Cannabis lawyer Whitney Abrams discusses the regulatory and legislative proposals for the taxation of cannabis that was recently introduced by the Department of Finance Canada.
Canada Department of Finance Introduces Regulatory and Legislative Proposals for the Taxation of Cannabis
On September 17, 2018, the Department of Finance Canada introduced a set of draft Regulatory and Legislative Proposals relating to the Taxation of Cannabis under the Excise Act, 2001 (the “Draft Proposals”). The Draft Proposals, if adopted, will provide for additional excise duty rates for each province that has signed a Coordinated Cannabis Taxation Agreement (“CCTA”) with the Federal Government of Canada. The rates would come into effect as of October 17, 2018, to coordinate with the recreational market becoming legal.
As a refresher, in December 2017, Finance Ministers across the country, at both the federal and provincial/territorial level, agreed to participate in a coordinated cannabis framework, which lead to CCTAs being signed by most provinces and territories. The CCTAs include an agreement that excise duties coming from the sale of cannabis and cannabis products will be shared – 75% will go to provincial/territorial governments, and the remaining 25% will go to the federal government. This mandate was solidified in February after the introduction of the 2018 Budget, and then officially implemented when Bill C-74, the Budget Implementation Act, 2018, No.1, received Royal Assent on June 21, 2018.
The Draft Proposals contain:
- Draft Excise Duties on Cannabis Regulations
- Draft amendments to the Regulations Respecting the Possession of Tobacco Products or Cannabis Products that are not stamped
- Draft Amendments to the Stamping and Marking of Tobacco and Cannabis Products Regulations
- Draft Amendments to the Credit for Provincial Relief (HST) Regulations; and
- Draft Amendments to the Excise Act, 2001
The Government is holding a consultation period for certain regulatory amendments. Particularly, with respect to the following:
- Exemptions for certain entities to allow the possession of cannabis products stamped for multiple jurisdictions, under certain conditions;
- The ability for third parties to possess cannabis excise stamps for specific purposes; and
- Exemptions from the proposed excise duty for certain cannabis-based products that are not intended for human consumption.
Exemptions for Possession of Cannabis Stamped for Multiple Jurisdictions
Under the current framework, all cannabis and cannabis products coming from Licensed Producers (“LPs”) and destined for retail will be required to have an excise stamp. These stamps will be jurisdiction-specific and marked with specific colours and distinguishing marks. In order to possess cannabis or cannabis products stamped for a jurisdiction other than the jurisdiction in which it operates, you will need a cannabis license issued by the Canada Revenue Agency (“CRA”).
The Government recognizes the challenges for Health Canada licensees as well as some out-of-province retailers to operate without obtaining the CRA’s cannabis licenses. Without the CRA’s license, LPs and retailers will not be able to operate in a way that they otherwise would have been able to by law.
Accordingly, the Government has proposed, firstly, that LPs be permitted to possess cannabis and cannabis products in a jurisdiction other than the jurisdiction which the cannabis or cannabis product is stamped for.
Second, if a province or territory allows out of province retailers to make sales of cannabis to their residents, those retailers would be entitled to possess cannabis or cannabis products stamped for that jurisdiction, as well as being permitted to possess cannabis products stamped for the jurisdiction in which it operates.
If this is adopted, in order for a retailer to possess cannabis products stamped for a different jurisdiction, it will be required to possess documentation that provides evidence of its ability to sell cannabis or cannabis product in that jurisdiction.
Third Party Possession of Cannabis Excise Stamps
The Government recognizes that LPs, retailers, and others licensed to operate in the legal cannabis arena may utilize third parties to assist with packaging logistics. One part of this would be the addition of adhesives to the excise stamps so that they can be applied to packaged products.
The proposal, therefore, is to allow these third parties to possess cannabis excise stamps for the purpose of applying adhesives for LPs. The liability/responsibility for the stamps would remain with the LP while the stamps were in possession of the third party.
Exemption for Test Kits and Reference Standards
The Government recognizes that certain cannabis-based products are not intended for human consumption. These products are test kits and reference standards.
“Test kits” are used to confirm the presence or concentration of a drug. Test kits are captured by the definition contained in the Cannabis Regulations. For any such test kit, a registration number will be issued under the Cannabis Regulations. If a registration number has been issued for a test kit, it is proposed that such a kit be exempt from the proposed excise duty framework.
Similarly, “reference standards” are designed for research purposes and not for human consumption. The idea is that the cannabis reference standard is a form of cannabis used as a measurement base to confirm the identity, strength, quality or purity of a substance. Given that reference standards are not likely to leave a laboratory or research facility, the proposal is that they too be exempt from the proposed excise duty framework.
If you are interested in providing feedback on the above, the public consultation will remain open until October 17, 2018. Comments should be sent to email@example.com. or to the Tax Policy Branch at the Department of Finance Canada in Ottawa (90 Elgin Street, Ottawa, ON K1A 0G5).