Canada, provinces end dispute on how to split pot tax revenues

OTTAWA (Reuters) - The Canadian government and the country’s 10 provinces on Monday settled a disagreement on how to split the revenues from a proposed federal tax on marijuana sales once the narcotic drug is legalized next July, Finance Minister Bill Morneau said.

Canada's Finance Minister Bill Morneau takes part in a meeting with his provincial and territorial counterparts in Ottawa, Ontario, Canada, December 11, 2017. REUTERS/Chris Wattie

Morneau told reporters that for an initial two years, 75 percent of the money would go to the provinces and 25 percent to Ottawa.

Liberal Prime Minister Justin Trudeau plans to allow recreational marijuana nationwide by July 2018, which will make Canada the first Group of Seven country to do so.

Trudeau says legalization is needed to keep the drug out of the hands of underage users and reduce related crime.

The federal government had initially suggested a 50-50 revenue split, an idea the provinces rejected on the grounds it was not enough to help cover the extra costs of enforcing the new rules once they take effect.

Morneau said he and his provincial counterparts also agreed to stick to Ottawa’s proposal for a tax on all cannabis products of C$1 (78 cents) per gram (0.04 ounce), or 10 percent of the retail price, whichever is higher.

“Our expectation is that by keeping prices low, we will be able to get rid of the black market. However, that will happen over time,” said Morneau.

The responsibility for setting up networks of stores to actually sell the drug lies with the provinces, who along with some police officials have complained Ottawa is moving too fast toward legalization and not taking extra costs into account.

Morneau said the additional tax revenue would allow the provinces to help meet the costs of municipalities dealing with the pot trade on a daily basis.

He estimated the tax would raise around C$400 million a year for the first two years, at which point Ottawa and the provinces will meet to reassess the initiative.

The federal take will be capped at C$100 million a year, with any revenues exceeding that amount going to the provinces. The finance minister of Ontario, Canada’s most populous province, said he was very pleased by that part of the deal.

“If there is a surge in the marketplace, we can accommodate it more effectively,” said Charles Sousa.

Morneau spoke after a two-day meeting with counterparts from the provinces as well as Canada’s three sparsely populated northern territories, which also agreed to the revenue split.

Reporting by David Ljunggren; editing by Chris Reese, Peter Cooney and G Crosse