Canada to reap billions in taxes from legal marijuana

Prime Minister Justin Trudeau's promise to legalize marijuana for recreational use could generate up to Can$5 billion (US$3.6 billion) in taxes for Canada's federal and provincial governments, a study says.

CIBC World Markets said its assessment is not comprehensive, but that with Ottawa and provincial governments facing revenue crunches in the wake of falling commodity prices, it was worthwhile exploring how much new revenue could be generated from legal marijuana.

The study ignored broader health, social policy and criminal justice issues.

In it, analyst Avery Shenfeld put forth various scenarios to try to pinpoint the size of the Canadian market for cannabis, using Statistics Canada surveys and a study in the International Journal of Drug Policy on the estimated number of pot smokers in this country, as well as Colorado's experience.

"Given that marijuana has to this point been illegal for recreational use, hard data for Canada is lacking," Shenfeld commented.

Extrapolating from the International Journal of Drug Policy research, total Canadian spending on marijuana would be Can$3 billion, he said.

"If so, dividing that pie among governments and producers would not appear to leave a lot of room for a fiscal boost unless prices were raised substantially," Shenfeld said.

But he noted that in Colorado the size of the market had been underestimated, and if the same is true here, the market for cannabis in Canada could be worth as much as Can$10 billion.

Other reports have pegged the size of the market at half that, noting that other US states did not see a similar bump in cannabis usage post-legalization. Shenfeld suggests tourists may have been behind the higher Colorado figures.

If marijuana is taxed at the same rate as other economic activities, the governments' combined take would be about 30 percent, or up to Can$3 billion. If it is taxed at the same higher rate as cigarettes and alcohol, however, the amount would rise to Can$5 billion.

Trudeau has appointed former Toronto police chief Bill Blair to sort out new regulations for the distribution of marijuana post-legalization.

No timeline has been provided, but when Canada moves to legalize the drug it will have been the first G7 nation to do so.