Varcoe: Ottawa to split pot prize with provinces, but city wants share

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Usually when people say it’s not about the money, it’s actually all about the money.

But Ottawa has taken a serious step forward in getting the country ready for legalizing marijuana next summer by agreeing Monday on how to split new pot revenue with the provinces.

However, there are still plenty of hoops to jump through before the federal and provincial cannabis plans all fit together to make for a smooth legalization launch next July.

Following a meeting in Ottawa with his provincial and territorial counterparts, federal Finance Minister Bill Morneau announced a deal was struck on how to share the estimated $400 million in annual tax revenues generated from selling marijuana.

Ottawa will get 25 per cent, up to a maximum of $100 million. The rest will be split between the provinces on a per capita basis.

The deal potentially could see about $35 million coming to Alberta, although Finance Minister Joe Ceci said the number hasn’t been determined yet.

With the provinces and municipalities having to assume most of the oversight on legalizing weed — from licensing retail stores to cracking down on impaired drivers — this is a prudent decision.

Several provincial ministers said even with the two-year deal, they still expect to lose money in the first few years of legalization due to startup expenses tied to creating proper enforcement systems.

Morneau estimated the federal expenses at more than $700 million. Alberta hasn’t finalized its costs yet.

Monday’s agreement is a far better deal than was proposed earlier this fall, when the Trudeau government pitched dividing the money equally.

“The federal government recognized that the 50-50 split they had originally busted out with was unacceptable,” Ceci told reporters on a conference call.

“Provinces will bear the responsibility of the regulations, the risks, the infrastructure, et cetera, to proceed with this federal initiative….

“What we won’t do is foot the bill for the federal government’s campaign promise.”

Under Alberta’s new framework, anyone 18 years and older will be able to buy legalized cannabis from licensed private-sector stores or online directly from the province.

Although no firm price on pot has been set, Morneau and the finance ministers agreed to put the federal excise tax at either $1 per gram or at 10 per cent to keep the overall consumer price around $10 per gram.

“By keeping the prices low, we will be able to get rid of the black market,” Morneau told reporters. “No one is here for revenue.”

Alberta is the only province without a sales tax, but that doesn’t mean local cannabis will be cheaper than in the rest of Canada.

One principle in the agreement is that legalized marijuana will cost roughly the same across the country, Ceci said.

Aside from the federal excise tax, there will be provincial markups tacked onto cannabis products, while a provincial sales tax will be applied on top of that amount.

The agreement with Ottawa also “has enough latitude in there that the federal government will work with us and apply taxes on our behalf … but we haven’t made those decisions,” Ceci said of a provincial pot tax.

“Alberta will not be left off of that because we don’t have a provincial sales tax.”

Whew, thank goodness.

I’m sure marijuana consumers hoping to shift from the local dealer to a licensed store will be left with a warm glow knowing Alberta will charge the same price as everywhere else.

Monday’s deal also leaves unresolved how much money municipalities will get to cover their costs.

Last week, the City of Calgary estimated its own annual costs at $9 million to $12 million because of higher bylaw, policing, zoning and related administrative expenses.

Mayor Naheed Nenshi said Monday he spoke with Morneau recently and the finance minister was clear one of the reasons for the higher split with the provinces is to cover municipal bills tied to legalization.

“The first thing we’ve got to do, obviously, is cover our costs. I’m not expecting a revenue windfall from this,” he added.

But there will be additional expenses incurred by both the city and the province, from the need for additional bylaw and police officers to extra costs around drug education and product safety.

A delicate balancing act now faces all levels of government; they want to generate enough revenue to pay for their bills, while still being able to push out the black market with competitive prices.

“If you’re going to have storefront models, who is going to police those to make sure they’re being run legitimately, that they’re not bringing in black market product,” said former Calgary police chief Rick Hanson, a senior vice-president at Merrco, an online payment processing firm for marijuana sales.

“The vast majority of that (tax) money should go into education … and it should go into treatment facilities. At the end of the day, that’s a serious consideration.”

Legalizing pot is a serious matter and it needs to be done right the first time. Canada is moving ahead quickly and there are still many important considerations to resolve.

But Monday’s announcement answers at least one of the burning questions: how governments should split the cash coming from cannabis.

 Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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