Toronto City Council Member Inquiring About the Missing Cannabis Tax Revenue Promised by Ontario

A member of the Toronto City Council has recently expressed a keen interest in understanding the rationale behind the Province of Ontario’s decision not to distribute the additional tax revenue generated from cannabis sales to the city. This inquiry stems from prior commitments and promises made by the provincial government regarding the allocation of funds accrued from the burgeoning cannabis market.

The issue at hand revolves around the financial implications of the legalization of cannabis, which has been a significant source of tax revenue for the province. When the legalization of cannabis was initially proposed and subsequently implemented, there were assurances given by the provincial authorities that a portion of the revenue generated from cannabis sales would be shared with municipalities, including the city of Toronto. This arrangement was anticipated to provide a financial boost to the local government, aiding in addressing various civic needs and responsibilities.

However, it appears that these promises have not been fully realized, prompting the city councilor to seek clarification. The councilor is requesting a detailed explanation from the provincial government regarding their current stance on this matter. Specifically, the counselor is interested in understanding the factors or circumstances that have led to the apparent deviation from the initially agreed-upon revenue-sharing framework.

This situation has significant implications for the city’s budget and its ability to fund various public services and initiatives. The expected revenue from cannabis sales was likely factored into the city’s financial planning, and the absence of these funds could lead to budgetary shortfalls or constraints. Moreover, the issue also raises questions about intergovernmental relations and agreements, particularly in the context of new and emerging industries such as the cannabis market.

In light of these considerations, the Toronto city councilor’s inquiry represents not just a quest for financial clarification but also underscores the importance of transparent and accountable governance. It reflects the need for consistent and reliable communication between different levels of government, especially in matters involving revenue generation and allocation. The forthcoming reply from the Government of Ontario to this inquiry is anticipated with keen interest, given its potential to significantly influence fiscal strategies and cooperative endeavors between different levels of government, particularly in matters about the commercialization of cannabis and other related areas.

Toronto City Councillor Pasternak Seeks Clarity on Ontario’s Cannabis Revenue Sharing

James Pasternak, a respected Toronto city councilor representing Ward 6 York Centre and also serving as the Chair of the North York Community Council, initiated a formal inquiry in late September. He addressed a meticulously drafted letter to the Toronto City manager, raising pertinent questions about the allocation and distribution of revenue from cannabis sales, a subject of considerable financial and civic importance. This query specifically focused on the Ontario government’s commitment to sharing the financial benefits of cannabis sales with municipalities, including Toronto.

The background to Councillor Pasternak’s inquiry lies in the initial promises made by the province when it agreed to distribute $40 million over two years to those municipalities that opted to allow private retail cannabis stores within their jurisdictions. While acknowledging that the province had met these initial obligations, Councillor Pasternak brought attention to an additional, yet unfulfilled promise. This promise pertained to the province agreeing to distribute half of any surplus tax revenue it received from its portion of the federal excise tax on cannabis sales, once this revenue exceeded the threshold of $100 million.

However, the city of Toronto has reportedly not received any updates or communications from the Ontario government regarding the sharing of this additional cannabis excise tax revenue. This lack of information has prompted concerns and the need for clarity on the issue.

Toronto’s financial dealings concerning this matter have been transparent and accountable. The city received approximately $9 million as part of its share of the initial $40 million allocated by Ontario. It’s noteworthy that the province allocated $30 million of this sum directly to municipalities, reserving $10 million for unforeseen costs associated with the implementation and management of cannabis sales. Toronto received these funds in four installments, with the bulk being delivered in three tranches in 2019, complemented by a smaller payment in 2021. All these funds were responsibly directed into Toronto’s Cannabis Reserve Fund.

The detailed utilization of the funds received by Toronto has been accounted for in a letter to Councillor Pasternak from the Toronto City manager. Of the $8.97 million received, a substantial portion, amounting to $8 million, was judiciously utilized for enforcement actions against illicit cannabis operations. These enforcement measures included actions against unauthorized cannabis retail and production facilities, as well as the enforcement of laws about impaired driving and other cannabis-related offenses. The remaining balance of the funds is projected to be utilized within the forthcoming year.

