What you need to know about Canada's cannabis excise tax

Canada will be legalizing adult-use cannabis on October 17 under the Cannabis Act, which will absorb the current medical-use legislation.

This leaves both medical and recreational cannabis subject to an excise tax, which can add upwards of 10% to each sale.

Here’s what you need to know about cannabis taxation, and how it will affect current and future medical consumers.

What is the excise tax, and how does it work?

According to the federal government, “under the taxation framework, a federal excise duty is paid by a licensed cannabis producer when the cannabis products they package are delivered to a purchaser (for example, a provincially authorized distributor/retailer or final consumer).”

The tax is to be charged regardless of whether the cannabis is for recreational or prescription. Often colloquially referred to as “sin tax,” excise taxes are charged in Canada on all alcohol and tobacco sold within the country.

What’s the big deal?

Almost all prescription drugs are zero-rated throughout all of the provinces, meaning they are not subject to GST, HST or PST/QST/RST.

But medical cannabis users pay HST on their pot prescriptions, unlike any other prescription drug in Canada. The excise tax would add an extra 10% of the cost or CAD$1 per gram of cannabis, whichever is higher.

Physicians and patients fear that the additional expense will render the drug less affordable and prevent vulnerable or low-income users from accessing their doctor-prescribed, cannabinoid-based medications.

Cannabis does not qualify for coverage by most private or government health insurance policies (although that’s starting to change), so most patients have been paying for 100% of the cost of their legal cannabis prescriptions out-of-pocket (plus shipping).

What does that mean for current users of medical cannabis?

With the dissolution of the Access to Cannabis for Medical Purposes Regulations (ACMPR) will come the dissolution of any legal distinction between medical and recreational users with regards to access to cannabis. As a result, in the eyes of the new law, smoking cannabis to mitigate the side effects of chemotherapy is no different than “sparking up a doob and getting laced at a party,” so to speak.

Kira London-Nadeau, Regional Representative at the National Institute for Cannabis Health and Education (NICHE) and a board member of Canadian Students for Sensible Drug Policy (CSSDP), says the tax sends the wrong message.

“What is particularly problematic with the excise tax applied on medical cannabis is that it adds insult to injury,” London-Nadeau told Daily Hive. “Not only does the tax add a financial burden on patients – it also sends the message that their medicine, or simply even their health, is a luxury (or worse, a ‘sin’).”

See also

• How recreational legalization is affecting the medicinal cannabis market
• Study shows need for patient access to cannabis as medicine

Has anything similar ever been challenged in court?

Sort of. Back in 2014, BC tax court Justice Campbell Miller ruled that medical cannabis was subject to taxation. Justice Miller found in his ruling that medical cannabis was “more akin to an over-the-counter drug than a drug acquired by prescription: one has little or no government control, versus significant government control.”

With the roll-out of legalization, however, both federal and provincial governments do indeed have significant control over the production, packaging, and distribution of the drug, leaving little room for this rationale.

Why doesn’t the government want to exempt medical cannabis from the excise tax?

The Liberal government says granting a tax exemption to medical cannabis could lead to abuse of the existing medical cannabis system.

“Our twin goals are to keep cannabis out of the hands of youth, and keep profit out of the hands of criminals. Our approach to taxation needs to support these goals,” Minister of Finance Bill Morneau said in a statement last month.

There are concerns, however, that the increase in cost for patients will result in more – not less – medical consumers driven to buy from black market dealers and dispensaries to avoid a tax that makes it inaccessible to many of the people who need it.

Is there any financial help for patients?

Some LPs like Canopy Growth have announced that they will absorb the excise tax for medical users and many others offer discounts or “compassionate pricing” for prescription cannabis.

How will this affect societal attitudes surrounding medical cannabis?

According to London-Nadeau, “we’ve come a long way with medical cannabis, but the application of the excise tax shows that anti-cannabis stigma is still pervasive, and patients are reminded of this every time this tax is applied.”

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