Canadian Federal Cannabis Tax Revenue now Outpaces Beer and Wine

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Canadian Federal Cannabis Tax Revenue: In a surprising turn of events, Canada’s federal government has collected more excise tax revenue from cannabis than it did from beer and wine in the previous fiscal year. According to the country’s Public Accounts, the federal government received approximately 894.6 million Canadian dollars ($667.6 million) from excise duties on cannabis, compared to the combined revenue of 887.7 million Canadian dollars from beer and wine. This news comes as a parliamentary committee recommends a reassessment of the cannabis tax, citing its disproportionate and unfair application. The committee proposed changing the excise duty formula to a 10% ad valorem rate, which would alleviate the burden on cannabis producers. The Canadian cannabis industry views this recommendation as a positive step towards improving its financial health and long-term sustainability.

Canada’s federal government collected more excise tax revenue from cannabis than beer and wine

Canada’s cannabis industry has experienced remarkable growth since legalization in October 2018. In fact, the federal government collected more excise tax revenue from cannabis than it did from beer and wine in the 2022-23 fiscal year. This surprising development has raised questions about the fairness and effectiveness of the current tax system. The parliamentary committee has even recommended easing up on the cannabis tax to address these concerns.

Excise tax revenue from beer and wine in the 2022-23 fiscal year

According to the country’s Public Accounts, the federal government received a substantial amount of excise tax revenue from beer and wine in the 2022-23 fiscal year. Specifically, it collected 610.1 million Canadian dollars ($450 million) from excise duties applied to beer and 277.6 million Canadian dollars from wine. When combined, the beer and wine excise revenue reached a total of 887.7 million Canadian dollars.

Photo by chris robert on Unsplash

Excise revenue from other products in the same fiscal year

In addition to beer and wine, the federal government also collected excise revenue from other products in the same fiscal year. Manufactured tobacco, for instance, generated 204.4 million Canadian dollars in excise tax revenue. When taking all other products into account, the total excise revenue amounted to 2.4 billion Canadian dollars.

Federal excise duties from cannabis in 2022-23

Surprisingly, the federal government collected even more excise tax revenue from cannabis compared to beer and wine in the 2022-23 fiscal year. The excise duties from cannabis reached approximately 894.6 million Canadian dollars, with 667.6 million Canadian dollars transferred to provincial and territorial coffers. This left the federal government with about 227.1 million Canadian dollars.

Amount transferred to provincial and territorial coffers

Out of the total excise tax revenue from cannabis, a significant portion was transferred to provincial and territorial coffers. This move ensures that the revenue is distributed among the different jurisdictions in Canada. By transferring 667.6 million Canadian dollars to the provincial and territorial levels, the government promotes fairness and provides additional resources for cannabis-related initiatives at the local level.

Growth of the federal government’s share of the national excise cannabis levy

The federal government’s share of the national excise cannabis levy has witnessed significant growth in recent years. This demonstrates the increasing importance of cannabis as a revenue generator for the government. In the fiscal years ended March 31, the federal government’s share of the cannabis excise levy was 160.22 million Canadian dollars in 2021-22, 108.9 million Canadian dollars in 2020-21, 52 million Canadian dollars in 2019-20, and 18.4 million Canadian dollars in 2018-19.

Report recommendations from the House of Commons Standing Committee on Finance

To address the concerns surrounding the fairness of the current tax system, the House of Commons Standing Committee on Finance has made several recommendations in its report. The committee proposed adjustments to the excise-duty formula for cannabis. One key recommendation is to limit the excise duty to a 10% ad valorem rate, which means the duty would be calculated as 10% of the value of a transaction. This change aims to create a more equitable tax structure for the cannabis industry.

Proposed changes to the excise-duty formula for cannabis

Canadian Federal Cannabis Tax Revenue Outpaces Beer and Wine

The current excise duty formula for producers’ dried cannabis involves a fixed rate of CA$1 per gram or 10% of the value of the gram, whichever is greater. This formula has raised concerns within the industry, as it can result in a disproportionately high excise duty, sometimes exceeding 30% of cannabis revenue. To address this issue, the committee recommended adjusting the formula to a 10% ad valorem rate, which would provide more predictability and fairness for producers.

Impact on cannabis revenue

If the proposed changes to the excise-duty formula are implemented, it could have a significant impact on the overall revenue generated by the cannabis industry. Currently, companies like Organigram Holdings have reported federal excise bills amounting to millions of Canadian dollars, resulting in effective excise levies as high as 30%. By implementing the recommended changes, producers would see a reduction in their excise duty burden, allowing them to allocate more resources towards business growth and innovation.

Recommendation for investments in First Nations engagement in the Cannabis Act review

In addition to addressing issues related to taxation, the committee also recommended investments in First Nations engagement in the Cannabis Act review. This signifies the government’s commitment to inclusivity and collaboration when it comes to shaping cannabis regulations and policies. By involving First Nations communities in the review process, the government can ensure that the unique needs and perspectives of these communities are taken into account.

Completion timeline for the review

Canadian Federal Cannabis Tax Revenue Outpaces Beer and Wine

Although the review of the Cannabis Act is ongoing, it is expected to be completed before the budget is released in the spring. This provides an opportunity to incorporate any necessary changes and improvements into the existing legislation. The timely completion of the review reflects the government’s commitment to addressing the concerns and recommendations put forth by industry experts, stakeholders, and parliamentary committees.

Federal government’s obligation to accept the recommendations

While the federal government is not obligated to accept all 359 recommendations made by the House of Commons Standing Committee on Finance, it is crucial to note the significance of these suggestions. They represent the consensus among industry experts and reflect the desire for an equitable and sustainable cannabis tax system. The government’s response to these recommendations will be a testament to its dedication to supporting the growth and development of the cannabis industry.

Reaction from Canopy Growth Corp. CEO

Canopy Growth Corp. CEO, David Klein, expressed his support for the committee’s recommendation to adjust the excise-duty formula for cannabis. He emphasized the importance of implementing these changes quickly to improve the financial health of the industry. Klein also highlighted his company’s commitment to working collaboratively with the federal government to ensure the long-term sustainability of the cannabis industry in Canada. This positive response from industry leaders demonstrates the broad support for addressing the taxation concerns in the cannabis sector.

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