Legalisation of cannabis and corporate and tax law

The parties to the traffic light coalition (a coalition of Social Democrats, Liberals and the Greens) expect that the imposition of an excise tax on cannabis - similar to that on tobacco and alcohol - would achieve the incentive purpose of taxation in particular and, at the same time, would also raise additional financial revenue for the public budget (fiscal purpose).

For example, the explanatory memorandum to the bill for a Cannabis Tax Act (Cannabissteuergesetz) of 2018 emphasises that, as a result of the legalisation of cannabis, a reduction in transaction costs for the previously illegal cultivation, trading and sale of cannabis can be expected. Experience from other countries and the analysis of price structures in markets for plants comparable to cannabis suggested that the net retail price of cannabis without an excise tax would be lower than current street retail prices. An excise tax on cannabis should therefore ensure that the gross sales price does not fall below the previous street price of cannabis in order to avoid that the cheaper price leads to increased consumption.

At the same time, the bill for a Cannabis Tax Act still contains some inaccuracies that the traffic light coalition needs to clarify in a legislative process. For example, the Cannabis Tax Act bill does not yet make a clear distinction between the taxable objects of "cannabis" and "cannabis-containing products". This is because, according to Section 3 (1) no. 4 of the Cannabis Tax Act bill, "preparations, mixtures or foodstuffs containing cannabis" are to be regarded as cannabis if they have a tetrahydrocannabinol (THC) content of more than 0.2 percent. Under Section 3 (6) of the Cannabis Tax Act bill “cannabis-containing products” are in turn defined as all preparations, mixtures or foodstuffs containing cannabis. The Cannabis Tax Act bill does not stipulate from which or up to which THC content a product is deemed to be "cannabis-containing". A distinction between cannabis and "cannabis-containing products" cannot therefore be clearly drawn.

A clear distinction should be made instead of this unclear regulation, which leads to legal uncertainty. The German Coffee Tax Act (Kaffeesteuergesetz) could serve as an example here. In this Act, the taxable object of the coffee-containing product is specifically determined on the basis of the proportion by weight of the coffee it contains (cf. Section 1 (5) of the Coffee Tax Act).

However, the traffic light coalition also expects additional tax revenue to be raised from corporate income tax, trade tax and sales tax in addition to this excise tax on cannabis products. Companies wishing to do business in connection with the legalisation of cannabis face the same questions as in other sectors of the economy, such as what is the right form of business (partnership or corporation) and how business operations are to be financed.