In the broader context, the Province of Ontario has demonstrated a commitment to supporting municipalities in their efforts to manage the challenges posed by illegal cannabis operations. It has invested $3.26 million towards enhancing enforcement against such illegal activities. The approach adopted by Ontario is noteworthy, as it is one of the select provinces that has allocated a share of the federal excise taxes derived from cannabis sales to its municipalities.

Despite these initial distributions, the financial landscape reveals a significant accumulation of revenue by the Ontario government. In the 2022/2023 fiscal period, the Ontario government reported a total revenue of $310 million from its share of the Federal Cannabis Excise Duty, substantially surpassing the $100 million threshold by $210 million. Furthermore, for the 2023-2024 fiscal period, the Ontario Government has projected an additional revenue of $269 million from the same source.

In response to these financial revelations and the lack of updates regarding the additional revenue sharing, the Toronto City Council took a decisive step on October 13. The Council composed and sent a letter to the Ontario Board of Health. This communication sought detailed information on the expenditure of the cannabis funds, including inquiries about whether any of these funds were allocated towards addressing critical issues such as addiction treatment or mental health concerns. This request underscores the council’s commitment to ensuring that the funds derived from cannabis sales are utilized in a manner that positively impacts public health and safety.

Canadian Municipalities Seek Fair Share of Cannabis Tax Revenue

The matter of the appropriate allocation and distribution of federal excise tax revenue from cannabis is set to be a significant point of discussion in the upcoming meetings of the Board of Health and the Toronto City Council. The Board of Health is scheduled to deliberate on this issue on November 27, with their conclusions and recommendations expected to play a pivotal role in the subsequent discussions by the Toronto City Council, which is slated to consider the matter on December 13, 2023. The outcomes of these discussions are eagerly awaited, as they are subject to the decisions and actions taken by the Board of Health.

This issue is not unique to Toronto or Ontario; it reflects a broader national concern shared by municipalities across various provinces in Canada. There has been a growing chorus of cities and municipalities voicing similar apprehensions regarding what they perceive as their rightful share of the federal excise tax from cannabis sales. These concerns highlight the need for a clear and equitable distribution of cannabis tax revenues, especially given the additional responsibilities and costs that local governments have incurred following the legalization of cannabis.

In British Columbia, for example, cities in the Lower Mainland have been consistently vocal about this issue for several years. They have been advocating for a more substantial share of the cannabis tax revenue, arguing that the funds are essential for managing the local implications of cannabis legalization.

Similarly, earlier this year, municipalities in New Brunswick entered the fray, seeking their portion of the revenue. Their request mirrors the concerns raised by their counterparts in other provinces, underscoring the widespread nature of this issue.

In 2021, the situation gained further prominence when the Association of Manitoba Municipalities (AMM) released a position paper that strongly advocated for a more equitable revenue-sharing model. The AMM called upon the province to allocate 25 percent of its cannabis tax revenue to its municipalities. This request was made in light of the financial pressures that local governments face in managing the impacts of cannabis legalization.

More recently, the provincial government in Manitoba made a statement indicating that there were minimal “societal costs” associated with the legalization of cannabis. This statement contrasts sharply with the perspectives of local governments and the AMM, who have consistently highlighted the financial burdens imposed on municipalities due to legalization.

The AMM reiterated these concerns in its pre-budget plan, referencing a report by the Federation of Canadian Municipalities (FCM). The FCM estimates that municipal administration and local policing costs related to cannabis legalization will amount to $3-4.75 million per 500,000 residents annually. Extrapolating these figures, the total cost incurred by municipalities across Canada ranges from approximately $210-335 million per year. These significant costs underscore the urgency and necessity for municipalities to be included as key stakeholders in discussions regarding revenue sharing.

The AMM, in an email to StratCann, emphasized the importance of not burdening municipalities with these costs and the need for a co-developed revenue-sharing model. They advocate for a model that respects municipal authority and adequately compensates local governments for their role in managing the legalization of cannabis. This stance reflects a broader sentiment among Canadian municipalities, highlighting the need for collaborative and fair fiscal policies in the era of cannabis legalization.