In October 2018, Canada made history as the first G7 nation to fully legalize recreational cannabis. This groundbreaking move was not merely about permitting adult use; it also introduced a comprehensive regulatory framework, including an excise tax system designed to support public health, regulate the market, and combat the illicit cannabis trade. But what has this meant for Canadians—both consumers and industry stakeholders—and how effective has the system been in achieving its goals?
The cannabis excise tax system was implemented with several key objectives in mind. It was designed to generate revenue for federal and provincial governments, regulate the newly legal cannabis market, and reduce the prevalence of illegal sales. The tax applies a minimum of either $1.00 per gram or 10% of the sale price for dried cannabis, and $0.25 per gram for cannabis oils. Beyond revenue collection, this system also ensures that cannabis products meet strict safety and quality standards, giving consumers confidence in the products they purchase.
A central aim of the excise tax is to make legal cannabis more appealing than its unregulated counterpart. By offering safer, tested products and funding public health initiatives, the government hopes to shift consumer behaviour toward the legal market. Educational campaigns have played a vital role in this effort, promoting responsible use and raising awareness of potential health risks.
By offering safer, tested products and funding public health initiatives, the government hopes to shift consumer behaviour toward the legal market
However, the tax system has not been without controversy. Many cannabis producers argue that high tax rates inflate retail prices, making it difficult to compete with illegal sellers who operate without regulatory or financial burdens. This pricing gap has led some consumers to continue purchasing from unlicensed sources, undermining the goal of reducing the illicit market. Industry advocates have called for a reassessment of the tax structure, suggesting that lower rates could stimulate the legal market, attract more consumers, and ultimately help achieve the government’s objectives. Additionally, the complexity of tax compliance places a disproportionate burden on small and medium-sized enterprises, diverting resources from business development and innovation.
From the consumer perspective, the impact of the excise tax is nuanced. While many appreciate the safety and quality assurance of legal cannabis, higher prices remain a significant concern. Some consumers are willing to pay a premium for peace of mind, but others continue to seek more affordable alternatives, especially when the price difference is substantial. Educational efforts remain crucial in this context, as they help highlight the benefits of legal cannabis, including accurate labelling, product safety, and consumer protections.
So, has the excise tax system succeeded in reducing the illegal market? Early indicators suggest progress. Estimates show that the illicit market’s share has dropped from approximately 80% before legalization to around 30–40% in the years since. This shift has been supported by the growing number of licensed producers and retailers, improved accessibility, and increased consumer trust in legal products. Nevertheless, challenges persist. The tax system, while well-intentioned, may inadvertently favour larger companies with the resources to absorb higher costs. This raises concerns about reduced competition and limited consumer choice over time.
To ensure a thriving and equitable cannabis industry, stakeholders are advocating for a more balanced approach. This could involve revisiting the excise tax structure, offering targeted support for smaller producers, and continuing to invest in public education and health initiatives. Canada’s cannabis excise tax system remains a cornerstone of its legalization framework. While it has made notable strides in revenue generation and market regulation, ongoing dialogue and reform are essential to address pricing concerns and enhance industry competitiveness. As Canada continues to refine its approach, the focus must remain on balancing regulation, public health, and economic opportunity, ensuring a sustainable and inclusive future for legal cannabis.
