If you’ve been thinking of investing in cannabis stocks, now might be the right time. The Canadian government has plans to fully legalize cannabis by next year. Rumor has it that the plans will be released to the public sometime this week. Sources have predicted an official announcement in early April, and now all we can do is wait. But while we’re celebrating, we also need to be thinking about taxes on our favorite plant. Experts argue that if and when cannabis becomes legal in various countries, governments should really keep taxes low.
High vs. Low Taxes on Cannabis
A new study from the C.D. Howe Institute estimates that cannabis sales could bring in a whopping $675 million in 2018 in revenue through sales taxes. These estimations are based on weed selling for $9 a gram. It won’t happen super fast, but it will happen over time.
If taxes on legal cannabis sales are too low, there is concern that the government will not earn that much revenue. Low taxes may also make it look like the government is promoting cannabis use. These risks are worth taking, argues economics expert and C.D. Howe policy analyst, Rosalie Wyonch. (Plus, the Trudeau government has promised that some proceeds will go toward mental health, addiction, and education programs).
“The government does actually have to choose at the outset between minimizing the black market and a large amount of revenue generation — it can’t do both,” she said in a recent interview.
Wyonch argues that if taxes on weed are too high, people will buy and sell weed under the table using the black market. This will make it very difficult for the government to control cannabis sales. If taxes are reasonable, fewer people will continue to buy weed illegally, helping to keep criminal activity under control. Squeezing out organized crime is a major goal of the Canadian government.
If the government does raise taxes and generates $1 billion in revenue, Wyonch warns that about half of the market would be unregulated.
How Should the U.S. Handle Cannabis Taxes?
Hopefully, cannabis will soon become fully legal in the United States as well. We know that if states like New Mexico made weed legal, after all, they’d make insane amounts of money. The cannabis industry is booming. There’s even the world’s first exchange-trade fund for cannabis that was recently launched on the Toronto Stock Exchange.
As for weed taxes, collections from states like Colorado and Washington have so far exceeded initial estimates. These states – including states like Oregon – have also made moves to reduce their tax rates.
Initial tax rates of 30 percent did nothing to reduce the black market, according to Tax Foundation. The U.S. is just as interested in cracking down on illegal sales. Even legalizing cannabis in Colorado has not done much to lower crime statistics. On the bright side, Governor John Hickenlooper plans to help the homeless in his state with revenue from cannabis taxes. Could cannabis help end homelessness?
Time will tell how well lower taxes on cannabis will work out for the Canadian government. If they are successful, the U.S. may soon follow suit. Countries like Australia are already legalizing medical cannabis; they may also learn a thing or two.