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Taxing Cannabis – How Different Countries Collect Revenue

cannabis tax
Written by Sarah Friedman
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Opening up legal cannabis markets means one very big thing…taxes!! Yes, apart from getting citizens a product they very much want (and will realistically get on their own anyway), the biggest benefit to opening these markets, is the tax revenue collected.

Much like everything else in the world of legal cannabis, every location that has created a market, has its very own setup for how to regulate and tax it. So far, there are no two places that do it exactly the same.

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Let’s start with the States   

In the US, every state that has a legal market has its own set-up for taxation. There’re 10 taxable recreational markets in the US: Alaska, California, Colorado, Illinois, Michigan, Massachusetts, Nevada, Oregon, Washington, and Maine (though Maine is not officially open yet). Vermont, too, is on its way, but will require more time and has not released information yet on its tax structure. It should be remembered that in the States, as there is no federal law legalizing these sales, all tax structures are relevant to state governments, and not federal.

Basically, all the legal states take their pick of: sales taxes – which would be for an entire state; local sales taxes – for a particular city or town; excise taxes – which get absorbed into the price and are paid generally between a manufacturer and vendor; excise sales taxes – an excise tax that gets collected at sale like a sales tax; cultivation taxes – paid by cultivators per the amount they grow; and even a local cannabis business tax meant for businesses that manufacture non-medical products.

Most states collect taxes in percentages, while some like Alaska opt to tax in dollar values. California has the most taxes added on, Washington has the single largest tax with a 37% excise sales tax, and in most of these markets, it’s expected that as high as 20+% can be added onto the initial value of the product in taxes.

How each state collects its taxes varies, as does how each state uses the tax money that comes in, which is a topic for a whole different article. It should be remembered though, that California – the biggest market – is having major issues contending with the black market, and that perhaps how taxes are being levied is the main reason why.

How does Canada do it?      

Canada is much like the US when it comes to having different locations determine their own tax amounts. The difference, of course, is that the US is still federally illegal, whereas Canada is a federally legal country, meaning the federal government is not left out of the regulating and taxing of products. The 13 provinces and territories that make up Canada, are: Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland & Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island, Quebec, Saskatchewan, and Yukon.

The federal excise tax is paid by all. Much like excise taxes in the US, it is not generally felt directly by the consumer, but is absorbed into the price. The tax is paid by licensed cannabis producers when products transfer to a retailer or consumer. And this plays into the entire regulatory system.

Is The U.S. Set To Threaten Canada’s Global Cannabis Dominance?

In Canada, once an excise tax is paid on a product, it receives a sticker, and in fact, all legal products must have them going back to the original cultivator or producer. Cultivators, producers, and packagers must receive licensing from the CRA – Canada Revenue Agency. In order to qualify for this, they must also get a license from Health Canada.

Once these licenses are obtained, it then becomes necessary to buy and apply the cannabis excise tax stamps; to calculate the tax rate according to the given rules for a specific operation, and location; and then to file taxes with payment of excise amounts to the CRA. So, the very process ensures that each participant in the supply chain is licensed, and that the payment of the tax is always visible.

Cannabis is also subject to a standard Canadian federal Goods & Services sales tax of 5%. Plus, the government levies a further 2.3% annual fee on yearly revenue for license holders as a way of offsetting the cost of regulation. This fee is currently being debated in light of damage caused from the corona incident.

On the local side, some provinces, like Manitoba, implemented a Social Responsibility Tax (SRT) (in the case of Manitoba 6% – which gets paid right back to Manitoba.) There’s also a Provincial Sales Tax (PST) which varies between provinces, with some provinces like Alberta and Yukon eliminating it altogether.

Provinces that do use it, incorporate the tax into the cost of the item, and it can range from 6-10%. There is also a Harmonized Sales Tax (HST) that takes the place of the 6% Goods & Services sales tax and Provincial Sales Tax, and implements a rate of 13% or 15%. The HST is used in Ontario, New Brunswick, Newfoundland & Labrador, Nova Scotia, and Prince Edward Island.

As was mentioned regarding California, there is a certain amount of backlash due to pricing and quality, issues that if not fixed will do nothing more than bolster the black market.

What about Uruguay?

Medicinal cannabis is taxable as well, but as of yet, free countries/states, have put a much greater tax burden on the recreational markets, which are the markets meant to entice everyone who doesn’t fit into the medical category. The recreational avenue provides a much better venue for taxation.

Uruguay Was The First Country to Legalize Cannabis – How Are They Doing Now?

As of right now, and in stark contrast, Uruguay – the longest running legal country – doesn’t actually charge taxes on recreational cannabis. Perhaps this is just semantics though, as Uruguay does charge a ‘variable fee’ which is meant specifically to help fund the Institute for Regulation and Control of Cannabis (IRCCA). So it suffices to say that while Uruguay charges something, the general idea around legalization was to keep taxes off, and the reason for this was because of how badly Uruguay wanted to divert from the black market. Undercutting the black market was an actual goal for Uruguay, not trying to tax over it, and so far it has been the only country to put that sentiment into action.

By not making it about taxes, the price has stayed considerably lower, with the latest increase bringing it up to about $1.23/gram of flower. Keeping pricing low is generally the best way to undercut a current market. Of course, there are other supply issues in Uruguay that are affecting price, as well as a requirement for users to be signed-up as users…something that could easily dissuade many people.

Conclusion

The most interesting thing to me is not simply the tax structure put in place, but the whole question of ‘to tax, or not to tax’. It’s a double-edged sword. In a world of greedy governments with no real ability to see into the future, the idea of not scraping up every penny immediately in possible tax money, seems impossible by the looks of it. It’s like the saying ‘cutting off the nose to spite the face’. While governments might not be trying to expressly hurt their people, by blatantly disregarding price points and logic, and adding on ridiculous taxes, the only thing they do is push people back to the black market and hurt legal markets.

Uruguay doesn’t have the biggest market, and its moving slower, but it does seem to be doing so on a generally better principal. One that could provide a cheaper product, and therefore, much less reason to seek the black market answer in the future. And this could, in the end, provide a much stronger, more durable structure.

Thanks for stopping by CBDtesters.co, where we’re covering everything related to medical cannabis and legal cannabis business. Stop back frequently and subscribe to the Medical Cannabis Weekly Newsletter to keep yourself up-to-date.

RESOURCES:

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Your Complete Guide to EU GMP-Certified CBD Isolate and Distillate – Spotlight on the regulated EU market

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DELTA 8 THC Testimonials (What people have to say about DELTA-8 THC)
DELTA 8 THC Legal Paper
DELTA 8 THC Newsletter (The DELTA 8 THC Weekly Newsletter)
The CBD Flowers Weekly newsletter (your top resource for all things smokable hemp flowers)
The Medical Cannabis Weekly newsletter (International medical cannabis business report)
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About the author

Sarah Friedman

I am a US born writer, travelling the world and doing the digital nomad thing.

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