taxed in a similar way based on the amount of THC in products. Patient advocates and a trade group representing several of Canada's dozens of large-scale commercial medical cannabis growers reacted to this news with anger, saying the majority of patients will be hit by a new tax on medicine they already find hard to afford because of existing sales taxes.

Jonathan Zaid, head of the non-profit Canadians for Fair Access to Medical Marijuana, said the average patient spending about $500 a month on a 2-gram daily prescription could be hit with an extra $1,800 in annual taxes under the new regime.

There is no official data on which types of products are purchased by the more than 230,000 patients registered to Canada's current mail-order medical-cannabis system, but many products would be hit by the extra tax, he said.

"The government is really out of touch with the reality of medical cannabis patients," said Mr. Zaid, who picketed Finance Minister Bill Morneau's constituency office a month ago. "I'm not exactly sure what the incentive is, but the reality is for patients: This is going to harm their quality of life."

Philippe Lucas, executive director of the Canadian Medical Cannabis Council, a trade group representing seven licensed commercial growers, called the exemptions for low-THC oils and pharmaceutical products an unacceptable "half-measure" that will tax some patients the same as recreational users.

Trina Fraser, an Ottawa-based lawyer who specializes in the cannabis sector, said this disparity could lead to a constitutional challenge.

Mr. Lucas, also head of patient services at Tilray, a grower based in Nanaimo, B.C., praised Ottawa's promise to look at creating a Drug Identification Number for cannabis – a unique number issued by Health Canada that identifies a drug's manufacturer, product name, active ingredients, strength, pharmaceutical form and route of administration.

Health Canada has not approved marijuana as a medicine and currently, only veterans, some first responders and a small number of private citizens get their medical marijuana covered by health-insurance providers.

Canada’s big-city mayors say they discussed sharing in the revenues from legalized cannabis in a Thursday meeting with Finance Minister Bill Morneau. Edmonton Mayor Don Iveson says cities shouldn’t be 'on the hook' for legalization’s costs.

The Canadian Press

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