The Canadian government has always said it's legalizing cannabis to both protect kids and kill the black market. A new report released by the country’s Parliamentary Budget Officer suggests it will be difficult to do both at the same time - especially when it comes to setting prices for the legal market.
The report projects cannabis will cost around $9 per gram, adding that the federal and provincial governments won't have great amounts of flexibility to tax it in the same manner as tobacco without greatly increasing the legal price far beyond that of illegal marijuana. But it could help keep legal marijuana out of the hands of kids.
"On one hand, higher cannabis prices discourage consumption, especially among young Canadians who are likely to be more sensitive to price. Prices must be higher in both the legal and illicit markets if they are to effectively discourage consumption," writes report author Nigel Wodrich.
"On the other hand, higher legal cannabis prices provide a disincentive for current users to transfer to the legal market. The higher the premium for legal cannabis over the illicit price, the more Canadians will purchase cannabis on the illicit market."
Tax revenues in the millions, not billions
The federal and provincial governments can likely anticipate tax revenues in the hundreds of millions when cannabis legalization is first rolled out, according to the report. It says initial revenue will not be in the billions, as some have hinted at. At the beginning of legalization, he said that number could float around $618-million, or even as high as $959-million depending on tax rates.
The report said initial revenues will balloon right alongside an expanding market, however.
"As the legal cannabis market matures, the potential for government to capture fiscal revenues will grow,” reads the report.
"Production costs for the legal industry are expected to decline, creating space for government to collect a portion of the cost savings without increasing the legal retail price. Further, a potential consumer shift to more value-added cannabis products could create a larger tax base."
A recent study from business services firm Deloitte estimated that the legal market could boost Canada's economy by up to $22.6-billion annually.
The parliamentary watchdog anticipates that more Canadians will opt into the legal market as it becomes increasingly established, and also states that industry stakeholders expect legal marijuana could be sold as early as January 2018.
Prime Minister Justin Trudeau has said the money from cannabis tax revenues should go toward addiction treatment, mental health support and education programs.
The report suggests that 60 percent of revenues would go to provincial governments and the rest would go to the feds.
In the first three years of legalization, the report indicates that the number of cannabis users 15 and up will grow by more than half a million, reaching approximately 5.2 million by 2021. It also estimates that the vast majority of cannabis sales (98 percent) would originate from those who consume the drug at least once a week or daily.
The legalization of marijuana played a major role in Trudeau’s campaign for Prime Minister. Since that time, the Liberal government has vowed to put forward legislation in spring 2017. A task force was assembled to advise the government on issues from where to sell marijuana to the legal age of consumption, and its report is set to be complete by late November.