Canadian marijuana stocks surged Friday after Prime Minister Justin Trudeau’s government proposed a tax of one dollar a gram of legalized recreational marijuana.
The government said Friday the tax shouldn’t exceed C$1 (79 U.S. cents) a gram or 10 percent of the producer’s price, whichever is higher. Retail sales levies would be applied on top of that.
For example, 1 gram of dried cannabis costing C$8 to produce would be taxed at C$1, and the total cost of C$9 would be hit with a sales tax of C$1.17, bringing the total to C$10.17, the government said in a statement. The example uses tax rates that apply in provinces such as Ontario. Rates vary in other provinces.
Aurora Cannabis Inc. surged 15 percent to settle at C$4.64 in Toronto, the highest closing price on record. Canopy Growth Corp. gained 3.3 percent, Aphria Inc. rose 4.1 percent and MedReleaf Corp. rallied 5.3 percent.
The shares rose because the proposal is in line with expectations and the legitimate market needs to evolve to the point where pricing and range of products are comparable or slightly less than the black market, said Daniel Pearlstein, an analyst at Eight Capital in Toronto. However, it’s disappointing Canada plans to tax medical marijuana at the same rate, he said. [Read more at Bloomberg]