Cannabis Tax Collection Falls below Expectations

Canada legalized recreational cannabis on October 17, 2018, amid huge expectations. However, cannabis hasn’t met the government’s expected revenue collection. For fiscal 2018–2019, the Canadian government expected to earn revenue of 35 Canadian dollars. However, the tax revenue was 18 million Canadian dollars, as reported by National Post. The government expected 100 million Candian dollars that year. Notably, the government reduced its estimate to 66 million Canadian dollars. The numbers only include federal taxes. Also, provincial taxes were levied on cannabis products. The National Post article said that before the legalization of recreational marijuana, the federal and provincial governments decided to split the revenue at 3:1 in favor of provincial governments.

Which factors caused the tax collections to fall?

The lower-than-expected tax collections were due to a delay in legalizing recreational marijuana, the opening of brick and mortar stores, the slower rate of new store openings, and supply issues. Although Canada legalized recreational cannabis in October 2018, the first retail stores in Ontario appeared in April 2019. The province only opened 25 stores in the beginning. The stores in Alberta and Quebec faced supply shortages.

Since then, the supplies have improved. Also, Ontario has lifted restrictions on the number of stores and plans to open hundreds of stores this year. The Canadian government expects cannabis tax revenues of 135 million Canadian dollars in the next year, as reported by National Post. The government also expects the revenue collection to rise to 220 million by 2023.

Cannabis sales

Despite fewer retail stores, Ontario generated higher sales in the first year after legalization. As reported by National Post, Ontario’s cannabis sales stood at 217 million for the first year after recreational cannabis legalization. Meanwhile, Alberta generated sales of 196 million Canadian dollars, while Quebec generated 195 million Canadian dollars. Overall, the nationwide sales stood at 907 million Canadian dollars.

Cannabis sector’s performance

Last year was tough for the cannabis sector. During the period, the ETFMG Alternative Harvest ETF (NYSE:MJ) and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) fell by 31.4% and 39.0%, respectively. The company’s stock price fell due to vaping related deaths, thriving black market sales, higher-than-expected operating losses for most of the cannabis companies, and expectations of a decline in the sales growth. There hasn’t been much of an improvement in the cannabis sector this year. MJ has fallen by 3.4%, while HMMJ’s stock price has risen by 0.8%. Aurora Cannabis (NYSE:ACB) and Cronos Group (NASDAQ:CRON) have fallen by 10.4% and 4.4% YTD, respectively. Meanwhile, Canopy Growth’s (TSE:WEED) stock price has increased by 9.1%. Read Must-Know: Is Canopy Growth Still a Buy? to learn more.