Legal pot revenue could reach $5 billion a year: economist

The Liberal government has promised to legalize marijuana and an economist said that could add billions to the government’s coffers.

Thestar.com
Jan. 28, 2016
By Bruce Cheadle

Call it Prime Minister Justin Trudeau’s secret stash.

A new report from CIBC World Markets says Canada’s federal and provincial governments could reap as much as $5 billion annually in tax revenues from the sale of legal marijuana.

CIBC economist Avery Shenfeld crunched the numbers using current estimates of Canadian recreational pot consumption, the revenue experience in U.S. states that have legalized, and other factors - such as prevailing “sin tax” rates on alcohol and tobacco.

“The bottom line is that federal (and) provincial governments might reap as much as $5 billion from legalization, but only if all the underground sales are effectively curtailed,” writes Shenfeld.

“That’s on the order of 0.25 per cent of GDP, no barnburner.”

The Liberal government has promised to legalize, tax and regulate marijuana and has made MP Bill Blair, the former Toronto police chief, the lead on investigating a new regulatory model.

Trudeau maintains that legalized pot will not be a cash cow, and that all revenues will be used to address mental health and addictions issues.

“It was never about a money-maker, it was always about public health, public safety,” the prime minister said in December during a year-end interview.

The experience of Colorado and Washington states, where pot sales were legalized and taxed, suggests no dramatic increase in marijuana usage but a potential for pot tourism.

“The desirability of increased marijuana tourism inflows will be questioned, no doubt, but they would generate additional fiscal revenues for government on their other tourist spending,” Shenfeld writes.

The report uses Colorado sales figures to estimate a Canadian pot market worth about $10 billion annually, then looks at net profit margins from Ontario’s government booze monopoly and other associated income and payroll taxes to come up with the revenue total.

Shenfeld also suggests that the oft-touted law enforcement savings from pot legalization may not materialize due to ongoing international obligations to stop marijuana exports and the enforcement needed to curb the untaxed black market.

“Deficits won’t simply go up in smoke as a result,” he concludes.