Canada: Taxes Key In Balancing Legal Marijuana Prices To Stamp Out Black Market

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Ron Strider

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Justin Trudeau's marijuana czar is warning that policy makers may need to adjust taxes to prevent prices from falling too low after legalization.

Canadian marijuana companies – which have surged in value – will achieve economies of scale that will help drive down production cost, according to Bill Blair, the lawmaker and former Toronto police chief leading the legalization effort.

Prices and taxation levels will then need to be monitored to keep them competitive enough to achieve the government's goal of starving out the illegal market, without pricing things too low and encouraging excess use, Blair said in an interview last month.

"You've got to pay a lot of attention to what's going on in the illicit markets," he said. Legal pot needs to be "competitive in not just price but in quality and choice and accessibility."

Marijuana firms including Canopy Growth Corp., Aurora Cannabis Inc., Aphria Inc. and MedReleaf Corp. surged last week to close out 2017. Canopy ended the year with the best returns on the S&P/TSX Composite Index, data compiled by Bloomberg show, and the BI Canada Cannabis Competitive Peers Index reached a new high last week. Some analysts are skeptical about demand projections, and betting against the stocks is difficult to do.

Falling Prices

Canada plans to legalize recreational pot use by the summer, though the law to do so is wallowing in the Senate. Leisure use began in California this week, and Blair said other jurisdictions have seen prices fall as their markets develop.

"I think there are, almost inevitably, economies of scale that will be realized both in production and in the distribution," Blair said. "Over time, prices do come down."

In a follow-up written statement, Blair said the price of pot will be determined both by the market and by provincial regulators. "The provinces may use both price and tax levers to maintain a price that is both competitive with the illicit market and not so low as to create an incentive for increased use," he said.

The Canadian government projects an annual market of about $4 billion (US$3.2 billion) for legalized marijuana. The country's finance ministers have agreed on a marijuana excise tax of 10 per cent of the product price, or $1 per gram, whichever is higher. Sales taxes, ranging from 5 per cent to 15 per cent across provinces, will also be applied. The federal government has agreed to hand over at least 75 per cent of excise tax revenue to provinces for the first two years after legalization.

Nick Dean, chief executive officer of licensed medical producer Emblem Corp., said he expects the marijuana industry will be able to compete with the black market.

"The strategy right now is we would be selling at a competitive price and that's been supported by the government," he said in a phone interview. "The best way to displace the black market is through education and brand, and people are willing to pay a premium for a brand experience."



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"The provinces may use both price and tax levers to maintain a price that is both competitive with the illicit market and not so low as to create an incentive for increased use."

This is the best way to approach the sensible marketing of cannabis swimming in an already established illegal market. Hopefully the better quality and guaranteed pesticide and mold free cannabis will shift the market away from illegal selling not to mention the availability of choices. These are exciting times. It looks like I need to plan a Canadian vacation for 2019.
 

Ian Bastage

Well-Known Member
"The provinces may use both price and tax levers to maintain a price that is both competitive with the illicit market and not so low as to create an incentive for increased use."

This is the best way to approach the sensible marketing of cannabis swimming in an already established illegal market. Hopefully the better quality and guaranteed pesticide and mold free cannabis will shift the market away from illegal selling not to mention the availability of choices. These are exciting times. It looks like I need to plan a Canadian vacation for 2019.
As you point out, price & selection will be important. The police can crush the visible black market but online will be much trickier. The black market wins on selection because edibles & concentrates will not be available for the first year. Add to that, the remnants of the policy that greatly limited the strain selections that our Licensed Producers can grow and you are at 2/0. That leaves convenience & price. The gov't has to win on these two & follow through with greater selection. We shall see.

You are welcome to come anytime but you better wait & see if we run out of supply in the first month or two. September is usually a nice month . . . :cool027:

Ian
 
I had no idea there were restrictions on the legal strains available in Canada. After a little searching I found this article that does a pretty good job of explaining the matter. Obviously Canada needs to address this situation sooner than later.
Canada's cannabis genetics bottleneck - Lift News
 

Ian Bastage

Well-Known Member
Since that article, there are only 2 - 3 LP's who have successfully imported seeds. Tweed has hooked up with Green House but it isn't reflected in product yet. The other irritating thing they have done is they have named the strains with cutesy unique names - often not even divulging the actual strain. This is what happens when gov'ts & big business grow cannabis.

Ian