What Will Happen if the U.S. Legalizes Pot Like Canada? A Mind-Boggling Economic Boon, That's What.
Following Uruguay’s lead, Canada became the second country in the world to federally legalize cannabis with implementation this month. This measure will allow the country to capitalize on huge economic opportunities, propelling it towards becoming the cannabis capital of the world and providing valuable insights for investors and businessmen in advance of a potential legal change in the much larger US market.
The economic boom is hard to overstate.
Trade, taxes and job growth would benefit from adult-use cannabis sales but categorization of marijuana as a Schedule I drug bars the U.S. economy from what could be a lucrative global market.
Legalizing cannabis on a federal level would allow the U.S. to enter the worldwide market for the plant itself, as well as products derived from its compounds. Arcview Market Research and its research partner BDS Analytics, expect substantial growth in the legal cannabis industry around the globe in the next 10 years. Spending on legal cannabis worldwide is expected to hit $57 billion by 2027. The adult-use (recreational) market will cover 67 percent of the spending; medical marijuana will take up the remaining 33 percent. Assuming an eventual alignment of laws, the U.S. could trade with Mexico and Canada, its neighbors and NAFTA partners, in addition to some of the most overlooked markets such as Germany, United Kingdom and Switzerland. Entering the global cannabis trade could bring in money from international sectors, while consumer cannabis spending and taxation would bring in money from home.
If the U.S. legalized cannabis on a federal level, the government could tax cannabis sales and profit from the plant rather than spend limited tax revenue policing it. In 2016, there were 587,700 marijuana arrests in the U.S., accounting for roughly 40 percent of all drug arrests. Tax dollars spent to arrest, prosecute and imprison people for possessing marijuana would be available for other government priorities. For example, Colorado, where recreational cannabis is legal, has generated more than $500 million in tax revenue since legalizing cannabis for adult-use, and roughly half of that revenue is used to fund public education. Between 2015 and 2017, $117.9 million of Colorado’s tax revenue was used to fund school construction projects, while $5.7 million was distributed to the Public School Fund, taking pressure off general revenue. In addition, as cannabis was previously not taxed, this extra tax revenue broadens the tax base. Municipalities are less reliant on existing ratepayers, a boon to local property owners and owners of small businesses.
Colorado’s local governments are generating substantial new annual revenue by collecting standard local sales taxes on cannabis products, enacting cannabis-specific taxes and local application and licensing fees. Municipal governments need money for improved infrastructure, sewage and water main development, and education funding to support future housing and economic development which in turn supports increased property tax collection.
Taking a big bite out of federal deficits.
The Canadian federal government predicts it will raise $400 million a year in tax revenues on the sale of cannabis. An analysis by New Frontier Data estimated full legalization of marijuana in the US, similar to what Canada has done would create at least a combined $131.8 billion in in federal tax revenue between 2017 and 2025. The legal cannabis industry is already projected to create 283,422 new jobs in the U.S. by 2020 but the New Frontier analysis estimates full legalization would create a million new jobs by 2025.
The economic growth as a result of federal legalization of cannabis could create more jobs and investment opportunities in retail, construction, agriculture and packaging industries, among many others. Luxury dispensaries will become more popular generating a need for retail employees and a location for the stores, a boost to an otherwise suffering retail sector. Construction is likely to rise as a result. Agricultural scientists and agricultural heavy goods are going to be in high demand, as would everything from farm equipment to proper transportation of goods. In addition, food, pharmaceutical and agricultural scientists will be in demand to create cannabis derived products and improve the taste, efficacy and convenience of cannabis products.
Packaging plays a crucial role in the cannabis industry for shipping the product and the product itself, creating more employment for packing engineers and warehouse staff. With legalization and more mainstream adoption, a more sophisticated marijuana consumer will emerge, increasing demands for sophisticated and graphically designed packaging.
Due to cannabis’s illegal status on the federal level, the adult-use industry lacks nationwide consistent regulation and quality standards, leaving each state to set its own packaging, labeling and testing legislation. Not only does this increase costs for business, which are passed onto consumers, the lack of federal regulatory framework creates potentially dangerous situations. National testing protocols would ensure that only safe and reliable cannabis products are on the shelves, so consumers know what they are ingesting and how much they are ingesting.
Moreover, adults could confidently purchase cannabis and cannabis products from legitimate retailers instead of through illegal drug deals that can be dangerous for all participants.
Legal cannabis in Canada will be an economic experiment with the potential to pay off in a big way for local governments, businesses and investors. The Canadian experiment in legal marijuana will provide a microcosm and lessons for a potential US legalization. Smart investors and business people will look to Canada to gain insight regarding investment opportunity.