Canada: 2019 Canadian Federal Budget Commentary – Tax Initiatives

Cannabis Taxation

New Product Classes

In December 2018, the Government released draft regulations containing the framework for the production and sale of the following new classes of cannabis products: edible cannabis, cannabis extracts, and cannabis topicals. These new classes of products are in addition to the five existing classes of cannabis products permitted for legal sale in Canada. There will be seven classes of legalized and regulated cannabis products after the new regulations are enacted, because the existing cannabis oil class will be merged into the new cannabis extract class.

Duties on existing classes of legalized cannabis products are imposed at the time of packaging based on the quantity of material in the product or a percentage of the dutiable amount. Such duties are payable when the product is delivered to a purchaser. Budget 2019 proposes a framework to tax the new classes of cannabis products, including cannabis oils. In an effort to simplify compliance and to adjust to new products, Budget 2019 proposes that the new classes of cannabis products be subject to excise duties under the Excise Act, 2001 based on the quantity of tetrahydrocannabinol (THC) compound found in the final product. The proposed combined federal-provincial-territorial rate for new classes of cannabis products (including cannabis oils) is $0.01 per milligram of total THC. These changes will have no impact on the existing framework for fresh and dried cannabis, and seeds and seedlings.

The proposed changes to the excise duty framework will come into effect on May 1, 2019. Cannabis oil products packaged for retail sales before May 1, 2019 will be subject to the rates currently applicable. As the other new classes of cannabis products become legal and regulated, they will also become subject to the new framework and THC-based excise duty rates.