Cannabis Excise Tax Reform in Canada: The Expert Panel's Roadmap and What Could Change for LPs in 2026–2027

Quick answer: Cannabis excise tax reform in Canada is gaining real momentum. The Expert Panel’s final report on the Legislative Review of the Cannabis Act (tabled in Parliament on March 22, 2024) urged Finance Canada to revisit an excise model built in 2018 — when dried cannabis sold near $10 per gram — and to consider potency-based duties and pharmacy access to medical cannabis. A May 2025 Deloitte report commissioned by the Cannabis Council of Canada added economic weight to the case for dropping the $1-per-gram excise floor. For licensed producers, the most concrete change is already here: since March 2025, micro-cultivation and micro-processing limits have quadrupled. This article explains what reform could mean and how to position for it.

Executive Summary

Canada’s legal cannabis sector is financially squeezed, and the regulatory framework that governs it is finally under serious review. Three developments converge to make 2026–2027 a pivotal window for licensed producers (LPs):

• The Expert Panel’s final report on the Legislative Review of the Cannabis Act recommended that Finance Canada review the excise duty model and consider progressively larger, potency-based duties on higher-THC products, alongside permitting pharmacy distribution of medical cannabis.
• A May 2025 Deloitte report, welcomed by the Cannabis Council of Canada, quantified the strain: the excise duty now represents an outsized share of producer costs, and industry is calling to eliminate the $1-per-gram floor in favour of a 10% ad valorem rate.
• Health Canada’s March 2025 streamlining amendments already delivered tangible relief by quadrupling micro-class limits — micro-cultivation rose from 200 m² to 800 m², and micro-processing from 800 kg to 2,400 kg.

None of the tax recommendations are law yet. But the direction of travel is clear, and the LPs who prepare their licensing position, quality systems, and submissions now will be the ones ready to move when reform lands. This is a planning window, not a waiting room.

Introduction

For most of Canada’s licensed cannabis producers, the math has stopped working. The federal excise duty was designed in 2018 on the assumption that legal dried cannabis would retail at roughly $10 per gram. Today, wholesale prices for some producers have fallen to as little as $3 per gram — yet the duty has not moved with the market. The result is an effective tax burden far heavier than anyone intended when legalization began.

That structural problem is now squarely on the policy agenda. The federal government’s own Expert Panel has called for a rethink of the excise model. An independent Deloitte analysis has put hard numbers behind the industry’s distress. And Health Canada has already amended the Cannabis Regulations to give small operators more room to scale.

This article breaks down each of these developments in plain language, explains what they could mean for compliance and commercial strategy, and sets out the practical steps LPs can take now — particularly around micro-class licence expansion and scale-up compliance planning — to be positioned for whatever reform brings.

What Is Cannabis Excise Tax Reform in Canada?

Cannabis excise tax reform refers to proposed changes to the federal excise duty framework that applies to cannabis products sold for non-medical and medical purposes in Canada. The current framework, administered by the Canada Revenue Agency (CRA) under the Excise Act, 2001, charges producers the greater of a flat rate or an ad valorem (percentage) rate:

• Dried and fresh cannabis, plants, and seeds: the higher of $1.00 per gram or 10% of the producer’s selling price.
• Edibles, extracts, and topicals: a flat duty tied to potency — $0.01 per milligram of total THC under the federal framework.

When average prices were near $10 per gram, the 10% ad valorem rate (about $1 per gram) and the flat $1 floor were roughly equivalent. As prices collapsed, the $1 floor became a punitive minimum. On a gram selling for $3, a $1 duty is an effective rate of roughly 33% — before provincial markups, regulatory fees, and HST.

Why it matters: The excise duty is frequently the single largest line item on a Canadian cannabis producer’s cost statement. When a tax designed for a $10 market is applied to a $3 market, it erodes the margin that legal operators need to compete with the illicit market — the very market legalization was meant to displace.

The Expert Panel’s Roadmap: Key Recommendations

The Expert Panel on the Legislative Review of the Cannabis Act delivered its final report to the Minister of Health and the Minister of Mental Health and Addictions, and it was tabled in both Houses of Parliament on March 22, 2024. The review was a statutory requirement under the Cannabis Act and examined how well the legislation is meeting its public-health and public-safety objectives. Several recommendations matter directly to LPs.

1. Review the excise duty model

The Panel recommended that Finance Canada consider a review of the excise duty model, explicitly acknowledging that it was designed when the average price of dried cannabis was significantly higher than it is today. This is the clearest signal yet that the framework is recognized at the federal level as out of step with market reality.

2. Consider potency-based (“progressive”) duties

The Panel suggested Finance Canada consider reforms that would discourage consumption of higher-risk products — for example, by applying progressively larger duties on products with higher quantities or concentrations of THC or other intoxicating cannabinoids. Canada already taxes edibles, extracts, and topicals by THC content; this recommendation would extend potency-based thinking more broadly and could reshape how dried flower and high-THC concentrates are taxed.

