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Here's The Truth About The Impact Of Tax Revenue From Legalization

There are all kind of ways legalization will greatly benefit Canadian society - one of them being the increased tax revenues which can pay for important social programs and pubic education initiatives.

But the jury's out on just how much money will be made, and the potential impact it will have. The January Economic Insights report issued by CIBC World Markets gave the straight dope on what the tax revenue from recreational marijuana could, potentially, mean for Canada. It's not necessarily a game-changer, according to economist Avery Shenfeld, who predicts a high end of $5-billion in annual tax revenue.

And even that relatively modest figure depends on a few major caveats, he says: for one, that marijuana be subject to the same high taxes as alcohol and tobacco, and (here's the big one) that the black market be eliminated or heavily curtailed.

As the report notes, Canada has been a major exporter of illegal cannabis, with just 30 percent of the black market crop consumed domestically. That's likely to stay underground - and, therefore, untaxed.

In the state of Oregon, marijuana taxes range from 17 to 20 percent in retail stores; in Colorado, retail marijuana is subject to the 10 percent state marijuana tax as well as the 2.9 percent state sales tax, plus any local sales taxes.

Still, the Canadian provinces of Ontario and British Columbia are already looking at how to expand the current monopoly on liquor sales to include selling recreational marijuana in retail outlets. After all, $5-billion in potential tax revenue is better than nothing. Still, anyone expecting legal cannabis to wipe out the national deficit may want to take a sober second look. Potential tax revenues are "on the order of 0.25 percent of GDP, no barnburner," writes Shenfeld. Further,

A study in the International Journal of Drug Policy estimated BC consumption at just over $400 million, which on an equivalent per capita basis, would suggest total Canadian spending of only $3-billion. If so, dividing that pie between governments and producers would not appear to leave a lot of room for a fiscal boost unless prices were raised substantially.

Tax haul could boost spending in education

Even if the pie is relatively small, one thing appears likely: If Canada continues to look to the U.S. as a model for its own legalization initiative, Canadian schools could realize at least a modest boost. In Colorado, the state's cannabis-funded excise tax, which collects money allocated for school construction projects, brought in $13.6-million in the first five months of 2015.

Oregon has followed suit, with 40 percent of tax revenues from legal cannabis earmarked for the Common School Fund, which provides public schools with hundreds of millions of dollars.

Still, proponents of legalization shouldn't get too excited about marijuana tax dollars flowing through our education system just yet, writes Shenfeld,

"The bottom line is that federal/provincial governments might reap as much as $5-billion from legalization, but only if all the underground sales are effectively curtailed." A notion that remains, clearly, easier said than done.

h/t CIBC, Vancity Buzz, Colorado Marijuana Tax Guide, Oregon Dept. of Revenue



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