Canadian taxation methods for cannabis: an examination of the impact of different tax methods based on legal products sold in Ontario

Abstract Background Ontario, Canada, legalized cannabis for recreational use in October 2018. Taxation consists of a federal base taxation, and provincial additional duties and adjustments. Different tax methods are used for different cannabis products: specific (only) taxation (SO) for processed products (e.g., vapes and edibles), and ad valorem with specific floor taxation (ASF) for unprocessed products (e.g., dried flower and pre-rolls). This study aimed to simulate and compare the impact of the cannabis excise tax methods currently used in Ontario with alternative tax methods to determine which method would be most effective in reducing consumption of high-tetrahydrocannabinol (THC) products. Methods Using data on 2,568 units of cannabis products sold legally in Ontario in March 2022, we explored the structure of taxes and prices per mg of THC of these products under the current cannabis excise tax methods: Compare ASF and SO taxationto alternative simulated tax methods, bases, and rates. Results Our study found four key insights. (1) The currently used ASF taxation, based on flower weight, created a lower tax per mg of THC for high THC products. (2) THC-based SO taxation created a greater percentage of excise tax on high THC products. (3) Compared to other tax methods, SO taxation produced the greatest average excise tax per mg of THC for all THC-concentration products and higher tax rates per mg of THC for high-THC products, and reduced the tax and price gaps between the lowest and the highest THC-concentration categories. (4) SO taxation, however, produces much lower tax per mg of THC for the lowest THC products, such as youth-friendly edible cannabis products. Conclusions The Ontario government could consider changing from applying the complex cannabis excise tax system to a single excise tax method to all types of cannabis products, either utilizing the SO taxation based on total THC content to reduce the consumption of the high THC-concentration products, or the mixed ad valorem and specific taxation based on total THC content, with a high proportion of the specific tax, to reduce consumption of youth-friendly edible-type cannabis products in addition to reducing consumption of high THC products in general.