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Taxing Oil & Edibles based on THC

Finance Minister Bill Morneau released the Liberal government’s 2019 budget on March 19. Budget 2019 proposes a new tax structure for cannabis edibles, extracts, and topicals.

Currently, cannabis products are subject to a flat rate based on the amount of cannabis in the product purchased. Instead, government wants these products to be taxed on the concentration of THC they contain—or, how high they get the user. The proposed rate is $0.01 per milligram of total THC.

The proposed measure will come into effect on May 1, 2019 and will initially apply to cannabis oil products. Once edibles, extracts, and topicals are legalized, they will also be subject to the new THC-based tax.

The excise tax regime for fresh and dried cannabis, seeds, and seedlings will not change. Those products will continue to be taxed at a 10% rate or $1 per gram—whichever is higher. Provinces will continue to get 75% of the tax revenue, with the remaining 25% going to the federal government.

Unsurprisingly, the decision has been met with criticism, with some suggesting the new taxation rate is unfair to medical users. The federal government says, “The proposed THC-based rate will help simplify the excise duty calculation for specific cannabis products and ease compliance issues that producers have encountered with respect to cannabis oils.”