A gram of legal dried flower in Ontario passes through four separate pricing layers before it reaches a shelf: federal and provincial excise duty, the price the licensed producer charges, the Ontario Cannabis Store wholesale markup, and 13 percent HST at the till. The excise layer alone has a floor of $1.00 per gram, a number set in 2018 on the assumption that cannabis would sell for about $10 per gram. It no longer does. This post works through the arithmetic, including the parts nobody publishes.
Layer one: excise duty
Cannabis excise duty in Canada is not a percentage. It is a formula with a floor, and the floor is what bites.
The Canada Revenue Agency publishes the rates. For dried flower sold in Ontario, effective 1 April 2026:
| Component | Flat rate | Ad valorem rate | Which applies |
|---|---|---|---|
| Federal cannabis duty | $0.25 per gram of flowering material | 2.5 percent of the dutiable amount | The greater of the two |
| Ontario additional cannabis duty | $0.75 per gram of flowering material | 7.5 percent of the dutiable amount | The greater of the two |
| Ontario adjustment | 3.9 percent | 3.9 percent | Added on top |
| Combined floor | $1.00 per gram | 10 percent | Plus the 3.9 percent adjustment |
Non-flowering material is charged at 30 percent of those flat rates: $0.075 federally and $0.225 in Ontario.
The CRA's wording is that "only the greater of the flat-rate cannabis duty and the ad valorem cannabis duty is payable." That single sentence is the whole story. The 10 percent ad valorem figure only exceeds the $1.00 flat rate when the producer's selling price to the wholesaler is above $10 per gram. At current prices it almost never is, so the flat rate applies to nearly everything, and the effective rate rises as prices fall.
Ontario sits at the low end of the provincial adjustment: 3.9 percent, against 6.45 percent in Saskatchewan, 16.8 percent in Alberta and 19.3 percent in Nunavut.
Layer two: the producer's price
The licensed producer pays the excise duty and remits it, then sells to the provincial wholesaler at a price with the duty already embedded. That price is not published product by product.
What is published is the aggregate effect. A May 2025 report prepared by Deloitte for the Cannabis Council of Canada found that the average effective excise rate on the producers assessed rose from 11.2 percent in 2019 to 24.3 percent in 2024, or from 15.3 percent to 31.5 percent when measured against gross cannabis production revenue. In fiscal 2023, excise duty averaged 45.9 percent of cost of goods sold and 77.1 percent of selling, general and administrative expenses for those producers.
The report's central observation is a design point rather than a complaint. When the formula was written in 2018, cannabis sold for around $10 per gram and a $1 floor was a tenth of that. Licensed producers now sell at roughly $3 per gram. The floor did not move.
Layer three: the OCS wholesale markup
In Ontario every legal retail store buys from one wholesaler, the Ontario Cannabis Store. There is no alternative channel, which makes the OCS markup a structural feature of every price on every shelf in the province.
OCS moved from a variable markup to a fixed-markup pricing model in September 2023, having announced the change that February. It said the reduction would put roughly $35 million into the marketplace in 2023 to 2024 and about $60 million in the following full year. At the same time it set a wholesale cost floor of approximately $2.28 per gram for dried flower and pre-rolls.
The figure that matters for our arithmetic appears in the OCS annual data report for the 2025 calendar year: the average wholesale price per gram of dried flower in Ontario is $3.75. That is what a store pays OCS, and it already contains both the excise duty and the producer's revenue.
Layer four: HST
Ontario applies 13 percent HST at the point of sale, as it does to any other retail good. Unlike excise, it is calculated on the shelf price, so it scales with everything underneath it.
Putting it together: a $10 gram
Take a single gram of dried flower with a shelf price of $10.00 including tax, in Ontario, in 2026. Using the published averages above, here is where the money sits.
| Layer | Amount | Basis |
|---|---|---|
| Shelf price including HST | $10.00 | The stated example |
| HST at 13 percent | $1.15 | $10.00 divided by 1.13 leaves $8.85 |
| Price before HST | $8.85 | |
| Paid to OCS by the store | $3.75 | OCS published 2025 average wholesale price per gram of dried flower |
| Retailer gross margin | $5.10 | Before rent, wages, security, licensing, fixtures and unsold stock |
| Excise inside the OCS price | About $1.00 plus the 3.9 percent adjustment | $0.25 federal plus $0.75 Ontario, at the flat rate |
| Producer revenue plus OCS markup | About $2.70 | The remainder of the $3.75; OCS does not publish the split |
Now the caveats, because that table is a model rather than a receipt.
The $3.75 is an average across every dried flower format. Most grams sold in Ontario move in 3.5 gram, 7 gram, 14 gram and 28 gram packages, where the per-gram wholesale cost is considerably lower than for a single gram. Single grams sit among the higher per-gram items on any shelf, because the container, the excise stamp and the handling cost roughly the same whether it holds one gram or twenty-eight. A real single gram at $10.00 will therefore have cost the store more than $3.75 at wholesale, and the retailer's margin on it is correspondingly smaller than the $5.10 in the table.
The excise figure is a floor, not an exact charge. The 3.9 percent Ontario adjustment applies to the base or dutiable amount, which is the producer's selling price, and that price is not public. At current prices the adjustment adds a small number of cents per gram. We have not computed it to the cent, because doing so honestly would require a figure nobody publishes.
OCS does not publish the split between producer revenue and its own markup by category. The roughly $2.70 remaining after excise is a combined figure, and we are not going to guess at the division.
Why a flat floor behaves differently from a percentage
This is the genuinely counter-intuitive part, so it is worth doing slowly.
