Pot-revenue split strictly guesswork

Hey there, time traveller!
This article was published 12/12/2017 (3075 days ago), so information in it may no longer be current.

On Monday, Finance Minister Bill Morneau granted provincial governments a proposed 75 per cent share of federal excise tax revenue on marijuana that will be sold in provincially-licensed stores beginning next year. He had previously suggested a 50-50 split of the excise tax revenue of $1 per gram; at an Ottawa meeting with provincial treasurers, however, he responded to their fears of heavy costs for cannabis education, regulation and enforcement.

Any underworld crime boss would recognize what is going on here.

It may be possible to gouge quite a lot of new revenue out of marijuana users on account of Prime Minister Justin Trudeau’s legalization of the product, announced for next July 1.

Provincial finance ministers want to be sure they don’t miss out on the expected bonanza. They complained long and loud about the stupendous expenses that legalization will force upon them.

Experience may show if the 75-25 split makes sense. It will depend on prices Canadian cannabis users are prepared to pay.

It will also depend on costs provinces and municipalities really incur — and revenues they rake in — after the legal marijuana trade gets going.

Marijuana will probably retail in Canadian stores for about $10 a gram. When you add federal excise tax of $1, the 10 per cent ad valorem levy, Goods and Services Tax at five per cent and provincial sales tax (eight per cent in Manitoba, various in other provinces), the total hit on the consumer would come to $14 or $15 a gram.

Provinces would also be free to add a markup, as they already do on alcohol, if they think the local market will allow it.

As they pile tax on tax on tax, these dons and their consiglieri have to keep half an eye on the competition.

One purpose of legalization is to put criminal gangs out of the cannabis business.

If users can get weed at $10 a gram in a parking lot somewhere, they are not likely to pay $14 a gram in the government-owned or government-licensed store.

Under the present rules, governments draw no revenue from the recreational marijuana trade — no income tax, no excise tax, no ad valorem levy, no GST, no PST, no provincial markup, no municipal fees charged to retailers, no business tax on the retail premises. The revenue they are now being offered is all found money, a revenue windfall delivered into their hands by legalization. Their bleating about hypothetical expenses and their clamour for more revenue should be set in the context of the present position.

After the legal trade has been established in Canada, governments and the public will have some real data to work with. A few years’ experience will show what prices consumers will pay and what provincial and municipal costs and revenues in fact arise from the marijuana trade.

Mr. Morneau and his provincial colleagues should recognize that they are just guessing at both the revenue and the expense. A couple of years from now, they will know a whole lot more than they do now. They should keep retail prices low enough to shrink or eliminate the underground market. They should make a date to meet again and continue the revenue-split discussion once they have some facts to discuss.