Competition From Black Market Means Legal Marijuana Won’t Likely be Tax Cash Cow: PBO

Article by Ian MacLeod, Ottawa Citizen

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Legal marijuana must be delicately taxed and competitively priced or consumers will retreat to the black market, negating a core rationale for legalization, the parliamentary budget officer said Tuesday.

Should the Liberals follow that advice it means recreational pot sales, initially at least, will generate only modest sales tax revenues – about $618 million a year – and not the cash cow some predicted. What’s more, 60 per cent of that money will go to the provinces.

“We’re talking millions and millions, not billions and billions of dollars of revenue,” Parliamentary Budget Officer Jean-Denis Frechette said after releasing his office’s study on what Canada’s retail marijuana market might look like.

“The potential for revenue is very, very low,” added Mostafa Askari, he assistant PBO. “The illicit market, their profit margins are very high, so they have room to compete with the legal market, which makes it even more difficult for the government to set the price and the tax rate.

“If they want to achieve their objective of reducing the share of the illicit market, they always have to be conscious how the legal prices compare to the illegal prices.”

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