EDN53 General Information for Cultivators, Producers and Packagers of Cannabis Products

May 2018 

In this publication, all legislative references are to the Excise Act, 2001 (the Act), unless otherwise specified.

Table of Contents

• Overview
• Definitions
• Licensing requirements
• Taxation framework on cannabis
• Imposition and payment of cannabis duty and additional cannabis duty
• Relief of cannabis duty
• Stamping requirements
• Maintaining records and filing returns
• Debts and the collections process
• Offences and penalties
• Transitional rules

Overview

As part of the Government of Canada’s proposal to legalize, regulate and restrict access to cannabis products, the Canada Revenue Agency (CRA) would be responsible for administering and enforcing the proposed new excise duty framework for cannabis products included in Bill C‑74. This framework includes proposed amendments to the Excise Act, 2001 and related regulations to impose duties that would generally apply to cannabis products sold for both medical and non-medical purposes.

Definitions

The following terms are used in this notice:

Additional cannabis duty means a duty imposed under proposed section 158.2 or 158.22 of the Act.

Cannabis means a cannabis plant and includes any of the following:

• any part of a cannabis plant, including the phytocannabinoids produced by, or found in, such a plant, regardless of whether that part has been processed or not;
• any substance or mixture of substances that contains or has on it any part of such a plant; and
• any substance that is identical to any phytocannabinoid produced by, or found in, such a plant, regardless of how the substance was obtained.

Cannabis does not include the following:

• a non-viable seed of a cannabis plant;
• a mature stalk, without any leaf, flower, seed or branch, of such a plant;
• fibre derived from the mature stalk, referenced above; and
• the root or any part of the root of such a plant.

Cannabis duty means a duty imposed under proposed section 158.19 or 158.21 of the Act.

Cannabis excise stamp means a stamp that would be issued by the CRA under proposed subsection 158.03(1) of the Act.

Cannabis licensee means a person who holds a cannabis licence under proposed subsection 14(1.1) of the Act.

Cannabis plant means a plant that belongs to the genus Cannabis.

Cannabis product means

• a product that is cannabis but that is not industrial hemp produced or imported in accordance with the proposed Cannabis Act or the Industrial Hemp Regulations;
• a product that is an industrial hemp by-product; or
• anything that is made with or contains cannabis or an industrial hemp by-product.

For example, cannabis products would include dried and fresh flowering material (flower), dried and fresh non-flowering material (trim), cannabis oils, as well as vegetative cannabis plant (seedling) and viable seeds (seeds) for home cultivation.

Flowering material means the whole or any part (other than viable seeds) of an inflorescence of a cannabis plant at any stage of development, including the infructescence stage of development.

Industrial hemp, as defined in the Industrial Hemp Regulations, generally means the plants and plant parts of the cannabis plant, the leaves and flowering heads of which do not contain more than 0.3% THC w/w, and includes the derivatives of such plants.

It also includes the derivatives of non-viable cannabis seed. It does not include plant parts of the genera Cannabis that consist of non-viable cannabis seed, other than its derivatives, or of mature cannabis stalks that do not include leaves, flowers, seeds or branches, or of fibre derived from those stalks.

Industrial hemp by-product generally means flowering material (other than viable achenes) or non-flowering material that has been removed or separated from an industrial hemp plant and that has not been disposed of by retting or by rendering it into a condition such that it cannot be used for any purpose not permitted under the proposed Cannabis Act.

Low-THC cannabis product means a cannabis product consisting entirely of dried cannabis, fresh cannabis or cannabis oil and which contain concentrations of no more than 0.3% THC w/w.

Non-flowering material means any part of a cannabis plant other than flowering material, viable seeds and a part of the plant that is a non-viable seed, a mature stalk without any leaf, flower, seed or branch of the plant, fiber derived from a stalk of the plant, and the root or any part of the root of the plant.

Person includes an individual, a corporation, a partnership, a trust, the estate of a deceased individual, a government or a body that is a society, a union, a club, an association, a commission or another organization of any kind.

