Pot sector gets boost on tax change

But unhappy medical tax remains in place

Shares of some cannabis producers jumped Wednesday as industry players welcomed the change in the federal budget to tax edibles, extracts, oils and concentrates based on the amount of tetrahydrocannabinol rather than weight, as it could ease pricing for some products and potentially boost product availability.

However, licensed producers and a patient advocate group say they are disappointed that medical cannabis will continue to be taxed, despite a campaign calling on Ottawa to exempt patients.

Organigram Holdings Inc. jumped four per cent to close at $9.64, while Canopy Growth Inc. added 1.5 per cent to $62.30 in Toronto trading, and Tilray Inc. edged up 1.4 per cent to US$70.73 in New York.

Organigram chief executive Greg Engel said under the new framework, prices for some of these next-generation cannabis products, depending on potency of THC, could see some relaxation.

“Ultimately for the consumer, they’re only going to be paying ... for what is in the final product, not how it was produced,” he said.

The Liberal government on Tuesday laid out its 2019 budget which proposed that cannabis edibles, extracts, topicals and oils — which Ottawa has said will be legalized by no later than October of this year — be subject to excise duties based on the total quantity of tetrahydrocannabinol, or THC, in the final product, rather than by weight of the cannabis used as an input.

Since Canada legalized cannabis for adult use last October, dried cannabis flower and cannabis oils are subject to a tax of $1 per gram or 10 per cent of the final retail price, whichever is higher. The tax rate is higher on flowering material, and lower on non-flowering material, such as stem.

But for the next generation of cannabis products, such as edibles, Ottawa has proposed an excise duty of one cent per milligram of total THC. Cannabidiol or CBD, the active ingredient found in cannabis and hemp that does not produce a high, is exempt.

Cannabis Council of Canada executive director Allan Rewak adds that this taxation change would also make it more economical for licensed producers to use lowgrade, low-thc cannabis in their inventory that is not suitable for sale to produce edibles and other products once legalized.

Under the old regime, licensed producers were incentivized to use high-potency plants rather than this low-grade unfinished inventory as it would require large volumes to yield enough THC and would be taxed accordingly, he added.

“Now, with this revision ... we can utilize all that gradethree trim, hemp product, all of that wonderful material, in a viable way,” he said. “And allow us to ease the supply crunch by getting more high- grade dried flower to the people who want to consume it via combustion.”

Engel said despite the incentive, many producers were sending much of their high-grade bud to consumers due to high demand, and using trim and other leftovers for extracts and oils.

The tax change also simplifies licensed producers’ accounting, said Michael Armstrong, a professor at Brock University. Rather than having to track the different inputs for each product throughout the manufacturing process for tax purposes, it will only require testing what ends up in the final product, he added.

“It will be easier to verify in an audit, as a lab test could confirm the THC content in the bottle,” Armstrong said.

While this tax tweak was generally heralded as a positive step, the lack of change for medical patients was met with disappointment.

“Removing the excise tax for medical cannabis is a very important step we have not seen yet,” said Peter Aceto, chief executive of Canntrust, adding that the licensed producer has 66,000 patients who rely on cannabis as medicine and “the cost can be prohibitive.”

Canadians for Fair Access to Medical Marijuana said it appreciates the government’s move to reduce taxation on certain products, but basing taxation on THC content continues to stigmatize those who rely on the psychoactive ingredient to treat conditions such as Parkinson’s and multiple sclerosis.

Max Monahan-ellison, a spokesman for the patient advocacy group, said while the stereotype is that THC is deemed to be for a “high” and CBD is used for therapeutic purposes, it is much more complex for a medical user.

Taxes can increase the cost of medical cannabis by as much as 25 per cent, depending on the province, making it difficult for patients to manage their treatment costs, he added.

Many licensed producers such as Organigram and Canntrust are absorbing the excise tax for medical patients.

“There just shouldn’t be tax on medicine, because it ends up hurting patients in the long run,” he said.

IT ENDS UP HURTING PATIENTS IN THE LONG RUN.