3. Permit pharmacy distribution of medical cannabis

The Panel recommended that Health Canada permit pharmacies to distribute cannabis products to individuals holding a medical authorization from a health-care professional. Provinces, territories, and pharmacist regulatory authorities would need to support the channel. For patients, this could reduce reliance on mail delivery and product shortages, and add pharmacist counselling on drug interactions and side effects.

4. Develop an excise tax-sharing framework with First Nations

The Panel recommended that Finance Canada work with First Nations to identify options for an excise tax-sharing framework, as part of broader discussions on fuel, alcohol, cannabis, and tobacco taxes.

Important: These are recommendations, not enacted law. Government is not bound to adopt them, and any tax change would flow through the federal budget and legislative process. LPs should treat them as a credible signal of policy direction — and plan accordingly — rather than as confirmed changes.

The Industry Case: Deloitte’s 2025 Excise Report

In May 2025, the Cannabis Council of Canada released and welcomed a Deloitte report on the impact of the cannabis excise tax. The report reinforced the Expert Panel’s concerns with economic data and sharpened the industry’s central ask.

The combined message from the Expert Panel and the Deloitte analysis is consistent: the excise duty was built for a market that no longer exists, and the $1-per-gram floor is the specific mechanism doing the most damage to legal-market economics.

Direct answer — Will cannabis excise tax change in Canada in 2026? As of mid-2026, the $1-per-gram floor remains in force; no replacement has been enacted. Reform is under active discussion, with credible momentum behind a shift toward an ad valorem model, but any change must pass through the federal budget and legislative process. LPs should plan for the possibility of change while continuing to comply fully with the current framework.

Already Here: March 2025 Micro-Class Expansion

While tax reform debates continue, Health Canada has already delivered concrete regulatory relief. On March 12, 2025, the Regulations Amending Certain Regulations Concerning Cannabis (Streamlining of Requirements) (SOR/2025-43) came into force, published in the Canada Gazette, Part II. The amendments increased micro-class and nursery limits by a factor of four:

This is the single most actionable development for many small and mid-sized operators. A micro-cultivator can now grow on four times the canopy without stepping up to a standard licence and its heavier cost base. A micro-processor can handle four times the throughput. For financially squeezed LPs, the micro class has become a far more viable path to scale.

What should companies do? Operators at or near their previous limits should assess whether a licence amendment to use the expanded footprint makes commercial sense — and, critically, whether their quality system, security, and recordkeeping can support the larger scale before they expand. Growth that outpaces compliance is how inspection findings happen.

How Reform Could Affect Compliance and Strategy

Reform is not only about how much tax an LP pays. Each proposed change carries operational and compliance implications worth planning for now.

Potency-based duties would raise the stakes on THC data integrity

If duties become more tightly linked to THC concentration, the accuracy and defensibility of potency testing and labelling become financial as well as regulatory issues. Analytical method validation, sampling plans, certificate-of-analysis controls, and stability data would all carry direct tax consequences. LPs with disciplined quality systems will absorb a potency-based model far more easily than those relying on inconsistent testing.

An ad valorem model would change costing and pricing

Removing the $1 floor in favour of a pure percentage rate would tie excise directly to selling price. That changes margin modelling, transfer pricing with provincial boards, and product-mix strategy. Finance and regulatory teams should be modelling both scenarios now.

Pharmacy distribution would open a new, GMP-aligned channel

If pharmacies can dispense medical cannabis, producers serving the medical market would face pharmacy supply-chain expectations — product quality, packaging, traceability, and pharmacovigilance-style adverse-event handling closer to pharmaceutical norms. LPs already operating to higher quality standards (including those pursuing EU-GMP) would be best placed to win that channel.

Micro-class scale-up is a compliance project, not just a paperwork change

Expanding under the new micro limits typically requires a licence amendment, updated site evidence, revised SOPs, and security and recordkeeping appropriate to the larger operation. Treating expansion as a structured compliance project — rather than a form to file — is what keeps an LP inspection-ready through growth.

Compliance Checklist: Positioning for Reform in 2026–2027

Use this checklist to assess whether your organization is ready to act when reform lands and to capture the micro-class opportunity now:

• Model both excise scenarios — current ($1/g floor or 10%, whichever is higher) and a pure 10% ad valorem — across your product mix.
• Audit potency-testing controls — method validation, sampling, certificates of analysis, and labelling accuracy — in case duties become potency-linked.
• Assess micro-class headroom — are you near the old 200 m² / 800 kg limits and able to use the new 800 m² / 2,400 kg ceilings?
• Scope the licence amendment needed to expand under the new micro limits.
• Stress-test your QMS for the larger scale: SOPs, batch records, security, and recordkeeping.
• Evaluate the medical channel — is your quality system ready for a possible pharmacy distribution route?
• Review SG&A and COGS to understand exactly how much excise drives your unit economics today.
• Document a regulatory-change watch so leadership sees budget and legislative signals early.
• Confirm inspection-readiness before any expansion, not after.

Common Mistakes LPs Make

Waiting for reform before fixing the fundamentals. Excise relief, if it comes, will help margins — but it will not fix a weak quality system or a disorganized licensing position. The strongest operators are improving now.

Treating micro-class expansion as a simple form filing. Quadrupling capacity changes your risk profile. Expanding without updating SOPs, security, and records is a common route to inspection findings and CAPA obligations.