Packaged means that the cannabis product is packaged in the smallest package – including any outer wrapper, package, box or other container – in which it is sold to the consumer.

Prescription cannabis drug means a cannabis product that is a drug that has been assigned a drug identification number under the Food and Drug Regulations. It does not include a drug or mixture of drugs that may, under the Food and Drugs Act or the Controlled Drugs and Substances Act, be sold to a consumer without a prescription.

Produce, in respect of cannabis, means to obtain it by any method or process, including by manufacturing, synthesis, altering its chemical or physical properties by any means, or cultivating, propagating or harvesting it or any living thing from which it may be extracted or otherwise obtained. It also includes packaging the cannabis product.

Specified province means a province or territory that has entered into an agreement with the Government of Canada for the coordination of cannabis taxation.

Stamped, in respect of a cannabis product, means that a cannabis excise stamp has been affixed to the cannabis product or its container in the prescribed manner to indicate that cannabis duty and, where applicable, additional cannabis duty have been paid.

Take for use, in respect of a cannabis product, means to consume, analyze or destroy the cannabis product.

THC refers to tetrahydrocannabinol, the principal psychoactive constituent of cannabis.

Vegetative cannabis plant means a cannabis plant, including a seedling, which has not yet produced reproductive structures, including flowers, fruits or seeds.

Viable seed means a viable seed of a cannabis plant that is not an industrial hemp plant.

Licensing requirements

Unless specified in the Act, every person who wishes to produce and package cannabis products would be required to obtain a licence under that act. This includes persons who produce cannabis products for research and development or educational purposes.

The cannabis licence would be issued by the CRA and would only take effect when the licence or permit issued to the person by Health Canada under subsection 62(1) of the proposed Cannabis Act^{Footnote 1}  comes into effect. The activities, such as producing and packaging, that would be allowed to be carried out under a licence would be set out in the licence and could be subject to conditions.

The following general information pertains to the proposed cannabis licensing requirements under the Act:

• the licensee would need to comply with the Regulations Respecting Excise Licences and Registrations;
• security of not less than $5,000 and not more than $5 million would need to be posted;
• a licensee would be required to file monthly returns with the CRA, regardless of whether cannabis duty would be payable; and
• the licence would be valid for a maximum term of 2 years, and it would be required to be renewed prior to its expiry.

For detailed information on the proposed licensing requirements, see Excise Duty Notice EDN52, Obtaining and Renewing a Cannabis Licence.

Taxation framework on cannabis

Cannabis duty

The cannabis duty would be imposed on cannabis products and payable by cannabis licensees. There are 2 proposed points of imposition of cannabis duty on cannabis products:

• a flat-rate duty that would be imposed at the time the cannabis products are packaged; and
• an ad valorem duty that would be imposed on packaged cannabis products at the time the cannabis products are delivered to a purchaser.

Additional cannabis duty

Under the proposed amendments to the Act, an additional cannabis duty would be imposed on cannabis products in respect of specified provinces. The method of calculating the additional cannabis duty and the rates of additional cannabis duty would be set out by regulation that has yet to be announced. The CRA will publish an excise duty notice to explain how the proposed additional cannabis duty would be administered.

In addition, there could be an adjustment to the additional cannabis duty to reflect differences between the sales tax rate applicable to cannabis products in a province or territory and the highest prevailing general sales tax rate, or rate of the provincial part of the HST, among provinces and territories.

Imposition and payment of cannabis duty and additional cannabis duty

Flat-rate cannabis duty and additional cannabis duty

The flat-rate cannabis duty would be imposed on cannabis products, including packaged viable cannabis seeds and vegetative plants, at the time of packaging.

The flat-rate duty would be imposed on a per-gram basis or a per-seed/vegetative cannabis plant basis.

The proposed flat-rate cannabis duty rates under proposed section 1 of Schedule 7 to the Act would be as follows:

The flat-rate additional cannabis duty rate and its application would be set out by regulation that has yet to be announced.

