Canada is set to legalize recreational cannabis this summer. Canadians purchasing recreational cannabis when it becomes legal will have to pay taxes on their marijuana just like us Americans do. The Canadian government has been hard at work outlining how this will look.

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Medical Cannabis vs. Recreational Cannabis

For starters, not all cannabis will be taxed the same. Low-THC products used for medical purposes will not be taxed, nor will prescription drugs that are marijuana-based. Recreational weed, of course, will come with a levy.

Man advocating for cannabis in canadaThe 2018 budget stated that cannabis will be taxed based on a flat rate assessed to each product (dictated by the amount of cannabis in that product) or accessed as a percentage of the sale. The highest amount will win out.

The Canadian government is focused on keeping cannabis out of the hands of kids, which is why they are striving to keep the taxes low. Taxing too high won’t eliminate – or do much of anything – to the black market. Americans experienced this already, with states that had legalized finding illegal marijuana thriving. It has gotten better now that prices have gone down and more dispensaries have opened (thus evoking supply and demand and forcing pot stores to offer reasonable prices in order to draw customers and keep up with their competition).

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Though the taxes are low, they’re not low enough for everyone. Dan Kelly, a member of the Canadian Federation of Independent Business, argues that they may prove too high to stymie the illicit market. He stated,

“It’s certainly fair game for the government to tax these products. The worry, of course, is if you don’t get the taxation levels exactly right, it stimulates the underground economy. Many have suggested that the level of taxation that’s being proposed would mean that the above-ground price will be higher than the black market prices and that may encourage and basically keep the industry below ground. I think a smarter strategy would be to start with a very reasonable level of taxation to ensure that we get the business above ground before we start ratcheting it up.”

The Canadian federal government will keep a portion of the taxes amassed, one-quarter of the revenue from the excise tax. Each province will get the remainder. The feds will not get more than 100 million a year – if more than that is collected, it will be divided among the provinces.  From there, it’s believed that the money will go to local governments.

While many citizens – especially those who smoke pot – do like the idea of low taxes, those involved in the alcohol industry do not. They dislike it so much that they’re asking the Canadian government to consider upping the taxes so that bottles can rival buds.

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But is their request necessary or is marijuana an ally to hops and barley?

The Fear in Beer

The beer industry in Canada is afraid of cannabis, believing that it will interfere with their profit margin. As a result of this fear, they are asking for the government to make sure the taxes are fair.

Luke Harford, President of Beer Canada, went on record to state,

“The potential for legal marijuana to cannibalize beer (purchased in Canada) is much more significant compared to the US because of our higher beer taxes and high prices.”

And he does have a point.

The liquor taxes in Canada are complicated and pricey, with those up north paying up to 80 percent in taxes on spirits, 70 percent on wine, and 50 percent on beer. The formula for figuring out the exact amount is complex and takes into consideration the amount of alcohol in each product. The producer pays the taxes and then figures it into their individualized prices.

Two people enjoying beerEven so, there is great deviation among provinces. A case of Molson, for instance, goes for around 27 dollars in Quebec, only to be 20 dollars more expensive in the Northwest Territories. In America, the cost of a case of beer does vary by state, but it’s still cheaper than what the Canadians fork out. Pennsylvanians tend to pay the most at nearly 22 dollars a case while other states – like most of the Midwest – pay around seventeen to eighteen dollars.

This taxation – and not necessarily cannabis itself – is what has those in the beer industry nervous. They worry that if cannabis is taxed at a lower rate than liquor, more people will swap out their flasks for pipes.

Harford went on to explain,

“Domestic brewers are concerned that legal recreational marijuana is going to have a negative impact on beer sales, which on a per-capita basis have already declined by 10 percent in the last 10 years. The implication is clear. Low cannabis taxes will increase cannabis sales while high beer taxes will decrease beer sales.”

Insiders argue that this will leave those in the beer industry with little choice than to jump ship – or at least have more than one hat in the ring – and diversify their portfolio by buying into the cannabis industry. Some are already on board with this idea.

Why? Because there remains a certain uncertainty to all of this.

Cannabis and alcohol will always be frenemies, with the potential to both hurt and help each other. The fear emanating from beer companies may be warranted based on the taxes, but who knows? The legalization of recreational weed may be a wonderful thing for those who sell liquor. Merging the two industries, which seems destined to happen eventually, will fortify each one and make both beer and buds more unstoppable than they already are.