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‘Un-Canadian’: Big cannabis slams Ottawa's taxation of medical marijuana

A Canadian flag with a cannabis leaf flies on Parliament Hill during the 4/20 protest, Monday, April 20, 2015 in Ottawa. (THE CANADIAN PRESS/Adrian Wyld)
A Canadian flag with a cannabis leaf flies on Parliament Hill during the 4/20 protest, Monday, April 20, 2015 in Ottawa. (THE CANADIAN PRESS/Adrian Wyld)

Un-Canadian, inappropriate, simply wrong, and insulting. When it comes to the taxation of medical cannabis, Canada’s pot producers and patient advocates are not mincing words.

“A patient can get a prescription for an opioid that has no tax applied, then is reimbursed by provincial drug plans and private insurers. At the same time, cannabis, a substance that for many patients can be an alternative, is discriminated against,” Aurora Cannabis Inc. Chief Corporate Officer Cam Battley (ACB.TO) told Yahoo Finance Canada in an interview. “This simply strikes us as outrageous.”

“The reality is, governments don’t like to give up on taxes,” Canopy Growth Corp. (WEED.TO) co-CEO Bruce Linton told Yahoo Finance Canada at a recent event in Toronto. “For medical cannabis, it’s inappropriate.”

Last fall, Canada sparked global excitement when it became the first G7 nation to legalize the drug for recreational use. For those reliant on doctor-prescribed cannabis to treat medical conditions, the landmark legislation made it instantly harder to afford.

In Canada, there are no taxes on prescription medications. Cannabis is the exception. The government has collected taxes since July 2001, when the Marihuana Medical Access Regulations enabled individuals authorized by their health care practitioner to access the drug.

The Cannabis Act absorbed the previous medical legislation on Oct. 17 of last year. Under that framework, the government charges an additional $1-per-gram or 10 per cent of the cost on both medical and recreational cannabis, whichever is higher. That’s on top of sales taxes.

“It’s actually a tax upon a tax. How does that make any kind of sense at all?” said Battley. “The cost to the government of dropping the taxes would be miniscule. But the impact on actual patients dealing with serious illnesses is significant.”

Edmonton-based Aurora recently took its opposition to the streets with a bold public awareness campaign to shame the government into dropping all taxes on medical cannabis.

On a grey February afternoon, Battley tweeted a photo of cube van strategically parked in front of Finance Minister Bill Morneau’s Toronto constituency office. On its sides, large screens display a digital ticker showing the rising tally of tax dollars paid by Canadian medical cannabis patients since 2014. On that day, Feb. 19, it read $121,550,915.

The ticker also lives on an Aurora-sponsored website called CannabisTaxTicker.com.

Canopy is equally determined to see Ottawa scrap the taxes. However, the Smiths Falls, Ont.-based company sees a different path to putting tax-free cannabis in the hands of patients.

“All the lobbying in the world isn’t going to win, where science could,” Linton said. “That’s what we’re doing.”

He expects Canopy will have enough evidence this year to begin making scientific claims about certain products, paving the way for better integration into the medical system.

“We’re running sleep trials now. We’re trying to show that a combination of cannabinoids works better than say benzodiazepine-based sleep aids, which do not attract taxation if they are given under prescription,” he said.

“Once we do studies, and we can actually call it a medical product because it can actually have a drug identification number (DIN), I think then it is going to be much easier to say this is not going to be taxed.”

Canopy’s newest executive has more than 20 years experience serving medical patients. Initially, outside the bounds of the law. Needless to say, Chief Advocacy Officer Hilary Black is no stranger to grassroots activism. For now though, she and Canopy are staying focused on fast-tracking its scientific trials to secure DINs.

“What I have been told quietly is that the taxation isn’t going to change until we have products that have gone through the drug approval process and have DIN numbers,” she told Yahoo Finance Canada. “That’s the message that I have been getting from inside the government.”

Pressure on Ottawa to eliminate taxes on medical cannabis is building ahead of the release of the federal budget on March 19.

The advocacy group Canadians for Fair Access to Medical Marijuana (CFAMM) organized a rally on Parliament Hill on Feb. 19. The event united Liberal MP Nathaniel Erskine-Smith, Conservative health critic Marilyn Gladu and NDP health critic Don Davies in a call to change how medical cannabis is taxed. Aurora, Hexo (HEXO.TO), Tilray (TLRY), Organigram (OGI.V), PureSinse (PURE.V), Strainprint, Ample Organics, and Gage Cannabis are among the corporate backers of the group’s #DontTaxMedicine campaign.

The Department of Finance would not say if changes to how medical cannabis is taxed are under consideration.

“It would not be appropriate to speculate on tax changes,” a Finance department official told Yahoo Finance Canada in an email. “The Department of Finance Canada regularly assesses the tax system, and consults with stakeholders to ensure that our tax system is fair and efficient.”

The finance department added that the Medical Expense Tax Credit can be applied to medical cannabis. In 2019, the tax break will provide a 15 per cent credit on eligible expenses in excess of the lesser of $2,352 or three per cent of net income.

The crux of the government’s case for keeping medical and recreational cannabis taxes aligned has rested on concerns that non-medical users would be incentivized by lower prices to seek out prescriptions.

That argument shows a lack of faith in Canadian doctors, their ethics, and their ability to spot drug-seeking behaviour in patients, according to Battley.

“Physicians are not going to write false prescriptions for medical cannabis. I find that perhaps a little bit insulting, and not consistent with the reality of how physicians operate in this country,” he said. “They have their licenses and they have their insurance at risk should they engage in any fraudulent activities.”

CFAMM president Gerald Major started suffering from arthritis at 14 years old. He was eventually forced to step away from a career in finance as senior vice president of operations for Citibank Hedge Fund Services North America.

For Major, having an excise, or so-called “sin” tax applied to medical cannabis undercuts its therapeutic value, and enforces the damaging stereotype that medical users are turning to cannabis to get stoned for fun.

“When you have an excise tax applied to something, that means you should be limiting its use, like tobacco and alcohol,” he told Yahoo Finance Canada. “How a government and a country that says cannabis is medicine can go ahead and act like this is beyond me.”

Major warns scores of patients are underdosing, sacrificing living expenses, and turning to the black market because of high costs.

He points to Karlie Starchuk. A 26-year-old from Burlington, Ont. who receives $800 per month in disability support from the Ontario government. She lives with cerebral palsy, and buys cannabis illegally to save money.

“She uses eight grams per month. This kid technically needs three, four or five grams per day. And that would be fairly light for her,” Major said. “She uses a bowl in the morning to wake up, and she doesn’t do another one until night time. She goes all day without.”

Canopy, Aurora and CannTrust Holdings Inc. (TRST.TO) are among the licensed producers committed to footing the bill for the federal government’s excise tax while advocating for changes to the tax guidelines.

“We will continue to absorb it until the day that patients aren’t charged it anymore. This is an unjust tax on critically and chronically ill patients,” said Black. “It’s very un-Canadian.”

Battley is hopeful that change is on the horizon, given the support from members of the three main political parties.

In the meantime, he promises Aurora will keep up efforts to pressure on federal lawmakers.

“Advocacy is in our DNA,” Battley said. “This is part of what gets us up in the morning.”

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