Ad valorem cannabis duty and additional cannabis duty

The ad valorem duty would be imposed on the sale price (that is the “dutiable amount”, which is defined below) of the transaction at the time a cannabis licensee delivers a cannabis product they packaged to a purchaser (for example, a provincially authorized distributor/retailer or final consumer). The basic formula to determine the dutiable amount is as follows:

Dutiable amount = A × [100% ÷ (100% + B + C)]

where

A is the consideration (in other words, the sale price) determined for GST/HST purposes, plus any additional consideration for the container in which the product is packaged, plus any other amount charged for advertising, financing, commissions, or any other matter.

B is the percentage set out in proposed section 2 of Schedule 7 to the Act.

C is either the additional cannabis duty if it applies or 0%.

The ad valorem cannabis duty rate under proposed section 2 of Schedule 7 to the Act would be 2.5%. The dutiable amount would be multiplied by this rate to determine the ad valorem cannabis duty.

The proposed ad valorem additional cannabis duty rate and the method of determining the dutiable amount for additional cannabis duty would be set out by regulation that has yet to be announced.

Delivery to a purchaser

Under proposed section 158.32 of the Act, delivery to a purchaser includes:

• delivering cannabis products, or making them available, to a person other than the purchaser on behalf of or under the direction of the purchaser; and
• delivering cannabis products, or making them available, to a person that obtains them otherwise than by means of a purchase.

Time of delivery

Proposed section 158.33 of the Act deems a cannabis product to be delivered to a purchaser by a cannabis licensee at the earliest of:

• the time at which the cannabis licensee delivers the cannabis product or makes it available to the purchaser;
• the time at which the cannabis licensee causes physical possession of the cannabis product to be transferred to the purchaser; and
• the time at which the cannabis licensee causes physical possession of the cannabis product to be transferred to a carrier for delivery to the purchaser. The carrier would be a person that provides a service of transporting goods including delivering mail.

 

Payment of cannabis duty and additional cannabis duty

The duties on cannabis products would become payable at the time of delivery to a purchaser by the cannabis licensee that packaged the cannabis product. The cannabis duty payable would be the greater of the flat-rate duty and the ad valorem duty, and the lesser duty would be relieved at that time. Information regarding the payment of additional cannabis duty would be set out by regulation that has yet to be announced. The CRA will publish an excise duty notice to explain how the proposed additional cannabis duty would be administered.

Equal duties

Under proposed subsection 158.19(4) of the Act, if the amount of cannabis duty imposed under the flat-rate duty is equal to the amount of ad valorem cannabis duty imposed, then the flat-rate cannabis duty amount would be payable by the cannabis licensee that packaged the cannabis products at the time of delivery and the cannabis products would be relieved of the ad valorem cannabis duty (in other words, the ad valorem cannabis duty is not payable by the cannabis licensee). Information regarding the payment of additional cannabis duty would be set out by regulation that has yet to be announced.

Imported cannabis

Proposed section 158.21 of the Act would impose cannabis duty on imported cannabis products. The proposed duty on imported cannabis products would be the greater of the amount determined by applying the flat-rate cannabis duty (as set out in proposed section 1 of Schedule 7 to the Act) and the amount determined by applying the ad valorem cannabis duty (as set out in proposed section 3 of Schedule 7 to the Act). Under proposed section 158.24, for purposes of calculating the ad valorem duty, the value of the cannabis product would be the value as determined under the Customs Act. The greater of these 2 amounts is payable to the CBSA by the importer, owner or other person liable under the Customs Act to pay duty. Exceptions to the imposition of duty on imported cannabis are explained later in this notice.

There would be no stamping requirement for imported cannabis products.

Additional cannabis duty on imported cannabis

Under proposed section 158.22 of the Act, an additional cannabis duty would be imposed on imported cannabis products in respect of specified provinces that have entered into an agreement with the Government of Canada for the coordination of cannabis taxation. This additional cannabis duty would be payable by the importer, owner or another person that would be liable under the Customs Act to pay duty. The rates of additional cannabis duty and the method of calculating that duty would be set out by regulation that has yet to be announced.

