How should industrial hemp be taxed

The federal government has to reimburse "cannabis light" producers in taxes amounting to millions

Producers or sellers of CBD products can look forward to a windfall. The customs administration has to repay them over thirty million francs in illegally levied taxes.

Werner Bösch is happy. "It is probably unique in life that you get something back from the state," he says on the phone. Bösch has been a formative figure in the Swiss cannabis industry for decades. He is one of the largest CBD producers in the Zurich area, producing several hundred kilograms of legal hemp every year. In this industrial product, the intoxicating THC value is below one percent, but the CBD dose is higher, which has an analgesic effect.

Bösch and other hemp flower producers and sellers can be pleased because the Federal Customs Administration (EZV) repays them wrongly levied taxes. In a lengthy process, numerous CBD manufacturers such as Bösch had legally defended themselves against the fact that their goods are considered to be tobacco substitutes and are thus taxed at a rate of 25 percent on the sales price; Added to this is around eight percent VAT.

In February the Federal Supreme Court declared this taxation unconstitutional and therefore inadmissible. The CBD products could be smoked. But there is no risk that they will be consumed instead of tobacco. Therefore the legal basis for the taxation of hemp flowers as tobacco products is missing, justified the judges from Lausanne.

Customers could benefit

The FCA has not levied any taxes since the ruling was pronounced. The issue of reimbursement was not the subject of the legal proceedings. The FCA analyzed the facts in more depth after the judgment and - also in the interests of equal treatment - decided to reimburse all manufacturers for all tobacco taxes paid to date, said spokeswoman Donatella Del Vecchio on request.

This sum is significant; including payment interest, according to Del Vecchio, it amounts to around 33 million francs. The FCV will send a letter to the producers and sellers in the next few days to inform them of this news.

Werner Bösch is relieved that the relatively high taxation is a thing of the past. She almost broke the necks of many producers. The products would have had to be sold at a high price in order to generate a margin. If a bag cost CHF 28.50 in shopping, around 11 francs in taxes were incurred, and the remaining amount would have had to pay for rent, personnel and electricity costs. There wasn't much left, Bösch calculates.

The tax rebate that he will soon receive will be all the more generous. In his case, the sum is around one million francs. Bösch is likely to keep the money and book it as a profit. However, it would also be conceivable to pass the amount on to customers. Bösch is quite willing to let them benefit, even if it is still unclear in what form that would be possible.

In any case, the FCA cannot check whether the manufacturers are reimbursing the amounts reimbursed to their customers, emphasized spokeswoman Del Vecchio. The question of whether and how such products could be declared as taxable again in the future is not the subject of ongoing work.

«We want a regulated CBD market and regular taxes. But the approaches should be in a reasonable relationship, ”emphasizes Werner Bösch, who takes care of everything himself, from cultivation to sale, and runs several shops at home and abroad. His best-known shop is in Zurich's “Chreis Cheib” on Langstrasse.

Business collapsed

The CBD products, also known as “cannabis light”, have been on the market in Switzerland since the end of 2016. At that time the euphoria was great, and the number of dealers soared from a few dozen to several hundred in 2017 and 2018. But then prices fell because the supply was too high and the demand was too low.

The competition among the providers also led to forgeries and acts of sabotage, industry experts told the NZZ last summer. For example, pests were exposed to a competitor's plantation in order to destroy the plants, or pollen was poured into the ventilation systems of indoor systems.
Hobby entrepreneurs who had smelled the big business in the CBD made miscalculations and had to shut down the production facilities and shops.

Some of them are said to have switched back to growing illegal, high-THC hemp. This market is a lot more lucrative. The Federal Office of Police estimates that up to 60 tons of cannabis are consumed across Switzerland every year. If you pay 10 francs per gram, that corresponds to a turnover of 600 million francs.

The bottom line is that this is something that legal hemp manufacturers are also fighting for: cannabis liberalization. The CBD producers are convinced that this will create new jobs and generate additional tax income.