Canada announces a reform of its cannabis excise tax in 2025

Canada is getting ready to explore a new excise tax system for cannabis businesses next year, as part of long-awaited efforts to «reduce bureaucracy.».

In its «Fall 2024 Economic Statement,» released this week, the federal government announced new plans to «explore a transition from province- and territory-specific cannabis excise stamps to a single, national stamp.».

The current system forces producers to navigate 13 separate provincial and territorial excise stamps—a logistical headache that, according to industry leaders, entails costs and administrative burdens considerable.

The Canadian excise tax on cannabis, which amounts to $1 per gram or 10% of the producer’s selling price (whichever is higher), has long been the Achilles’ heel of the adult-use cannabis industry, which has led to a certain persistence of illicit activity and a growing trend among Canadian producers to sell their products abroad to increase their profits.

This situation has also led to a massive backlog of payments, with reports suggesting that by mid-2023, some $200 million was owed to the Canada Revenue Agency (CRA) in excise taxes.

Like Business of Cannabis reported it in March, the Standing Committee on Finance of the House of Commons of Canada recommended a change to the excise tax.

The commission proposed that the tax be capped at 10% «ad valorem,» a percentage of the wholesale price of the cannabis product.

A few weeks later, the government released the long-awaited final report on its review of the cannabis law, which contained 54 recommendations on how to improve the adult-use market across the country, in particular by adjusting the excise tax rate.

However, in April, hopes for tax relief for the Canadian cannabis industry were dashed when the 2024 federal budget revealed that excise taxes would remain unchanged.

The signs that a reform might be on the horizon for next year—with the economic statement suggesting that «more details will be provided in the 2025 budget» (expected in February)—are therefore very good news for Canadian businesses.

Although the harmonized tax is viewed as a positive development, it does not address the industry’s broader concerns regarding the federal excise tax rate itself. Producers argue that the high tax burden, combined with operating costs, threatens the viability of legitimate businesses, in particular small-scale producers and small-scale producers.