Cannabis duty on cannabis products taken for use

Under proposed subsection 158.25(1) of the Act, cannabis duty would generally be imposed on cannabis products taken for use. The cannabis duty payable would be the greater of the flat-rate duty and the ad valorem duty payable at the time the cannabis product is taken for use. This would include cannabis products taken for use for research and development purposes. If the product taken for use is packaged, the flat-rate cannabis duty that would be imposed at the time of packaging under proposed subsection 158.19(1) of the Act would be relieved and the cannabis duty payable would be imposed under proposed section 158.25 as the greater of the flat-rate cannabis duty and the ad valorem cannabis duty payable at the time that the cannabis product is taken for use. Exceptions to the imposition of duty are explained later in this notice.

Additional cannabis duty on products taken for use

An additional cannabis duty in respect of a specified province would be imposed under proposed subsection 158.25(2) of the Act on cannabis products taken for use. The proposed additional cannabis duty would be imposed on the cannabis products in prescribed circumstances in the amount determined in a prescribed manner. The rates of additional cannabis duty and the method of calculating that duty would be set out by regulation that has yet to be announced.

Cannabis duty on unaccounted cannabis products

Under proposed subsection 158.26(1) of the Act, cannabis duty would be imposed on unpackaged cannabis products that are not accounted for as being in the possession of a cannabis licensee or in the possession of:

• a prescribed person that is transporting the cannabis products under circumstances and conditions prescribed by regulations;
• a prescribed person that is sterilizing the cannabis products under circumstances and conditions prescribed by regulations
• an individual if the cannabis products were imported for their own medical purposes;
• a person that possesses the cannabis products for analysis or destruction;
• a person that possesses the cannabis products in circumstances or for purposes prescribed by regulations; or
• in the case of an industrial hemp by-product, an industrial hemp grower that produced it if it is on that grower’s property or it is being transported by that grower for delivery to or return from a cannabis licensee.

The cannabis duty would be payable at the time the cannabis product cannot be accounted for. The amount of cannabis duty imposed would be the greater of the flat-rate cannabis duty amount and the ad valorem cannabis duty amount.

Additional cannabis duty on unaccounted cannabis products

An additional cannabis duty in respect of a specified province would be imposed under proposed subsection 158.26(2) of the Act on unaccounted cannabis products in prescribed circumstances in the amount determined in a prescribed manner. The duty would be payable at the time the cannabis product cannot be accounted for. The rates of additional cannabis duty and the method of calculating that duty would be set out by regulation that has yet to be announced

Relief of cannabis duty

There would be very limited cases where the cannabis duty would be either relieved, not payable or refunded with respect to cannabis products.

Re-working or destruction of cannabis

Under proposed section 158.16 of the Act, a cannabis licensee may re-work or destroy a cannabis product in a manner authorized by the CRA. Any cannabis duty or additional cannabis duty paid on these cannabis products may be eligible for a refund under proposed section 187.1 of the Act, if the licensee applies for the refund within 2 years of the authorized re-work or destruction. Only the cannabis licensee who has paid the duty on the re-worked or destroyed cannabis products and who has destroyed or re-worked the cannabis product may apply for a refund.

Cannabis imported by a licensee

Proposed section 158.28 of the Act would relieve the cannabis duty and additional cannabis duty on imported cannabis products that are not packaged, and are imported by a cannabis licensee. All imports would need to be authorized under the proposed Cannabis Act.

Duty not payable

Proposed section 158.3 of the Act provides for certain circumstances where the duty on cannabis products is not payable, which would include:

• cannabis products taken for analysis or destruction by the CRA;
• cannabis products taken for analysis or destruction by Health Canada;
• cannabis products taken for analysis by the cannabis licensee in a manner approved by the CRA;
• cannabis products taken for destruction in a manner approved by the CRA;
• cannabis products delivered by a cannabis licensee to another person for analysis or destruction by that person in a manner approved by the CRA;
• low-THC cannabis products;
• prescription cannabis drugs; or
• cannabis products that are removed from the premises of a cannabis licensee for export in accordance with the proposed Cannabis Act.

