Pubdate: Thu, 05 Oct 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Authors: Daniel Leblanc and Laura Stone
Page: A1


Ottawa will charge GST on recreational marijuana in addition to the
planned excise tax of $1 a gram, threatening to make legal cannabis
more expensive than its black-market competition.

The federal government's plan to legalize marijuana by July 1 is
designed to replace the illegal market with a heavily regulated
industry, but experts say the final sales price will be key to its
eventual success or failure. Parliamentary Budget Officer Jean-Denis
Frechette warned Wednesday in a blog post that an excise tax would
likely push the price of legal marijuana above black-market prices
observed in 2015-16.

Ottawa announced the planned excise tax on Tuesday, stating that the
revenue would be shared equally with provincial governments. The
Department of Finance said on Wednesday that it would also charge the
goods and services tax on recreational marijuana, just like it does
with alcohol and tobacco.

"The treatment of cannabis products is in keeping with this approach,"
said Chloe Luciani-Girouard, a spokeswoman for Finance Minister Bill

The debate over taxing marijuana comes amid warnings from the federal
budget watchdog that high taxes on the drug will only boost the
illegal market)

According to the Parliamentary Budget Officer, governments have little
leeway to tax marijuana and remain competitive with unlicensed
producers. The PBO estimated in a report last year that legal cannabis
would cost about $7.50 a gram before taxes, compared with $8.80 for
illicit cannabis.

"The government may have little fiscal space to apply tax without
pushing the price of legal cannabis significantly above the illegal
market price," the PBO report said.

Colette Rivet, who leads a group of licensed producers called Cannabis
Canada Association, said it's "hard to say" whether Ottawa has found
the right taxation level for legal marijuana at this point. In
particular, she said, other elements will increase the final price tag
for consumers, such as the potential cost of government-run
distribution and retail networks in provinces such as Ontario.

"A government monopoly would definitely be more costly and taxpayers
would be covering the cost," she said.

Vancouver lawyer Kirk Tousaw, who works with a number of players in
the marijuana industry, said licensed producers should be able to
compete with the black market even with the addition of the excise

"The much bigger problems are, federally, the lack of sufficient
production capacity and the continued overregulation of producers, and
the provinces that opt for government monopolies on retail and vastly
underestimate the amount of storefronts that will be necessary," he

Liberal MP Bill Blair, who is the parliamentary secretary to the
ministers of justice and health, said Ottawa deliberately decided to
keep taxes low on marijuana after looking at other jurisdictions that
have legalized the drug. In Washington State, for example, marijuana
is subject to a 37-per-cent excise tax.

"The feedback we're getting from the industry is that it's a very
responsible approach and consistent with everything we've said about
the importance of keeping the price low to compete with the black
market, but not so low that we incentivize people, particularly young
people, to enter the market," Mr. Blair said.

Philippe Lucas, executive director of the Canadian Medical Cannabis
Council, said marijuana must ultimately come in at less than $10 a
gram, taxes included, to be competitive. He said Ottawa should remove
sales taxes on medical marijuana to ensure that ill Canadians don't
start using recreational products.

"If there is no price difference between the medical and recreational
markets, it will create a disincentive for patients to continue their
relationship with their physicians," he said.

Bruce Linton, the founder and chief executive of Canopy Growth Corp.,
said his firm is capable of producing marijuana for $1.28 a gram,
making it competitive with illegal producers. However, he cautioned
that other costs, such as overhead, shipping and packaging, also need
to be factored in.

"There is room for everybody to work in this, because the black market
isn't a bargain and it won't get cheaper if they face pressures from
law enforcement," he said.

After plans for the federal excise tax were tabled on Tuesday,
premiers promised to fight to collect more than half of all revenue.

B.C. Premier John Horgan said the responsibility for enforcement and
regulation of recreational cannabis sales "will be done largely at the
provincial level, largely at provincial costs [and] should not be an
opportunity for the federal government to collect revenues."
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