Marijuana Won’t Pay the Bills

Commentary, Taxation, Lee Harding

Legalize and tax marijuana and the budget will balance itself. Marijuana advocates from stoners to recreational users to the Prime Minister have tried to convince us of this for years. It makes some sense that a product so commonly used should be regulated, not criminalized, sending its newly-enabled taxation revenues to the public coffers. Unfortunately, recent federal announcements and the examples of two American states tell us a fiscal boon from legal pot is nothing more than reefer madness.

Marijuana legalization opponents said the long-term health and social costs will create a future burden on our health care system through drug-induced car accidents, brain damage, lung damage, and the like. No need to wait—the bill is already three-quarters of a billion dollars and counting. Last spring’s federal budget called for $9.6 million over five years for awareness, education and “surveillance activities,” with another $36.4 million announced in the fiscal update. In September, Public Safety Canada (PSC) announced $274 of marijuana-related spending. As October ended, the federal government announced a further $548 million would be spent to implement the Cannabis Act. Of this, a whopping $432 million headed to Health Canada, $68 million to the RCMP, $40 million to border security, and $6 million to Public Safety Canada (PSC).

Put down your illegal reefer for a moment, long enough to understand that nothing the government does is cheap or efficient. Health Canada’s millions are apparently for “a new regulatory approach, including licensing and inspection, compliance and enforcement, monitoring and research, as well as a national public education and awareness campaign, tracking systems and program support.” Never mind that this will all have to be done in conjunction with the provinces with their own untold costs.

At least some of this health spending seems superfluous, especially regarding marijuana awareness. Anyone who wanted to know the effects already does, and everyone else is in ignorant bliss. Besides, if the packaging is forced to look anything like tobacco smokes, it will basically say, “This will kill you,” aided by grotesque illustrations, and people will maintain happy denial anyway.

The Prime Minister has suggested a ten per cent pot tax. Even so, finance officials have refused to suggest that this will even provide cost recovery for legalization. It is far from certain. Colorado, with one-seventh the population of Canada, received $76 million from marijuana taxes and fees in 2014, an amount that ballooned to $200 million last year. That said, Colorado’s excise and sales taxes on pot add up to 27.9 per cent and only have Washington State to compete with for the entire legal market of the United States, one that is ten times bigger than Canada.

The tax-free status of First Nations Reservations will also undermine federal and provincial marijuana revenues. Tobacco tax exemptions amount to an estimated $686 million annually. In Quebec and Ontario, the Akewsasne, Kahnawake, Tyenidaga and Ohsweken reserves with their own factories are the source for a very high percentage of contraband tobacco. Nearly one-third of Ontario cigarettes are contraband.  The MacDonald Laurier Institute estimates the cost to public coffers is $1.6 to $3.1 billion in Ontario alone.

If tobacco, forever legal and widely available, can have up to a third of its sales being illegal, one can only imagine what the percentage will be for marijuana, widely available yet illegal in Canada since 1923. As Canada prepares to be the second nation in the world to legalize the recreational use of marijuana, it must maintain at least one sober thought: pot consumption and taxation will not relieve our governments’ fiscal headaches.