Skip to main content

When marijuana becomes a legal consumer good on July 1, 2018, it will be taxed. But how much it will be taxed, who will share in the spoils, and to what degree, are all points of contention.

Here's what the federal government has proposed: An excise tax of $1 per gram on purchases of less than $10, and a 10 per cent tax on purchases above $10.

The tax would be applied equally to recreational and medical marijuana. The revenues raised from the excise tax would be split 50/50 between Ottawa and the provinces. In addition, marijuana sales will be subject to the federal and provincial sales taxes – GST, PST, QST, HST, depending on jurisdiction.

It is estimated that 4.6 million Canadians will purchase legal marijuana in the first year of legalization (only slightly higher than the number that purchase it illegally now) and they will consume roughly 655 metric tons. In other words, there are billions of dollars in tax revenues at stake for governments, and individuals are going to take a tax hit too.

So let's unpack some of the debates.

The price of legal marijuana has yet to be set by provinces, but it will be in the $8-$10 per gram range. The price has to be competitive with the black market and street prices average $8.84 per gram, according to a detailed analysis by the Parliamentary Budget Officer.

If the current taxation proposal is adopted, an $8 gram of cannabis would cost $10.17 at the register in Ontario ($1 excise tax plus $1.17 HST) and $9.45 in Alberta ($1 excise tax plus $0.45 GST)

That's more or less in the sweet spot that would allow legal retail outlets to compete with street dealers, assuming the products are of comparative quality.

The group Canadians for Fair Access to Medical Marijuana is arguing that users of medical marijuana should be exempt from taxes because other prescription drugs are not taxed.

That is a dubious position because marijuana is like no other prescription drug – it is not tested in clinical trials, packaged in measurable doses or sold in pharmacies.

There are a lot of anecdotes about the benefits of marijuana for things like pain relief, but little good evidence. In fact, the line between medicinal and recreational use is often a blurry one, particularly when you can walk into many a dispensary and get a script without much effort.

If someone smokes one gram of marijuana daily for "medical" reasons, the new tax regime will cost them an extra $365 (they already pay sales taxes). That's unfortunate collateral damage.

The only thing a tax exemption for medical marijuana would do is encourage recreational users to dream up ailments to save a buck. That's why there is no jurisdiction where such an exemption exists.

The most heated political and policy discussion leading up to the meeting of federal, provincial and territorial finance ministers on Dec. 10-11 will be how the new tax revenues are divvied up.

There is no question that the provinces, and their municipalities more specifically, will have additional costs when marijuana is legalized, like building a distribution network, changing bylaws and policing. (While possession of marijuana up to 30 grams or so will no longer be a crime, there will still be all kinds of restrictions, including on where pot can be smoked and on drugged driving.)

So the 50/50 split doesn't seem fair.

But where do you set the dividing line? The best place to look for guidance may be tobacco taxes. Last year, governments collected $8.4-billion in tobacco taxes – not including GST or provincial sales taxes. Of that total, $5.1-billion went to the provinces and $3.3-billion to Ottawa. That's a 60/40 split, which seems reasonable.

Those eye-popping numbers are a reminder that we heavily tax tobacco products. A carton of 200 cigarettes costs $135.40 in Manitoba, of which $96.14 is taxes. In Quebec, by comparison, a carton costs $88.67, of which $55.68 is taxes.

Should we be taxing marijuana to that degree? Some day, perhaps, but at this point the goal is to undermine the black market, and to do so, prices must be competitive.

When people start smoking pot – for medicinal reasons or otherwise – they are advised to "start low and go slow."

That is sage counsel for the tax man as well.

Liberal MP Bill Blair says a proposed federal pot tax will keep the price low enough to compete with the black market. Ottawa is proposing an excise tax of $1 per gram, or 10 per cent of the retail price, in addition to sales taxes.

The Canadian Press