B.C. estimates $75-million in cannabis taxes in first full year after legalization

Theglobeandmail.com
Feb. 22, 2018
By Mike Hager

British Columbia is expecting legalized cannabis to bring in $75-million a year to the province in taxes, with legal sales estimated to be worth a billion dollars.

This week's provincial budget estimates that once the drug is legalized later this year, the province will take in $50-million in the current fiscal year and $75-million in 2019-2020, the first full fiscal year under legalization.

That represents the province's 75 per cent share of a federal excise tax, which Ottawa has said will be $1 per gram, or 10 per cent of larger purchases, whichever is higher. While that translates to about $1-billion in sales in the province, B.C.'s Finance Minister says it could be higher.

"We went with a very conservative number of what we expect the sales to be," Finance Minister Carole James told reporters on Wednesday in Victoria. "This is just the federal money, we put no provincial PST or any of those resources in there. There are costs in the budget that will offset most of those resources that are coming in, so we will not be making money in the first couple of years."

New Brunswick, the only other province to announce its revenue plans for legal sales, estimated in its budget tabled in January that it will get about $6-million in gross revenue this fiscal year from taxes on the drug and another $1.2-million in gross revenue from the public corporation in charge of retail. Quebec's Finance Minister told reporters last December that he estimates his province could receive $60-million from the excise tax.

B.C.'s budget provided no clarity on how much it will cost the province to set up its own licensing and enforcement regime for a new private-public network of standalone marijuana outlets. A representative for the Liquor Distribution Branch, which will be in charge of licensing private retailers and supplying wholesale cannabis products to the legal system, did say that a new $57-million warehouse in Delta, B.C., will be for alcohol only, and a new separate site to store cannabis will have to be built.

In its supplementary budget document, the agency said too much is still unknown to quantify all these costs.

Neil Boyd, head of Simon Fraser University's criminology school and a scholar of prohibition, said the province's estimate seems about right, if not a little bit high, based on about 12 to 15 per cent of its 4.6 million inhabitants spending hundreds of dollars a year on legal cannabis products.

"To say that it's going to be a third of liquor sales, in some ways that surprises me, but it's not completely out of line," said Prof. Boyd, who added about $3-billion worth of alcohol is sold each year in the province.

The biggest challenge of the new regime will be to displace existing infrastructure through which cannabis and edible products are illegally sold in physical stores and through the internet.

The government hopes that once the drug is officially legal, consumers will buy through government-regulated retailers, with law-enforcement authorities continuing to crack down on other outlets.

Statistics Canada estimates that the country's cannabis black market was worth as much as $6.2-billion in 2015. A recent study the agency released pegged the underground cannabis industry as moving about 697,500 kilograms of product that year. That dwarfs the 33,482 kilograms of dried flower and cannabis oil delivered last fiscal year by the federally regulated medical mail-order system, according to Health Canada.

Last December, the federal finance ministry estimated the excise tax alone will raise about $400-million a year initially. If the revenue turns out to be larger, Ottawa has agreed to cap its share at $100-million.

Meanwhile, most provinces are still negotiating with municipalities on how much of this tax money will be passed down to local governments in charge of regulating and policing this new sector at a local level.

In its submission to the federal Finance Minister last December, the Federation of Canadian Municipalities estimated it will cost a community of 500,000 people an extra $750,000 to $1.5-million each year in administration costs, for issues such as to zoning land for cannabis businesses, as well as another $3-million in policing.

Vancouver Councillor Kerry Jang, co-chair of B.C.'s provincial-municipal committee in charge of crafting the province's cannabis rules, said the province will soon meet with cities to discuss this revenue sharing.