Pot is not the golden goose

How many zeros does marijuana taxes actually produce?

By Jordan Bateman

Fourteen years ago, B.C. Marijuana Party candidate Joshua McKenzie ran in the staunchly conservative provincial riding of Fort Langley-Aldergrove. He spent a memorable all-candidates meeting answering every question with one sentence: “If government legalized and taxed marijuana, there would be plenty of money for health care, education and other priorities.” By the end of the meeting, people were chanting his answer along with him.

McKenzie only drew 674 votes, but the belief that legalizing and taxing marijuana could pay for everything has only grown since 2001.

The examples south of the border, however, seem to suggest that the truth is very different.

With Prime Minister Justin Trudeau’s campaign promise to “design a new system of strict marijuana sales and distribution, with appropriate federal and provincial excise taxes applied,” Canada is closer than ever before to seeing what kind of tax money can be wrung out of the pot industry.

A 2012 study estimated national marijuana sales at $4.6 billion per year. That’s total revenue, not potential taxes. Indeed, the taxes generated from marijuana are likely to be far less than suggested in recent years.

In Colorado, the first United States state to legalize pot, tax revenue from marijuana is on pace to hit $126 million this year on $923 million worth of sales. If Canada used a similar tax rate, it would generate $628 million in taxes per year.

That might sound like a lot of money, but considering the federal government is projecting to collect $290 billion in revenue this year, the additional cash from marijuana would amount to an increase of 0.22 per cent.

Marijuana legalization advocates often argue that enforcement costs will dip, too. However, that isn’t the case thus far in Colorado, as police there have asked for more resources to try to stamp out the organized crime networks that controlled marijuana production and sales for decades. Further, the black market is still in operation as people seek cheaper, tax-free marijuana.

And that’s the real Catch-22. How do you regulate and tax marijuana when the black market can provide it so much cheaper?

If you push marijuana taxes to tobacco levels, will you keep people buying contraband?

Would a critical mass of people pay a premium for pot when they can get it the old fashioned way at much lower prices?

Marijuana is – and would remain – the same, unless the price of the legal product was lower than the black market price, which would only happen if the government decided to forgo some of its potential tax revenue.

Marijuana legalization is coming, thanks to newly elected Prime Minister Trudeau. It will be a fascinating experiment in public safety and taxation policy, one that will be studied for decades to come.

But no politician should start writing cheques until they see how many zeros marijuana taxes actually produce.

Jordan Bateman is the B.C. director of the Canadian Taxpayers Federation.