Several economic myths have surrounded the legalization of marijuana. This has maintained the illusion that it would be a bonanza for federal and provincial treasuries because of the supposed enormous tax revenues that legalization would generate.
The Parliamentary Budget Office in Ottawa is to be congratulated for blowing up some of these myths in its report, published this month, on projected marijuana tax revenues following legalization in Canada in 2017 or 2018.
The first myth is that legalization would “create” a market value of over $20 billion. This number was offered in a recent Deloitte Canada report, taking into account investment, marijuana tourism, induced economic activity and so forth.
Well, in consumption terms, relatively little will be “created.” An illegal market may largely transform itself into a legal market, with only a small increment in total consumption. Legalization will bring about a displacement of production from private smaller-scale growers to licensed industrial-scale growers that operate in heavily regulated environments.
This may turn out to be market enhancing because of labelling requirements, and a greater degree of certainty regarding pharmaceutical content. It will also lead to the employment of PhD graduates in chemistry, students with MBAs, lawyers and marketing specialists. Some security jobs will migrate from enforcers to Garda employees. But if the legal market is to supplant the illegal market, it will at the same time create unemployment among the existing growers and distributors.