Ottawa Proposes Tax On Marijuana Sales With Half of Revenue Going To Provinces

Prime Minister Justin Trudeau has surprised provincial premiers and some market analysts by announcing a plan to levy a federal excise tax on recreational marijuana once it becomes legal next July.

Under the federal proposal put to premiers during a first ministers meeting, each gram of marijuana would be subject to an excise tax of $1 on sales up to $10, and a 10% tax on sales of more than $10. Canada’s provinces and territories would receive half the revenue from the new tax, with Ottawa taking the other half.

The proposal outlined by Prime Minister Trudeau rankled several of the premiers in attendance at the meeting, many of whom argue that it is the provinces that are covering the majority of the costs to regulate and enforce the new rules related to legalized marijuana and that they should therefore get the majority of the revenue from any taxes levied on the drug.

“For the first time that I’m aware of, the federal government is looking at a revenue-sharing model. That’s not something we’d contemplated before,” said British Columbia Premier John Horgan as he left the First Ministers Meeting held in Ottawa. “I believe provinces are concerned that there’s a whole bunch of costs imposed on us in terms of distribution, in terms of regulation.”

Canada is still grappling with how to tax legal marijuana at a price low enough to squash the black market. The nascent industry has ballooned in value amid optimism over Trudeau’s plans for recreational sales, which Canaccord Genuity Group Inc. has forecast could reach $6 billion a year by 2021.

The burden of legalizing and implementation of this will be borne by provinces, and by doing so we believe the lion’s share of the revenue form the tax should end up with the provinces,” said Nova Scotia Premier Stephen McNeil.

For his part, Prime Minister Trudeau said the costs of legalization, the level of taxation on marijuana`, and the proposed revenue sharing are all still matters under negotiation with the provinces. He emphasizes that the goal of legalization is not to make money, and added that
the premiers agree that the priority is to keep marijuana out of the hands of children and out of the control of criminal gangs.