If you are running a cannabis business in Toronto—or even just buying from a dispensary on Queen West—you have probably looked at the numbers and thought, “Where is all this money going in terms of excise duties on cannabis?”
It has been years since cannabis became legal in Canada back in October 2018, but the dust hasn’t exactly settled. Instead, it seems covered in a thick layer of red tape and tax receipts. I have sat down with enough dispensary owners and micro-producers in Downtown Toronto to know the look in their eyes. It is not the stress of growing the plant; it is the stress of calculating what they owe the CRA at the end of the month.
This isn’t just about paying your fair share of the excise duty framework for cannabis. The taxation system for cannabis in Canada is a beast. It is complex, expensive, and quite frankly, it feels a little bit broken. If you are looking for tax advice in Toronto or just trying to figure out why that pre-roll costs what it costs, you need to understand the excise duty on cannabis products under the hood.
We are going to walk through the excise duties, the provincial adjustments, and the notorious “higher of” rule that keeps industry CEOs up at night.
The Real Cost of Pot: Understanding Canada’s Cannabis Taxation Framework
When we talk about cannabis tax, we aren’t just talking about one thing. It is a layer cake of levies. And the biggest, heaviest layer is the Excise Duty.
The federal government, specifically the Canada Revenue Agency, administers this under the Excise Act, 2001. But here is where it gets tricky. They don’t just take a simple percentage off the top. They created a formula that was designed when weed was expected to sell for $10 a gram wholesale, not accounting for the current cannabis excise duties.
The “Higher Of” Rule: Why Producers Are Struggling
This is the single most important thing to understand about cannabis taxation in Canada: the impact on retail sale prices. The federal excise duty is calculated as the higher of two amounts:
- A Flat-Rate Duty: $1.00 per gram of flowering material.
- An Ad Valorem Duty: 10% of the dutiable amount, which is essentially the producer’s selling price.
Back in 2018, when everyone thought wholesale prices would stay high, the 10% sounded reasonable. But in 2026, how will the non-medical cannabis market evolve? The cannabis market has compressed significantly due to increased taxes and compliance costs. Wholesale prices for dried cannabis have crashed, often dropping to $3.00 or even $2.00 per gram.
Do the math. If you sell a gram for $3.00, 10% would be 30 cents. But the flat-rate duty on cannabis products is $1.00 per gram. So, the CRA takes the $1.00. Suddenly, your effective tax rate isn’t 10%; it is 33% due to the additional cannabis duty imposed on your sales.
I have seen producers in Ontario selling outdoor-grown biomass where the excise tax is actually higher than the cost of production. It is a squeeze that has forced many cannabis retailers to seek specialized tax consultants in Toronto just to stay solvent.
Breaking Down the Ontario Cannabis Tax Rates (2026)
Since we are in Toronto, we have to look at how the cannabis act in Ontario plays into this. The federal government collects the money, but they share it. The deal is generally a 75/25 split—75% goes to the province and territory, and 25% stays with the feds (capped at $100 million annually for the feds, with the rest flowing back).
But Ontario didn’t just stop there. There are specific adjustments you need to be aware of.
The Components of the Duty
When a cannabis licensee (a producer) packages a product, they have to slap an excise stamp on it, which is essential for tracking duty and additional taxes. For Ontario, that stamp is yellow. That stamp represents money paid.
Here is a simplified look at how the rates break down for Dried/Fresh Cannabis in Ontario:
| Component | Rate | Notes |
|---|---|---|
| Federal Flat Rate on the distribution of cannabis can impact overall pricing. | $0.25 per gram | Part of the $1 total floor. |
| Provincial Flat Rate | $0.75 per gram | Part of the $1 total floor. |
| Ontario Adjustment | 3.9% | Added to the dutiable amount. |
| Sales Tax (HST) | 13% | Applied on the final retail price. |
Wait, catch that? The Ontario Additional Duty of 3.9% is tacked on. And then, when the product finally hits the shelves at a cannabis dispensary, the consumer pays 13% HST on the whole thing—including the excise tax embedded in the price. It is effectively a tax on a tax, impacting the revenue from cannabis sales.
Edibles, Extracts, and Oils
If you aren’t selling flower, the math changes. For cannabis extracts, cannabis oil, and edibles, the duty isn’t based on weight; it is based on potency.
The rate is $0.01 per milligram of total THC, which contributes to the cannabis tax revenue since its implementation.
This seems small until you scale it up to the overall revenue from cannabis across Canada. A beverage with 10mg of THC has a built-in duty of $0.10, which adds to the total cost to purchase cannabis legally. But for medical patients using high-potency oils—say, a bottle with 1000mg of THC—that is $10.00 in excise duty alone, before the package cannabis cost or markup.
For Business Owners: Navigating CRA Compliance in Toronto
If you are running a cannabis business in the GTA, your relationship with Health Canada and the CRA is essentially a second marriage. It requires constant attention and communication.