If excise were purely 10 percent ad valorem, a producer selling at $10 per gram would owe $1.00, and a producer selling at $3 per gram would owe $0.30. The charge would fall as the price fell, and the proportion would stay constant.
Because the formula takes the greater of 10 percent and $1.00, the producer selling at $3 per gram still owes $1.00. The same absolute charge is now a third of the selling price rather than a tenth. Nothing in the tax changed. The market moved underneath it.
That is the mechanism behind the Deloitte figure of 11.2 percent rising to 24.3 percent over five years. It is arithmetic, not policy drift, and it is why the excise debate has become a debate about the shape of the formula rather than the level of the rate.
The same effect further down the chain
A flat per-gram charge also lands unevenly across formats and pack sizes, which is worth understanding if you have ever wondered why small packages cost so much more per gram.
A one gram package and a 28 gram package each carry a fixed set of costs that do not scale: one container, one excise stamp, one label, one unit of picking and shipping. The excise on the 28 gram package is 28 times higher in absolute terms, but every other fixed cost is spread across 28 times as much product. The result is that per-gram price falls sharply with pack size, and the effect is structural rather than a matter of anyone's pricing strategy.
The same logic explains why the flat rate is relatively gentler on high-value formats. A gram of flower and a gram of high-potency extract input carry duty on very different underlying values, which is one reason the extract categories have grown as they have. We touched on that shift in Canadian cannabis trends for 2026.
How that compares with beer excise
The comparison is instructive purely as tax design, and StratCann ran it in August 2026 using producers' own reported figures.
| Company or sector | Excise as a share of sales |
|---|---|
| Tilray Brands | 33 to 35 percent of gross branded sales |
| Organigram Holdings | 38 to 40 percent of gross branded sales |
| Cronos Group | 58 to 61 percent of gross branded sales |
| Major Canadian brewers | 14 to 16 percent of wholesale sales |
Beer is charged at a flat federal rate of $37.69 per hectolitre, which StratCann reports works out to roughly 6 to 7 percent of the retail cost. Cannabis, charged per gram against a shelf price that has fallen by more than half since the rate was set, runs at between two and four times that share.
The instructive difference is not the level. It is that the beer rate is levied on volume of liquid, a quantity that does not change when prices change, while the cannabis floor is levied on weight against a value that has moved a very long way.
What happens when the rate moves
There is empirical work on this, and it needs a clear label. The research StratCann cited in June 2026 analysed United States market data from January 2014 to June 2023. It is not Canadian data, and the market structures differ substantially. With that stated, the findings were:
- A 10 percent increase in cannabis excise taxes produced a 12.6 percent reduction in legal sales.
- A 10 percent rise in retail prices produced a 17.8 percent drop in sales volume.
- Every $1 increase in excise translated into a retail price increase of $3.91 to $6.32, several times the tax itself.
That last figure is the one worth holding on to. Excise does not pass through one for one. It compounds through every margin stacked above it, which is exactly what the four-layer structure at the top of this post would predict. A dollar added at layer one arrives at layer four several times larger.
What is being proposed
The Cannabis Council of Canada's position, set out with the Deloitte analysis in May 2025, is that the per-gram floor should be removed and the duty set at a straight 10 percent ad valorem. The House of Commons Standing Committee on Finance made the same recommendation in 2024.
Neither has been enacted. The rates the CRA publishes as effective 1 April 2026 are unchanged in structure from those set in 2018: the same $0.25 and $0.75 flat rates, the same 2.5 and 7.5 percent ad valorem rates, the same rule that the greater of the two applies.
What this arithmetic does not explain
Four honest limits.
- Why two products at the same wholesale cost sit at different shelf prices. Retail margin is a business decision, not a formula. It varies with format, pack size, how long stock has been sitting and what a given store's fixed costs are.
- Why particular products appear and disappear. Availability is set by what producers choose to list with OCS and what OCS chooses to stock, which is a separate mechanism from pricing entirely.
- What a gram is worth. Everything above is input cost plus margin. Price is not a quality measure, and nothing here should be read as one.
- What happens next. The floor has now survived two formal recommendations to remove it.
Reading the structure on an actual package
The excise layer is the one part of all this you can physically see. Every legal container carries a province-specific excise stamp, which is how the duty is accounted for and one of the things that distinguishes a regulated package. We go through the rest of the label in packaged on is not harvested on, and the container rules themselves in why cannabis packages have a window now. For the eight-year view of what all of this has produced, see eight years legal, what the numbers say. And to confirm that a store is one of Ontario's authorized retailers, see how to tell a legal Toronto cannabis store from an unlicensed one.
Our prices are marked on the shelf, and our staff will tell you what anything costs and what sits behind that number. Come by 811 Dundas St W, or look through what we carry.
Sources
- Canada Revenue Agency, Excise duty rates, cannabis products: canada.ca
- Canada Revenue Agency, Adjustment rates for the additional cannabis duty in listed specified provinces: canada.ca
- StratCann, New report calls for cannabis excise reform, on the Deloitte and Cannabis Council of Canada study, 20 May 2025: stratcann.com
- StratCann, The hidden cost of sin taxes, 24 June 2026: stratcann.com
- StratCann, Brew and buds: comparing Canada's approach to cannabis and beer taxes, 10 August 2026: stratcann.com
- Ontario Cannabis Marketplace: By The Numbers, 1 January to 31 December 2025: doingbusinesswithocs.ca
- Cassels, Ontario lowers wholesale markup on cannabis: cassels.com
- OCS, Upcoming changes to pricing structure, February 2023: ocs.ca