Taxes on specific products, sometimes called excise tax, are put in place by governments and regulators for several reasons: to raise revenue, change behaviour, or to cover the costs incurred from enforcement, infrastructure, or other areas. These taxes, also known as sin taxes, have been added to tobacco and alcohol products for decades. In the case of tobacco, there are significant health care costs that society incurs that are directly related to tobacco use and the application of an excise tax can make sense. However, over the years, there has been a decline in smoking and in the overall purchase of tobacco products, which has offered a decline in government excise tax revenues from tobacco across Canada.
In 2018 when cannabis was legalized across Canada, an excise tax was applied to cannabis products for many of these same reasons. Cannabis excise taxes are paid by the company that produces the cannabis products, with 75% of the total excise tax going to the provincial government where the product is to be sold and 25% going to the federal government. The combined total cost of the excise tax can’t be more than $1.00/gram or 10% of the total product cost, whichever amount is higher.
In the case of recreational cannabis, each cannabis product is also taxed a second time when it is purchased by a customer in a legally licensed cannabis store. The provinces add on their sales tax – which varies from 5% – 13% depending on the jurisdiction and if a province does not have a sales tax, they are allowed to request an additional % to be added to the excise tax. In the case of Alberta, that additional percentage is 16.8% and in Saskatchewan, the additional percentage is 6.45%.
There is an expectation that legal cannabis products will be taxed like alcohol products have been for years. However, the illicit market for cannabis is significant and access to legal recreational cannabis has only been in place for a short period of time. Many cannabis users continue to purchase their cannabis products from illegal unlicensed sources and 57% of these users in Canada note that cost is the primary reason they choose to purchase illicit products. The work to end illegal sales of illicit cannabis products has only just begun and requires significant effort and support by both government regulators and businesses in the legal cannabis sector.
Earlier this month, the Government of Saskatchewan introduced draft legislation that would have added an additional tax on certain cannabis products. Cannabis accessory products that heat cannabis into a vapour that you inhale as well as the cannabis cartridges for these accessories were included in the first draft of Saskatchewan’s new Vapour Products Tax Act and would have been subjected to an additional 20% tax imposed on the consumer at the point of purchase. That means that on a legal cannabis sale, the consumer would have paid the retail price of the product, which includes the built-in cost of the excise tax that the licensed producer of the cannabis product has paid to the federal and provincial government of $1.00/gram or 10% (whichever is higher) and the 6.45% the Saskatchewan government adds on, as well as 5% GST, and either 6% provincial sales tax or in some cases the additional 20% vapour products tax. On an illegal cannabis sale for the same type of product, you would pay no taxes at all.
Is a vapour product tax necessary? If the goal of the Saskatchewan government was to reduce the usage of vapour products overall, then for some tobacco products that do not face the same competition from an active and established illicit market that cannabis does, it might be. But in the case of cannabis products, this tax would have pushed more cannabis users into the illegal and unregulated market looking for similar products at a lower cost.
Illegal and unregulated cannabis products can be dangerous. Without regulations outlining product safety, packaging and labelling standards, it can be impossible to know what the ingredients of the illicit products being purchased are. In August 2020, the Government of Canada noted that evidence from the recent US outbreak of e-cigarette, or vaping, associated lung injury (EVALI) suggests a strong association with vitamin E acetate, which is used as a cutting agent in illegal and unregulated THC-containing vaping products. The report from Health Canada also confirmed that in Canada, most cases of vaping-associated lung illness do not appear to have been associated with the use of THC-containing products.
Legal cannabis products are heavily regulated from seed to sale, ensuring the safety of the consumer. Punishing cannabis consumers for accessing these safe and legal products by continuing to impose harsh and punitive financial penalties for their purchase, through increased taxes, goes against the Government of Canada’s goal of ensuring public health and safety remain a priority through cannabis legalization.
Protecting the health and safety of all Canadians matters.
When considered by the Crown and Central Agencies Committee of the Saskatchewan Legislature at their meeting on May 6, 2021, the committee members voted yes on an amendment, offered by Committee Chair Terry Dennis, to remove mention of cannabis products from Bill 32 prior to sending it back for third reading. We expect that the Saskatchewan Legislature will pass this new modified Bill 32 that does not include cannabis prior to the end of the session on May 14, 2021.
It is our hope that other jurisdictions considering such a tax will review the discussion and decisions made in Saskatchewan and will ensure that legal cannabis vape products will continue to be excluded from unnecessary punitive taxes.
Thanks to our advocacy partners Farmer Jane Cannabis Co., Fire & Flower, Pax Labs, Organigram, & Aurora Cannabis for their assistance and support on this file. It has to be a combined effort between Government regulators and the legal cannabis sector to ensure that the work to eliminate unsafe sales of illegal cannabis products will continue, putting residents’ health and safety first.
