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Myth 1: Excise tax & HST on Cannabis will force many to go to the Black Market
This is the conversion of the black market to a legal regulated market. Liquor stores, beer stores, and grocery stores that sell alcohol have excellent sales activity in Ottawa despite much lower prices for alcohol with an array of brands that cannot be bought in Ontario just minutes away in Quebec.
The example most often given is an assumption of $8/gr for cannabis. $1 excise tax and, using Ontario, $1.17 HST ($8 + $1=$9 x 13%) for all in cost of $10.17. They compare that all in final estimated price per gram of $8 to $10 on the black market. The majority of Canadian are law abiding. A premium of between $0.17 and $2.17 per gram for the majority for a safe lawful supply where the profits are not funding other black market and illegal activities will be negligible to the responsible ethical majority.
Myth 2: The high cost of Medical Cannabis will force
many to the Black Market and HST on medical cannabis only strengthens the black market presence.
Similar to Myth 1. I always find it puzzling how families appreciate their monthly Child Care Benefit payment and the countless other benefits we enjoy as Canadians – universal public healthcare, subsidized post secondary tuition, free education, and so on …but complain when asked to contribute to the costs. However, the HST is not as bad as it seems in this case because the cost of medical marijuana procured by lawful means from a lawful licensed producer qualifies as an eligible medical expense for Income Tax purposes. There is a means test that must be met before medical expenses can be claimed (typically the lesser of 3% of income or $2,237). For our purposes, we will assume this threshold is met (in a family situation, one can use the lowest spouse’s income). Let’s assume the patient’s LP sells the patient’s optimal strain for $9/gr or $10.17 after HST. The $10.17 creates a 15% Federal credit which is $1.53. That credit is the federal portion only. But only with the federal tax credit component, the cost is reduced to $8.67 per gram – less than the pre-HST cost of $9/gr. That $8.67 cost falls further once the provincial/territorial medical expense credit is applied.
Myth 1: Excise tax & HST on Cannabis will force many to go to the Black Market
This is the conversion of the black market to a legal regulated market. Liquor stores, beer stores, and grocery stores that sell alcohol have excellent sales activity in Ottawa despite much lower prices for alcohol with an array of brands that cannot be bought in Ontario just minutes away in Quebec.
The example most often given is an assumption of $8/gr for cannabis. $1 excise tax and, using Ontario, $1.17 HST ($8 + $1=$9 x 13%) for all in cost of $10.17. They compare that all in final estimated price per gram of $8 to $10 on the black market. The majority of Canadian are law abiding. A premium of between $0.17 and $2.17 per gram for the majority for a safe lawful supply where the profits are not funding other black market and illegal activities will be negligible to the responsible ethical majority.
Myth 2: The high cost of Medical Cannabis will force
many to the Black Market and HST on medical cannabis only strengthens the black market presence.
Similar to Myth 1. I always find it puzzling how families appreciate their monthly Child Care Benefit payment and the countless other benefits we enjoy as Canadians – universal public health care, subsidized post secondary tuition, free education, and so on …but complain when asked to contribute to the costs. However, the HST is not as bad as it seems in this case because the cost of medical marijuana procured by lawful means from a lawful licensed producer qualifies as an eligible medical expense for Income Tax purposes. There is a means test that must be met before medical expenses can be claimed (typically the lesser of 3% of income or $2,237). For our purposes, we will assume this threshold is met (in a family situation, one can use the lowest spouse’s income). Let’s assume the patient’s LP sells the patient’s optimal strain for $9/gr or $10.17 after HST. The $10.17 creates a 15% Federal credit which is $1.53. That credit is the federal portion only. But only with the federal tax credit component, the cost is reduced to $8.67 per gram – less than the pre-HST cost of $9/gr. That $8.67 cost falls further once the provincial/territorial medical expense credit is applied.
Many employers provide medical benefits for employees and unfortunately medical cannabis is typically not covered. More progressive organizations do cover this expense. Regardless, many companies offer a Health Spending Account component and medical cannabis obtained lawfully from a Health Canada licensed producer qualifies. If for example, your own plan has a $500 HSA, you can claim $500 coverage through your HSA. Let’s look at a person earning $100,000 per year with a 1/gr per day prescription.
Medical expense from Medical Cannabis = $10.17 x 365 days = $3,712.50.
Other medical expenses not covered by benefits* = $1,500.00
Total Medical Expenses: $5,212.50
Amount covered by HSA: $500.
Ineligible amount is lower of $2,327 or $3,000 (3% x $100,000) = $2,327
Eligible amount* = $2,385.50 ($4,712.50 - $2,327.00)
Federal Tax Credit* = $357.83
Net Cost*: $3,712.50 - $500 (HSA) - $357.83 = $2,854.23 ($7.82/gr). And actually lower when the provincial/territorial tax credits are applied.
*
Remember too that the tax credit is the federal amount only; therefore, the actual net cost will be lower but that exact amount varies in each province or territory but could be in excess of $100.
My opinion is that in time, medical cannabis will be 100% medical benefits eligible for a majority of Canadians with benefit plans. It is also my opinion that the HST on medical cannabis will be removed in time either in fact (HST exempt) or appearance (HST zero rated). As an aside, to the consumer, there is no difference between HST exempt and HST zero rated since it is not charged either way but there is a distinction to the producer.
If you are an employer, or know one, that is interested in Health Spending Accounts there are many providers available. In many cases, any unused balance in the HSA at year-end can be carried forward. I do not endorse or recommend any particular provider and this one is merely for illustrative purposes – The Benefits Trust. Olympia Benefits Inc also provides Health Spending Accounts for businesses – they clearly state that their HSA covers the cost of medical marijuana obtained by Licenced Producer by means of prescription.
A great example of a benefits plan that is scheduled to be soon be available for purchase in Canada that covers the cost of medical cannabis is Novus– Novus News Release. Novus is our cover company this month with good reason! I would encourage contacting Novus to get on their wait list for more information as it becomes available. The cost of premiums for medical insurance coverage is an eligible medical tax expense.
For many people, the “math” of it is overwhelming and confusing thereby allowing the promoters of a continued black market to cloud the true effective cost of cannabis to the end user and to the medical patient in particular.
If you have done so yet, you may want to consider signing the nationwide petition to stop the tax on Medical Marijuana obtained from Health Canada Licensed Producers.
CLICK HERE TO SIGN PETITION
Myth 3:
Let’s just look at the Canadian Marijuana Index from January 1st until November 24th.