Experts Say Cannabis Taxation Can’t Be Too High

While the federal government begins the long process of recreational cannabis legalization, experts are stressing that taxation needs to meet a balance between too low and too high.

“They can’t raise taxes too much or people will just smoke the illegal stuff,” said Simon Fraser University economist Timothy Easton.

After provinces raised taxes on tobacco in the 1990s, illegal sales jumped to 30 per cent of the domestic market. It wasn’t until a drop in taxes, a 67 per cent decrease in Ontario and a 71 per cent decrease in Quebec, that black market sales began to decrease.

“You want to have it high enough to discourage consumption — if, in fact, that’s your goal — but if you set it too high you end up with a continuation of the black market,” said University of Ottawa associate professor Patrick Fafard.

Tax rates in the U.S., where four sates have legalized sale of cannabis, Washington has a 37 per cent tax rate, while Oregon and Colorado are at 25 per cent. Alaskan lawmakers are still discussing their taxation rate, but have put forward a proposal to charge $50 on every once sold.

In the first seven months of legal sales, Colorado brought in $73.5 million, a similar formula used in British Columbia would amount to around $113 million a year for the province.

Fafard said up to $1 billion in justice system savings could also be gained through legalization.