The Excise Stamp Nightmare
You cannot legally sell a cannabis product in Canada without an excise stamp. These stamps are proof that duty is payable and has been accounted for.
Here is the logistical headache for Toronto-based producers: If you want to sell in Alberta, you need an Alberta stamp. If you want to sell in BC, you need a BC stamp and to comply with the cannabis regulations. If you package product for Ontario (Yellow stamp) and then the Ontario Cannabis Store decides they don’t want that inventory, you can’t just ship it to Manitoba. You have to rework the product and re-stamp it.
This inefficiency costs the cannabis industry millions every year.
Form B300 and Monthly Reporting
Every month, cannabis licensees must file the Cannabis Duty and Information Return, known as Form B300. This isn’t something you can do on the back of a napkin; understanding the complexities of cannabis tax revenue since legalization is essential. You need to report the retail sale information for tax revenue since the drug was legalized.
- Inventory of dried cannabis, cannabis extracts, and other forms is subject to the provincial sales tax.
- Unstamped versus stamped inventory.
- Production volumes.
- Waste and destruction records related to duty and additional regulations.
If you mess this up, the penalties are severe. I always tell clients: do not try to DIY your B300 unless you absolutely know what you are doing.
The Tax Consultants Toronto Section: Why You Need Help
This brings me to a critical point. If you search for tax advice Toronto or tax consultants Toronto, you will get thousands of hits. But a generalist accountant who handles coffee shops and hair salons might not know the difference between fresh cannabis and cannabis plants under the Excise Act.
Why Downtown Advice Matters
In Downtown Toronto, the overhead is killer. You are dealing with commercial property taxes that are some of the highest in North America. You don’t have room for error on your federal taxes during this tax year.
A specialized advisor can help you with:
- Cash Flow Management: You often have to remit excise duty before the OCS or other distributors pay you. That is a massive cash crunch.
- SR&ED Credits: Many cannabis companies are doing R&D. You might be eligible for tax credits that generalists miss, particularly those related to the sale of cannabis for medical purposes.
- Personal Wealth: Understanding the price of cannabis can significantly impact your financial strategy. If you are a business owner, you need to look at TFSA Toronto strategies and how to save Toronto tax on your personal net income. The risk in this industry is high; your personal asset protection strategy needs to be solid against potential changes in the distribution of cannabis.
The Consumer Angle: Why Your Receipt Looks Like That
Okay, let’s switch gears to the person standing at the counter. You just bought a 3.5g jar of cannabis strains for $35. Why isn’t it cheaper?
Here is the rough breakdown of that $35:
- Producer Price: Maybe $15.
- Excise Duty: At least $3.50, but likely more due to the $1/g rule.
- OCS Markup: The provincial wholesaler adds their cut.
- Retail Markup: The store needs to pay rent and staff.
- HST: 13% on top of all that.
When you ask, “Why is the black market cheaper than legal cannabis sales?” you must consider the impact of the tax on cannabis.””, the answer is usually simple: they aren’t paying the federal government collected excise duty, and they certainly aren’t filing Form B300.
Medical Cannabis and Taxes
A common question I see is whether medical cannabis is tax-free.
Sadly, no. Medical cannabis is subject to the same excise duties as recreational cannabis. It is the only prescription medication in Canada that is taxed this way. However, you can claim the cost of medical marijuana as an eligible medical expense on your income tax return. It is a small consolation, but it helps.
The Bigger Picture: Revenue and Regulation
Since cannabis was legalized, the government has made a lot of money. We are talking over 5.4 billion in cannabis tax revenue federally and provincially.
Ontario is the big winner here. As the largest market, Ontario has collected over $1.5 billion. But there is a tension. The government wants cannabis tax revenue from the sale of cannabis products, but they also want to kill the illicit market.
High taxes keep legal prices artificially high. This acts as a life-support system for the illicit market, undermining coordinated cannabis taxation efforts across Canada. If a legal ounce costs $140 because of taxes and a “grey market” ounce costs $80, a lot of consumers in Toronto are going to make the economic choice, even if they prefer the safety of legal, tested product.
Future Outlook 2026
So, what is coming down the pipe?
The cannabis producer industry has been lobbying hard for reform. The main demand is to scrap the $1/g flat rate and stick to a straight 10% excise duty framework on cannabis products. This would help budget-friendly cannabis brands survive.
There is also talk of a national excise stamp to replace the 13 different provincial ones. That would be a huge win for efficiency.
Until then, if you are in the cannabis business in Toronto, keep your records clean, pay your excise duties, and maybe find a tax consultant who knows what a terpene is. It is a wild industry, but for those who can navigate the compliance maze, there is still opportunity to grow.
The cannabis taxation framework might feel punitive, but it is the reality we operate in. Whether you are selling cannabis plant seeds or premium cannabis extracts, knowledge of the excise duty framework for cannabis is your best defense against a surprise audit. Stay compliant, Toronto, especially with the provincial and territorial regulations.