Concordia Economist: No Economic Windfall From Legalization, but Much Room for Growth

Article by Sam Riches, Growth Op

There are many arguments for legalizing cannabis that are not rooted in dollars and cents.

The disproportionate enforcement of cannabis laws, for example. Or the failures of prohibition. Or the potential for improved access to medical cannabis.

Still, one of the oft-repeated arguments for legalization is the potential tax revenue that could be generated. But according to a new paper in Canadian Public Policy, Canada should not be expecting an “economic windfall” from legalization anytime soon.

The paper was authored by Ian Irvine, a professor of economics at Concordia University, and Miles Light, a research economist at the University of Colorado.

Using a model that assumes the legal market will account for 70 per cent of all cannabis purchasing, Irvine and Light found that tax revenues from cannabis sales would not match the concurrent drop in revenues from alcohol and tobacco sales.

“The tax margin on cannabis is quite small compared to the margins on alcohol and tobacco,” Irvine told Concordia University News.

According to the model, some of that tax loss can be offset by the personal and corporate income taxes paid by people working in the legal industry. As for the lower tax margins on cannabis, that’s a deliberate choice to better compete with the illicit market.

“You can’t have a huge legal market and have huge legal tax revenues, because that would require a high rate of taxation on each unit of cannabis,” Irvine explained.

However, he also said that there is still much room for growth in the Canadian industry, particularly on the retail side in Ontario and Quebec.

Read the full article here.