Canada Settles on $1/gram Tax, Canadian Cannabis Stocks Rise

Canadian Prime Minister Justin Trudeau announced Friday that the government is planning on levying a tax of one dollar per gram of legalized recreational marijuana. Canadian cannabis stocks rose sharply on the announcement.

Trudeau says the federal government will split the tax revenue 50/50 with provincial governments. However, Ontario and other provinces are asking for a bigger share, claiming they bear the brunt of the costs of running a regulated market.

Recreational sales begin next summer. The finalized proposal says the tax shouldn’t exceed C$1 (79 U.S. cents) a gram or 10% of the producer’s price, whichever is higher. Retail sales taxes would be applied on top of that. Canada plans to tax medical marijuana at the same rate.

For example, 1 gram of dried cannabis costing C$8 to produce would be taxed at C$1, and the total cost of C$9 would be hit with a sales tax of C$1.17, bringing the total to C$10.17, the government said in a statement. The example uses tax rates that apply in provinces such as Ontario. Rates vary in other provinces.

Shortly after the announcement, according to a report by Bloomberg, Aurora Cannabis Inc. surged 15% and ended the day at C$4.64, their highest closing price on record. Canopy Growth Corp. gained 3.3%, Aphria Inc. rose 4.1 percent and MedReleaf Corp. rallied 5.3 percent.

The proposal is in line with industry expectations, and keeps prices for legal marijuana comparable to or slightly less than the black market prices.

According to Bill Blair, former Toronto police chief turned lawmaker who’s leading the government effort to legalize pot, tax revenue could top C$1 billion a year, stressing that estimates are “speculative.”

Blair told reporters the tax proposal “will help us keep cannabis out of the hands of youth, keep the profits out of the hands of criminals.”

Canada is scheduled to launch their adult-use program July 1st, 2018.

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