News

Study confirms excise taxes are the problem

Published on May 30, 2025 by Pat Bulmer

Photo: David Wylie/the oz.

A new study confirms that excise taxes are dragging down the cannabis industry.

Deloitte Canada conducted the study for the Cannabis Council of Canada.

“The report confirms what Canada’s cannabis producers have long expressed: the current excise tax model is unsustainable and must be restructured to reflect the economic realities of the industry,” the council said in a news release.

Deloitte examined the financial data of 36 cannabis producers.

“We found that the excise tax has increased significantly as a share of total gross revenue, ranging from an average of 11.2% in 2019 to 24.3% in 2024,” the report said. “The excise tax is often the largest single expense item for cannabis producers.”

The report, “The Impact of the Cannabis Excise Tax,” was released on May 20.

Excise duties are 10% of a product’s wholesale value or $1 per gram, whichever is greater.

When the taxes were introduced, it was thought cannabis would sell for $10 per gram. But prices have dropped considerably over the years.

“The assumption of $10/g (incl. of wholesaler and retailer mark-up) initially envisioned with the introduction of the excise tax is far from the current market reality,” the report said. “A major contributor to the increase in excise tax has been price compression, particularly for flower products.

“Wholesale prices received by LPs (licenced producers) for 1g of flower nearly halved from (2019-2024) and continues to decrease,” the report said.

“A combination of legal market oversupply, illicit market competition, and intense legal market competition has led to significant price compression, which has not been reflected in the excise tax framework.

“This trend has not abated, with most recent wholesale pricing data as of January 2025 dropping below $3/g of cannabis flower.”

“This has created a crushing and unintended tax burden that now is three times higher than what was originally envisioned,” the council said in its news release. “The Cannabis Council of Canada calls on the Government of Canada to eliminate the $1 per gram floor and instead apply a 10% ad valorem rate as proposed by the Standing Committee on Finance in 2024.”

According to Deloitte: “Diversifying across the cannabis value chain, expanding into international cannabis markets, and expanding into non-cannabis activities (e.g. beverages, pharmaceuticals distribution, etc.) has partially offset this impact for certain cannabis producers.”

And what will happen if the government moves to a 10% duty only? “If excise tax were calculated on the basis of 10% of product sales, the number of LPs with positive reported net income and reported EBITDA (earnings) increases from 14.3% to 28.6% and 28.6% to 55%, respectively,” Deloitte said.