A report by the Economic and International Affairs Panel has also suggested that any profits made by the developing sector ‘may be minimal for several years’ because of the high investment costs.
Jersey growers are trying to carve out a niche in the emerging international market for medicinal cannabis, with the substance becoming increasingly used and licensed for healthcare purposes across the world.
It has been decided that the industry should be taxed at the 20% top rate of corporation tax, while most companies pay the lower 10% or 0% rates under Jersey’s zero-ten system.
The panel warned that, unlike in Guernsey, companies engaged in more than one type of activity could find their income from the other areas, such as standard farming, taxed at the same higher rate.
‘It should be noted that, in Guernsey, a business that carries out more than one activity under the same company may incur different rates of tax on each of those activities,’ the panel’s report says.
‘This is called income streaming and is not a model followed in Jersey. Jersey regulations state that should a company, registered in Jersey to cultivate cannabis, undertake activities not related to cultivating cannabis, that activity would be taxed at 20% as no differential tax rates would be applied within the same company.’
Forecasts in the Government Plan for 2022 to 2025 that the industry could contribute an extra £10 million in tax revenue were described as ‘speculative’ in the report.
‘The panel accepted that the cannabis industry had the potential to be a new source of revenue for the Island and, as such, is supportive of the regulations to apply a rate of 20% for the industry,’ the report says.
‘However, the panel has seen no real projected data to confirm any figures regarding the taxation of medicinal cannabis and, when asked, the Treasury Minister informed the panel that due to the industry being in its very early stages, forecasts would be speculative.’
It adds: ‘The panel has learnt through the course of its review that the business model of medicinal-cannabis companies generally requires that they invest heavily in the early years of the business.
‘It is therefore likely that profits from the industry may be minimal for several years from the date of licence registration.’
The panel, which comprises Senator Steve Pallett, Deputy David Johnson and Deputy Steve Luce, intends to carry out further scrutiny of the medicinal-cannabis industry.