Cannabis Excise Duty Framework

May 8, 2020 Published by

Cannabis Excise Duties and Reporting using SAGE X3

The Canada Revenue Agency (CRA) is responsible for administering and enforcing the Excise duty framework for cannabis products sold for both medical and non-medical uses in Canada[1]. Cultivators, producers, and packagers of cannabis products are required to obtain a cannabis licence from the CRA before production. Once licensed, they are required to calculate the excise duty on their sales and report it to CRA.[2] Sage X3 ERP system can easily cater to their requirements including calculation of excise duty on sales and data generation for reporting of the excise duties to CRA.

In this series, we will cover the following topics to briefly explain these requirements and how robust ERP systems like Sage X3 covers them:

  • Cannabis Excise Duty Framework
  • Calculation of Cannabis Excise duties in SAGE X3
  • CRA Reporting
  • Data extraction for CRA reporting in SAGE X3

Cannabis Excise Duty Framework

Excise duty needs to be paid by cannabis distributors who supply packaged cannabis products to their customers. The excise duty is calculated based on the sales price of product that is charged to customer. Any packaged cannabis product that can be classified within the following product types would be considered excise-dutiable at the time of product delivery:

  • Cannabis Oils
  • Edible cannabis
  • Cannabis extracts
  • Cannabis topicals

There are three components within the excise duty framework:

  • Flat rate cannabis duty
  • Flat rate additional cannabis duty
  • Adjustment to additional cannabis duty

THC

THC (Tetrahydrocannabinol) is the principal psychoactive constituent of cannabis.[3] Whenever a cannabis product is delivered the THC content of the product needs to be measured and reported in milligrams. This THC content of the cannabis product would be used in calculation of the different components of excise duty.

Flat rate cannabis duty

Flat rate cannabis duty is calculated based on the Total THC content of the delivered product and a rate provided in the table below.

Flat rate additional cannabis duty

Flat rate additional cannabis duty is calculated based on the Total THC content of the delivered product and a rate provided in the table below. For province of Manitoba, there is no additional cannabis duty payable.

Rates of cannabis duty and additional cannabis duty[4]

Rates to be used for calculation of flat rate cannabis duty and flat rate additional cannabis duty are provided in the following table by Canada Revenue Agency.
Cannabis product Flat‑rate cannabis duty Flat‑rate additional cannabis duty
Cannabis oil $0.0025/mg of the total THC  $0.0075/mg of the total THC 
Edible cannabis $0.0025/mg of the total THC $0.0075/mg of the total THC
Cannabis extracts $0.0025/mg of the total THC $0.0075/mg of the total THC 
Cannabis topicals $0.0025/mg of the total THC  $0.0075/mg of the total THC

Adjustment to additional cannabis duty

Adjustment to additional cannabis duty would be calculated for the following provinces based the following rates:

Province Adjustment rate
Alberta 16.80%
Nunavut 19.30%
Ontario 3.90%
Saskatchewan 6.45%

Adjustment to additional cannabis duty = [(A − B) − C)] × [100% ÷ (100% + D)] Where: A = Sales price of the delivered cannabis product B = Flat rate cannabis duty of the delivered cannabis product C = Flat rate additional cannabis duty of the delivered cannabis product D = Adjustment rate

Summary

The three different components of excise duty are calculated as has been explained for every cannabis product sold. Over the next parts, I will explain the reporting requirements and how easily Sage X3 can be customized to manage them.

Resources

EDN55 Calculation of Cannabis Duty and Additional Cannabis Duty on Cannabis Products – Canada Revenue Agency -September 2018: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/edn55/calculation-cannabis-duty-additional-cannabis-duty-cannabis-products.html https://www.canada.ca/en/revenue-agency/campaigns/cannabis-taxation.html Firn, Richard (2010). Nature’s Chemicals. Oxford: Biology.: https://en.wikipedia.org/wiki/Tetrahydrocannabinol EDN60 Calculation of Cannabis Duty and Additional Cannabis Duty on Cannabis Oil, Edible Cannabis, Cannabis Extracts and Cannabis Topicals, April 2019

About the author

Balaguru Ganesan is a Project Manager with over 10 years of experience in consulting for Fortune 500 companies. His industry experience includes oil and gas, medical devices, telecommunications, and construction. He is a research and process-oriented professional with a keen eye for growth and efficiency improvement opportunities.

Transforming Businesses since 2009

For over a decade, Panni has helped companies transform their businesses to lead, innovate and be profitable. With the right combination of technology and experienced developers and consultants, we help companies with Change Management to achieve the organizational objectives. We believe in long-term relationships with our clients and provide top-notch support with fast turnaround times.

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