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The government of Manitoba will impose a six per cent tax on the future revenues of legal recreational cannabis retailers in the province.

The tax, branded by the province as a "social responsibility fee," is meant to "ensure retailers share in the social costs of public education, safety, health and addictions" resulting from federal cannabis legalization, according to a Wednesday afternoon press release.

Those costs "fall almost entirely to the provincial level of government," said Growth, Enterprise and Trade Minister Blaine Pedersen in the release.

"Our plan will help cover these provincial costs and also ensure fairness, recognizing the social responsibility retailers must have."

Federal legalization of marijuana for adult, non-medical use is on track for October 17, and Manitoba's four licensed cannabis retail companies will be taxed on their total annual revenues starting in 2019.

The bill will come due "within six months of the end of the calendar year in which the revenues were generated," according to a background document provided by the province, meaning the first payment must be made by June 30, 2020. Retailers who don't pay risk losing their provincial sales licence.

In an interview, Pedersen said the provincial government "(has) to be flexible on this, because we're going into an unknown."

Asked whether the social responsibility tax might increase cannabis prices and keep legal weed retailers from competing effectively with the illicit market, Pedersen said it's "where we're starting from."

"We think they will be able to (compete) now, based on our best guesses, and we will have to work very closely with our retailers in the next year... because it's going to take a while," he said.

"They're starting their businesses new, it's going to take them a while to get up and running and find out what the market is, what the market will bear, and market penetration from the legal side of consumption."

Revenue from the new tax is unknown, wrote a provincial spokesperson in an email, but the specific rate was set "with the goal of keeping consumer prices low, as we work towards eliminating the illegal market in Manitoba."

BORIS MINKEVICH / WINNIPEG FREE PRESS FILES John Arbuthnot, CEO at Delta 9

"Costs for health and enforcement are difficult to predict at this time," wrote the spokesperson. "Actual costs will be known further down the line but are expected to exceed provincial revenue."

In addition to unveiling the new tax, the provincial government announced on Wednesday the exact wholesale markups that will be applied to cannabis distributed by Manitoba Liquor and Lotteries.

The provincial crown corporation, which is soon to become Manitoba's only wholesaler of legal recreational cannabis, will add a margin of 75 cents to the wholesale price of each gram of recreational cannabis, plus nine per cent more. (The $0.75 figure represents "an equivalent amount" to the province's share of a future federal excise tax on cannabis, wrote the provincial spokesperson, and was announced "in order to provide certainty to retailers".)

The nine per cent markup will cover MLL's administration costs for cannabis distribution, according to the spokesperson, "including setting up and administering the supply and distribution system, and a portion of Manitoba’s social responsibility expenditures."

Delta 9 Cannabis CEO John Arbuthnot, whose company produces marijuana and will be opening legal cannabis stores in Manitoba in October, said the new social responsibility tax was "not unexpected."

"It certainly sounds like there's going to be adequate funding for any social responsibility messaging programs that the province is looking to roll out here," he said. "I think they're trying to be more safe than sorry on the lead-in."

But competing with the cannabis black market on price "is definitely going to be a challenge," added Arbuthnot.

"Unfortunately, at multiple levels of government we're seeing more taxes and fees than we had anticipated, (and) that makes this a challenge for everyone," he said.

"Really, October 17 is going to tell the tale. Retail pricing will likely be in excess of $10 a gram. We're going to do everything that we can to bring it under that, but margins are going to be tight for business... we all need to work together, government and industry, to make sure we're competitive."

Manitoba's announcement comes on the heels of another new tax being levied on Canada's legal cannabis industry. Last week, the federal government announced a slate of fees for legal cannabis producers and processors, including new charges for licence applications and an annual regulatory fee.

The federal government is also imposing an excise tax on all cannabis at the point of manufacture, which will be shared with provincial and territorial governments.

solomon.israel@theleafnews.com

@sol_israel