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Taxes Prove Problematic for Canadian Cannabis Companies
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Taxes Prove Problematic for Canadian Cannabis Companies

One of the biggest draws for the notion of legalized marijuana is its impressive application as a cash crop. Not just for growers, either, but for governments who take a tax bite out of the popular plant. However, new signs suggest that the Canadian government may be having a problem actually getting that pot money, and it’s hit several major cannabis stocks particularly hard in Thursday afternoon trading.

The numbers are telling in their own right. So far, the licensed cannabis producers in Canada are behind on their tax payments to the tune of around C$192.7 million, or about US$141.3 million. And this isn’t actually anything new; the 2021 – 2022 fiscal year alone saw Canadian producers behind by roughly C$52.4 million. Moreover, the number of companies that owe the Canadian government is on the rise; in 2021, it was 68 producers. In 2022, it was 141. Now, as of March 31, 2023, the number is at 213. Given that there are only 305 total licensees in Canada, that’s a significant problem.

So what’s behind the huge and growing disconnect? Tantalus Labs CEO Dan Sutton described it as “…a sector-wide inability to survive under current excise tax policy.” Sutton has been working with other producers to get the taxes amended and make them more survivable. Further, Sutton notes that Canadian tax policy has been built around figures on long-term wholesale prices that simply don’t mesh up with the real world; Sutton even refers to them as an “egregious miscalculation.” Given the comparatively new state of the pot market, that’s not out of line.

Several major pot stocks were hit hard in Thursday’s trading. Canopy Growth (NASDAQ:CGC), one of the leaders in the field, is considered a Moderate Sell by analysts. But with an average price target of $0.99, it comes with 11.11% upside potential. Tilray (NASDAQ:TLRY) is another major brand in the field, considered a Moderate Buy. But its $3.50 average price target means a 49.89% upside potential, the highest of the five pictured above.

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