Stamping requirements

Under proposed section 158.13 of the Act, a cannabis licensee could not enter a cannabis product into the duty-paid market unless the product is packaged and stamped by the licensee. The cannabis excise stamp would show to all persons that cannabis duty and, where applicable, any additional cannabis duty have been paid and that the product was produced legally. To purchase cannabis excise stamps, a cannabis licensee would be required to register under the proposed cannabis stamping regime.

For detailed information on the proposed cannabis stamping regime, see Excise Duty Notice EDN54, General Overview of the Cannabis Excise Stamps.

Stamped product in specified province

Proposed subsection 158.11(2) of the Act specifies that, other than a cannabis licensee, no other person would be permitted to have in their possession a cannabis product in a specified province unless it is stamped to indicate that additional cannabis duty has been paid in respect of that specified province.

Unstamped cannabis

Proposed subsections 158.11(1) and (2) of the Act would prohibit any person, other than a cannabis licensee, from disposing of, selling, offering to sell, purchasing or possessing unpackaged and unstamped cannabis products. However, exceptions to these restrictions are outlined in proposed subsection 158.11(3), as follows:

• a prescribed person that would be transporting unstamped, bulk cannabis;
• a prescribed person that would be sterilizing the cannabis product;
• unstamped, imported cannabis product for the medical use of an individual, and in accordance with the Controlled Drug and Substances Act or the proposed Cannabis Act;
• a person that possesses the unstamped cannabis product for analysis or destruction in a manner approved by the CRA; or
• a cannabis product that is a low-THC cannabis product or a prescription cannabis drug.

Sale or distribution by a licensee

Under proposed subsection 158.12(1) of the Act, a cannabis licensee would be prohibited from distributing, selling or offering for sale a cannabis product unless the product is packaged and properly stamped.

Exception

Under proposed subsection 158.12(2) of the Act, a cannabis licensee would be permitted to distribute, sell or offer for sale unstamped cannabis products to another cannabis licensee or to another person if the cannabis product is exported by the cannabis licensee in accordance with the proposed Cannabis Act or if the cannabis product is a low-THC cannabis product or a prescription cannabis drug.

Notice – absence of stamp

Proposed section 158.14 of the Act provides that the absence of a cannabis excise stamp on a cannabis product would show to all persons that cannabis duty and, where applicable, additional cannabis duty have not been paid on that product.

Unlawful removal

Proposed subsection 158.09(1) of the Act provides that a cannabis product would not be allowed to be removed from the premises of a cannabis licensee unless it is packaged and stamped to indicate that cannabis duty and, where applicable, additional cannabis duty have been paid. However, there are exceptions, as proposed in subsection 158.09(2) of the Act, that would permit a cannabis licensee to remove an unpackaged cannabis product where:

• the cannabis product is being removed
  • for delivery to another cannabis licensee,
  • for export as permitted by the proposed Cannabis Act,
  • for delivery to a person for sterilization in accordance with proposed subparagraph 158.11(3)(a)(ii) of the Act, or
  • for delivery to a person for analysis or destruction in accordance with the Act;
• the cannabis product is
  • a low-THC cannabis product,
  • a prescription cannabis drug, or
  • a prescribed cannabis product or a cannabis product of a prescribed class; or
• the cannabis product is removed in prescribed circumstances or for a prescribed purpose.

Maintaining records and filing returns

Keeping records

Every cannabis licensee would be required, under subsection 206(1) of the Act, to maintain all records that are necessary to determine whether they are in compliance with the Act.

Records to be maintained

Proposed subsection 206(2.01) of the Act states that every cannabis licensee would be required to retain records relating to the amount of cannabis product produced, received, used, packaged, sold and disposed of by the licensee. Books and records would be required to be maintained in an appropriate form and contain sufficient information to allow for the verification of a person’s compliance with the Act, including the person's liabilities and obligations with respect to cannabis and additional cannabis duties, or the amount of any refund or rebate the person has claimed.

