Comparing two cannabis tax-base systems: Lessons learned from legal cannabis products sold in Ontario, Canada

Abstract

Aim: To examine the price and tax structures of cannabis products sold in Ontario in order to formulate a policy recommendation regarding the best cannabis tax base to use from a public health standpoint. Design: Economic analysis to compare price and tax structures of various cannabis products by applying two tax bases (grams [g] of flower versus milligrams [mg] of tetrahydrocannabinol [THC]). Setting: Ontario, Canada Data Sources: Data of cannabis products legally sold in Ontario according to the Ontario Cannabis Store’s (OCS) buy and sell prices and product characteristics, including the product’s type, quantity per package, and quantity of THC and cannabidiol (CBD). The OCS provided data on 2,601 units of cannabis products in March 2022. Measures: Measures include the harmonized sales tax, the seller’s mark-up, the producer’s price, the flat-rate tax, ad valorem tax, effective excise tax, provincial adjustment tax, and excise tax per milligram of THC. The percentage of each tax compared to the retail price was also calculated. Findings: Cannabis prices were correlated to the products’ THC levels rather than their flower weights. The current taxation system based on grams of flower produced lower tax rates for the higher THC potency products. This situation would be improved if the tax base were changed from grams of flower to milligrams of THC. Conclusions: The Ontario government may consider changing the cannabis excise tax base from grams of flower to milligrams of THC to make the strong THC products less affordable. Moreover, indexing the flat-rate tax to inflation is important to prevent the tax’s flat rate from becoming lower over time.