OTTAWA – A U.S. consultant hired by Ottawa to assess Canada’s eventual recreational pot market says jurisdictions that regulate cannabis should expect “unbelievably high” sales growth in the first few years as criminals are driven out of business.
Adam Orens, a founding partner of the Marijuana Policy Group, said he is not yet authorized to discuss his findings on the future Canadian pot market because his organization is under contract with Health Canada.
However, a look at the group’s estimates for Colorado’s regulated cannabis industry suggests Canada can expect its own sector to generate billions of dollars per year in direct and indirect economic activity.
Colorado’s marijuana industry churned out nearly US$2.4 billion in economic activity in 2015, created 18,000 full-time jobs and pumped US$121 million in tax revenues into state coffers, Orens’ group reported in a study released last fall.
A key takeaway from the Colorado research is that newly legalized pot industries should be ready for a sales jolt over the first few years as black-market transactions shift to the regulated market, Orens said.
His Denver-based firm found that Colorado’s regulated marijuana sales skyrocketed 42.4 per cent between 2014 — the first year recreational pot sales were permitted in the state — and 2015, when they totalled US$996 million.
“We’ve had unbelievably high year-over-year growth rates in sales,” Orens said in an interview, adding the group expects similar sales booms in other pot-regulating places such as Washington state, California and Oregon.
“This is a conversion of an existing, informal market into a formal, regulated market and you’re going to see several years of very fast growth.”
After the initial surge, however, he noted the Colorado study predicted considerably slower sales growth under the expectation that the black market will gradually be swallowed up. The report projected sales growth of 13.1 per cent in the state in 2020.
While every jurisdiction is different, Canada’s population is seven times larger than Colorado’s.
The Trudeau government, which recently introduced legislation to legalize recreational pot, has begun assessing the economic impacts of a regulated pot industry in Canada as well as taxation options.
To date, the feds have provided few details in public on how the new industry could benefit the economy and the government’s bottom line.
Prime Minister Justin Trudeau has said the feds’ first concerns are taking weed out of the hands of kids and yanking the profits away from criminals. He has indicated any revenues from marijuana taxation should fund addiction treatment, mental health services and public health education.
To elbow out illegal vendors, Finance Minister Bill Morneau recently hinted Ottawa would keep pot taxes low enough to stay competitive with street prices. Morneau has also stressed that maximizing federal revenues on marijuana will not be a priority.
A spokesman for Health Canada said the Marijuana Policy Group has been contracted to analyze the expected future demand for non-medical cannabis in Canada.
Eric Morrissette wrote in an email that the findings will help Ottawa develop policy related to the implementation of cannabis legislation and complement some publicly available studies.
In November, the parliamentary budget office projected 2018 sales tax revenue — for Ottawa and the provinces combined — to be as low as $356 million and as high as $959 million. That’s assuming regulated retail pot sells for $9 per gram, in line with current black-market prices.
Earlier this month, the C.D. Howe Institute think tank estimated legalized cannabis would generate about $675 million next year in combined federal and provincial revenue from existing sales taxes.
Deloitte estimated last fall that Canada’s soon-to-be-legalized pot industry could generate as much as $22.6 billion in economic activity.
In Colorado, Orens’ group estimates that every US$1 spent on retail pot creates US$2.40 worth of economic activity. By comparison, the research found that retail trade in Colorado generates US$1.88 per dollar.
Of the 18,000 full-time jobs created in 2015, the Colorado study said about 12,500 were directly involved in the pot business.
He said the direct positions ranged from “bud-tender” retail associates to growers, while indirect employment included jobs in services such as law firms, security and transportation.
The report said the state collected about US$121 million from sales and excise tax revenues combined in 2015. Orens said that number grew to around US$200 million last year.
In one example, he noted the City of Denver’s revenue figures have shown it had enough leftover cash to fund projects such as housing assistance, even after it spent money on marijuana regulation and enforcement.
“For public revenues, there’s a lot good going on,” Orens said.
“Now, I think what needs to be said, though, is that cannabis is not balancing budgets. We’re not funding government with this money, but it helps.”
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