Will Canada’s New Medical Cannabis Tax Laws Affect Growth?

Medical cannabis producers and patients in Canada are crying foul following the announcement that the government will charge 10% excise tax on sales in addition to the already existing federal sales tax of 5%.

Licensed marijuana producers believe that the proposed federal tax rate of 5% is good enough for the recreational marijuana companies as it leaves enough room for them to compete with the black market. However, while the federal sales tax does not apply to medical marijuana exports the excise tax rate of 10% has not been received well by producers.

Nonetheless, medical marijuana producers expect to capitalize on the foreign cannabis market once they start exporting the products and this could work well to augment local sales. The cannabis market is still very much in its infancy in several markets, bar the black market where it continues to thrive.

Canada’s medical cannabis excise tax necessary- Image via Pixabay

But market players are eager to bring the entire industry into the light under a regulated framework that will increase the chances of exploring more applications of the cannabis plant.

So far, recreational marijuana and medical cannabis are the major business applications in the mainstream market. However, with global regulation, companies could come up with more legal applications of marijuana.

In North America, only Canada and a few States in the U.S. have embraced recreational marijuana. On the other hand, Medical Marijuana has been legalized in more than 27 States in the U.S. while several countries across the world have also put a regulatory framework to allow medical research on medicinal uses of cannabis.

Add that to the few other countries in the world that have legalized recreational marijuana and the addressable market becomes even bigger. These are the markets that Canadian marijuana producers want to exploit with their medical cannabis exports.

Just to bring things into perspective, the global cannabis market crossed the $7.1 billion last year and is projected to hit the $20 billion mark by the year 2020.

And while a huge chunk of these figures can be attributed to the black-market trade, increased legalization across the globe will eventually tip the scales in favor of legal cannabis products and applications. As such, this is really a massive opportunity for the Canadian medical marijuana producers.

However, as noted at the start, patients too were not pleased with the addition of the 10% excise tax because, at the end of the day, they are the ones that bear the burden. But then again, given the hurdles that the cannabis market has faced over the years, it only makes sense that legalization is introduced in various parts of the world with caution. Taxation can be one way of ensuring gradual introduction of the various cannabinoid products in the mainstream market.

In some parts of the world, recreational marijuana has been legalized with certain controls attached such as a limitation on the number of plants one can grow, the amount of cannabis one can possess at a time as well as, places and occasions when people can recreationally use cannabis products.

So, it is correct to say that while marijuana producers are happy to welcome legalization in various parts of the world, in most cases the news is received as a half-empty glass rather than a glass half full, thereby leaving the players demanding more freedom. A case in point is Canada where things seem to have changed following the introduction of an excise tax on medical cannabis exports.

In summary, companies operating the cannabis industry can expect a bright future given the massive opportunity that lies unexploited. Legalization will eventually open the market for more players, but as we have noticed, governments will also look to capitalize by way of taxation. Therefore, it won’t be a smooth ride on the way to success for the players, but the benefits are real and achievable.

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