A report by the Canadian C.D. Howe institute states that the Canadian government would make $650 million Canadian Dollars (equivalent to about US $500 million) a year by taxing legal marijuana across the country (assuming the Canadian government taxes marijuana at its current federal and provincial sales tax rates).
Additionally, the report states marijuana legalization could cut down on black market sales if taxes on marijuana are low enough. The report indicates, however, that the Trudeau government is looking to add an additional marijuana tax that would push the price of marijuana above that of the marijuana offered on the Canadian black market. A conflicting report conducted by the Trudeau government last year expressed a need to “conduct the necessary economic analysis to establish an approach to tax and price that balances health protection with the goal of reducing the illicit market.”
The Trudeau must choose the rate of taxation on marijuana carefully. As the C.D. Howe report states “consumption of marijuana may increase due to low prices and a newly accessible legal supply.” However, placing too high a tax on marijuana would decrease the amount of business reclaimed from the black market. According to the C. D. Howe report, even a small increase in price could significantly decrease legalization’s effectiveness in drawing business away from the black market: pricing legal weed as little as $1 higher than illegal weed would, the C. D. Howe report estimates, lead to approximately 35 percent of the Canadian marijuana market remaining unregulated. However, if taxes on marijuana allow prices to stay roughly equivalent to those prices currently offered on the black market, the Canadian government could quickly conquer approximately ninety percent of the marijuana market.
Prime Minister Justin Trudeau is expected to announce his marijuana legalization plan later today. Trudeau has previously stated he hopes to fully legalize recreational marijuana by July 1, 2018. Trudeau is expected to propose a possession limit of approximately thirty grams, an age limit of eighteen to buy marijuana, and stringent penalties for selling to minors and driving under the influence. Additionally, individual provinces will have wide leeway to implement individual regulations.