Underestimating potency-data exposure. If duties move toward potency, sloppy testing and labelling become a tax liability, not just a compliance gap. Many LPs are not yet treating analytical data with that level of rigour.

Ignoring the medical/pharmacy opportunity. Producers focused solely on the recreational market may miss an emerging, quality-led medical channel that rewards GMP-grade systems.

Assuming recommendations are law. Building a business plan around tax changes that have not been enacted is risky. Plan for the direction; comply with what is actually in force.

Frequently Asked Questions

What is the current cannabis excise tax in Canada?

For dried and fresh cannabis, plants, and seeds, producers pay the greater of $1.00 per gram or 10% of the selling price. Edibles, extracts, and topicals are taxed at $0.01 per milligram of total THC. The framework is administered by the CRA under the Excise Act, 2001.

Why is the $1-per-gram floor a problem?

It was set in 2018 assuming retail prices near $10 per gram. With some producers now receiving around $3 per gram, the $1 floor creates an effective tax rate of roughly a third of the selling price, squeezing legal-market margins.

Will cannabis excise tax change in Canada in 2026?

No change has been enacted as of mid-2026. The Expert Panel and a 2025 Deloitte report both support reform, and a shift toward a 10% ad valorem model is under active discussion, but any change must pass through the federal budget and legislative process.

Can pharmacies sell medical cannabis in Canada?

Not yet. The Expert Panel recommended that Health Canada permit pharmacy distribution of medical cannabis to authorized patients, but this would require federal regulatory change plus provincial and pharmacist-regulator support before it could take effect.

What are potency-based excise duties?

These are duties scaled to a product’s THC content — higher concentrations attract higher duties. Canada already applies this approach to edibles, extracts, and topicals; the Expert Panel suggested considering it more broadly to discourage higher-risk products.

What changed for micro-cultivation in March 2025?

Micro-cultivation grow area rose from 200 m² to 800 m², micro-processing from 800 kg to 2,400 kg per year, and nursery limits from 50 m²/5 kg to 200 m²/20 kg — a fourfold increase across the micro and nursery classes.

Do I need a licence amendment to use the new micro limits?

Generally, yes — expanding your operation to use the larger footprint typically requires a licence amendment and updated supporting evidence. Confirm requirements for your specific licence with Health Canada or a regulatory consultant before expanding.

How MFLRC Can Help

MFLRC (MF License & Regulatory Consultants) is a Canadian regulatory consulting firm with deep, hands-on experience across cannabis and hemp, controlled drugs, natural health products, pharmaceuticals, and other regulated sectors. We help LPs turn regulatory change into a competitive advantage rather than a fire drill.

We can support you with:

• Micro-class licence amendments — scoping and preparing the submission to expand under the new 800 m² / 2,400 kg limits, with the supporting evidence Health Canada expects.
• Scale-up compliance planning — ensuring your quality management system, SOPs, security, and recordkeeping can support larger operations before you grow.
• Gap assessments and audit readiness — through our audit services, including mock inspections and CAPA review to keep you inspection-ready through expansion.
• Regulatory affairs and licensing strategy — via our regulatory affairs, licensing, and import/export practice, including positioning for the medical and potential pharmacy channels.
• Validation and qualification — pharmaceutical validation services to strengthen analytical, process, and method controls that matter under a potency-based duty model.

Need help positioning for cannabis excise reform or expanding under the new micro-class limits? Book a consultation with MFLRC for practical, defensible guidance tailored to your business — or send us a question and we will respond within one business day.

Conclusion

Cannabis excise tax reform in Canada has moved from industry wish-list to active federal conversation. The Expert Panel’s final report put a review of the excise model, potency-based duties, and pharmacy access to medical cannabis on the record. A 2025 Deloitte report sharpened the economic case to drop the $1-per-gram floor. And Health Canada has already quadrupled micro-class limits, giving smaller LPs a real path to scale.

The recommendations are not yet law, and disciplined operators will keep complying fully with the framework that exists today. But the direction is unmistakable. The LPs that use this window to strengthen quality systems, model both tax scenarios, and prepare micro-class amendments will be the ones ready to capitalize the moment reform arrives. Preparation, not prediction, is the advantage.

Sources and References

1. Health Canada — Legislative Review of the Cannabis Act: Final Report of the Expert Panel (tabled March 22, 2024).
2. Government of Canada — Canada Gazette, Part II, Vol. 159, No. 6: Regulations Amending Certain Regulations Concerning Cannabis (Streamlining of Requirements) (SOR/2025-43, in force March 12, 2025).
3. Health Canada — Summary of changes following the streamlining of regulations.
4. Canada Revenue Agency — Excise duty rates (cannabis).
5. Cannabis Council of Canada — Welcomes the Findings of Deloitte Report and Calls for Change to the Excise Tax (May 21, 2025).
6. Health Canada — Applying for a cannabis micro-cultivation, nursery and micro-processing licence.

This article is for general information and does not constitute legal or tax advice. Regulatory requirements change; verify current obligations with Health Canada, the CRA, or a qualified regulatory consultant before acting.