Canada’s federal budget tabled in the Parliament yesterday contained a small change to how cannabis products will be taxed, including edibles, which will only become legal later this year.
What does this mean?
Analysts are viewing this as a sign that the federal government’s move to legalize marijuana last year has not generated as much tax revenue as was original anticipated.
It’s something investors should keep in mind.
When recreational cannabis and cannabis oils were legalized last October, they were placed under a 10-per-cent excise tax. The rate translated into a $1-per-gram tariff across the board. Under the new budget, and beginning in May, all cannabis oils, edibles and concentrates or extracts will be taxed according to how much tetrahydrocannabinol, or THC, they contain. THC is the ingredient that provides the so-called ‘high.’ These products will soon be subject to an excise tax of one cent per milligram of THC. Products that only contain cannabidiol, or CBD, the non-psychoactive element found in cannabis that is touted to have medicinal benefits, will not be subjected to the new tax. The existing tax, however, stays in place.
The result: Producers now have an incentive to bring a wider range of CBD-infused edible products to market later this fall.
And according to a report last year by the Brightfield Group, analysts who specialize in research into emerging markets, the hemp-CBD market alone in the U.S. could reach $22 billion by 2022. It is also what is fuelling a growing number of partnerships between Canadian cannabis growers and other companies like beer and soft drink manufacturers and food producers.
What are some of the take-aways from the indications included in the federal budget?
One interpretation is that lower-than-expected tax revenues in the cannabis sector has more to do with the problems with the roll-out of pot legalization, which has been marked by a number of stumbling blocks, like lack of inventory and pricing. And less to do with the potential for growing market and interest in cannabis and its derivative products.