With respect to exports, all documents used as evidence of export would be required to be sufficient to enable the entire shipment of cannabis products to be traced from its origin in Canada to its destination outside of Canada. In addition, documentation showing that the cannabis products were removed from the premises of a cannabis licensee for export in accordance with the proposed Cannabis Act would be required to be maintained.

Additional information on the requirement to maintain books and records is available in Excise Duty Memorandum EDM9-1-1, General Requirements for Books and Records.

Filing returns

Section 160 of the Act would require every cannabis licensee to file Form B300, Cannabis Duty and Information Return, for each calendar month, and to calculate and remit any cannabis duty and additional cannabis duty payable on that return.

A licensee who possesses more than 1 licence under the Act would be required to file separate returns for each licence. For example, a cannabis licensee who also possesses a user’s licence would also be required to file Form B263, Excise Duty Return – Licensed User.

The CRA will publish an excise duty notice to provide more information on the amounts to include on Form B300, Cannabis Duty and Information Return.

Branches or divisions filing separate returns

As set out in subsection 164(1) of the Act, where a cannabis licensee has separate branches or divisions with distinct operations under a cannabis licence, the licensee may apply to the CRA for authority to file separate returns for each branch or division.

Debts and the collections process

The cannabis duty and, where applicable, additional cannabis duty as well as other amounts payable under the Act are debts recoverable in Federal Court or any other court of competent jurisdiction or in any other manner provided under the Act, according to proposed subsection 284(1.1) of the Act and would apply to a cannabis licensee.

A cannabis licensee who owes duties or is late filing returns may receive a notice or a telephone call from a CRA official as a reminder of their obligation to pay past due cannabis duty and, where applicable, additional cannabis duty or file outstanding returns.

Subsection 189(4) of the Act states that if a licensee has to file any returns under that act as well as under the Customs Act, the Excise Act, the Excise Tax Act, the Income Tax Act or the Air Travellers Security Charge Act, but has not done so, any refund to which they are entitled will be held until all required returns are filed. This would apply to cannabis licensees.

According to section 290 of the Act, if a licensee has any outstanding amounts owing under the Act, the CRA may deduct or set off any amount owing to that person by the Government of Canada (for example, a GST/HST rebate) against those outstanding amounts.

Offences and penalties

Under proposed section 214 of the Act, any person who would produce cannabis products without a licence or an authorized exemption from licensing under proposed section 158.01 of the Act would be in contravention of that act and would be guilty of an offence. That person may also, upon conviction, be liable to a fine or to imprisonment, or to both.

Transitional rules

To facilitate the implementation, application, administration and enforcement of the proposed excise duty framework for cannabis products, Bill C-74 includes transitional provisions related to the proposed imposition and payment of cannabis duty and additional cannabis duty on cannabis products.

Imposition of cannabis duty and additional cannabis duty

Under the proposed transitional rules, cannabis duty would be imposed on cannabis products produced in Canada and delivered to a purchaser before commencement day for sale or distribution after commencement day. The amount of cannabis duty imposed would be the greater of the flat-rate cannabis duty amount and the ad valorem cannabis duty amount.

Commencement day is the day that cannabis would no longer be listed in Schedule II to the Controlled Drugs and Substances Act. In effect, it is the legalization date of cannabis.

The Act also proposes to impose an additional cannabis duty, if applicable, on products that are produced in Canada and delivered to purchasers before commencement day in accordance with regulations. The CRA will publish an excise duty notice to explain how the proposed additional cannabis duty would be administered.

Payment of cannabis duty and additional cannabis duty

The cannabis duty and additional cannabis duty on cannabis products that are produced in Canada and delivered to a purchaser before commencement day would be payable on commencement day.

The total cannabis duty and additional cannabis duty payable for products delivered prior to commencement day would need to be reported on Form B300, Cannabis Duty and Information Return. This form would need to be filed on or before the last day of the month following commencement day.

Further information