selected four groups to run retail in the province. These retailers will be the ones required to pay additional fees to the government. Manitoba Liquor and Lotteries intends to charge retailers $0.75 per gram plus 9% to the retailers as a fee for managing and distributing cannabis from licensed producers to retailers. Retailers will similarly be required to pay back 6% of their revenues to the provincial government as a “social responsibility fee”.
PROPOSED REGULATORY AND LEGISLATIVE PROPOSALS
Months after the Act obtained Royal Assent, the Department of Finance Canada introduced a set of draft Regulatory and Legislative Proposals relating to the Taxation of Cannabis under the Excise Act, 2001 (the “Draft Proposals”). The Draft Proposals were released on September 17, 2018. The Draft Proposals, if adopted, will provide for additional excise duty rates for each province that has signed a CCTA with the Federal Government of Canada. The rates would come into effect on October 17, 2018, to coordinate with the recreational market becoming legal.
The CCTAs and the Draft Proposals are being introduced in an effort to have a similar pricing structure for recreational cannabis nationwide. In order to do so, the Draft Proposals set a formula for the calculation of excise tax. Two parts of the formula are province-specific and are designed to implement tax that is specific to the type of cannabis product and specific to either the production or importation of cannabis.
The Draft Proposals contain:
Draft Excise Duties on Cannabis Regulations
Draft amendments to the Regulations Respecting the Possession of Tobacco Products or Cannabis Products that are not stamped
Draft Amendments to the Stamping and Marking of Tobacco and Cannabis Products Regulations
Draft Amendments to the Credit for Provincial Relief (HST)
Regulations; and
Draft Amendments to the Excise Act, 2001
The most interesting aspect to come out of the Draft Proposals are three regulatory amendments which the Government is holding a consultation period for. These regulatory amendments are:
Exemptions for certain entities to allow the possession of cannabis products stamped for multiple jurisdictions, under certain conditions;
The ability for third parties to possess cannabis excise stamps for specific purposes; and
Exemptions from the proposed excise duty for certain cannabis-based products that are not intended for human consumption.
Exemptions for Possession of Cannabis Stamped for Multiple Jurisdictions
Under the current framework, all cannabis and cannabis products coming from Licensed Producers (“LPs”) and destined for retail will be required to have an excise stamp. These stamps will be jurisdiction-specific and marked with specific colours and distinguishing marks. In order to possess cannabis or cannabis products stamped for a jurisdiction other than the jurisdiction in which it operates, you will need a cannabis license issued by the CRA.
The Government recognizes the challenges for Health Canada licensees as well as some out-of-province retailers to operate without obtaining the CRA’s cannabis licenses. Without the CRA’s license, LPs and retailers will not be able to operate in a way that they otherwise would have been able to by law.
Accordingly, the Government has proposed, firstly, that LPs be permitted to possess cannabis and cannabis products in a jurisdiction other than the jurisdiction which the cannabis or cannabis product is stamped for.
Second, if a province or territory allows out-of-province retailers to make sales of cannabis to their residents, those retailers would be entitled to possess cannabis or cannabis products stamped for that jurisdiction, as well as being permitted to possess cannabis products stamped for the jurisdiction in which it operates.
If this is adopted, in order for a retailer to possess cannabis products stamped for a different jurisdiction, it will be required to possess documentation that provides evidence of its ability to sell cannabis or cannabis product in that jurisdiction.
Third Party Possession of Cannabis Excise Stamps
The Government recognizes that LPs, retailers, and others licensed to operate in the legal cannabis arena may utilize third parties to assist with packaging logistics. One part of this would be the addition of adhesives to the excise stamps so that they can be applied to packaged products.
The proposal, therefore, is to allow these third parties to possess cannabis excise stamps for the purpose of applying adhesives for LPs. The liability/responsibility for the stamps would remain with the LP while the stamps were in possession of the third party.
Exemption for Test Kits and Reference Standards
The Government recognizes that certain cannabis-based products are not intended for human consumption. These products are test kits and reference standards.
“Test kits” are used to confirm the presence or concentration of a drug. Test kits are captured by the definition contained in the Cannabis Regulations. For any such test kit, a registration number will be issued under the Cannabis Regulations. If a registration number has been issued for a test kit, it is proposed that such a kit be exempt from the proposed excise duty framework.
Similarly, “reference standards” are designed for research purposes and not for human consumption. The idea is that the cannabis reference standard is a form of cannabis used as a measurement base to confirm the identity, strength, quality or purity of a substance. Given that reference standards are not likely to leave a laboratory or research facility, the proposal is that they too be exempt from the proposed excise duty framework.
The Government is seeking input on the Draft Proposals detailed above. The public consultation will remain open until October 17, 2018.
*Portions of this article were previously published on Canada Cannabis Legal, www.canadacannabislegal.com
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