Marijuana Tax: where will the money go when we legalize?

Chelsea Cox explores the financial and ethical implications of Canada’s upcoming legalization of marijuana.


Canada is set to make history next year as the federal government puts together legislation to legalize recreational marijuana. Not only will marijuana use be legal, the government will also play an active role in the drug’s regulation, distribution, and sale. As with other sellable goods like alcohol and tobacco, marijuana will be taxed. Where this tax money will go remains up in the air.

A recent study done by the C.D. Howe Institute predicts that legalized marijuana in Canada could generate upwards of $675 million in combined sales tax revenue. However, The Institute cautions that having too high of a tax would keep buyers out of the legal market in turn pushing buyers into the black market. They state, “there is a trade-off between public health concerns and revenue generation.” This thought is echoed in the Federal Task Force’s recommendation to establish a “tax and price that balances health protection with the goal of reducing the illicit market.” A major priority behind marijuana legalization and the involvement of governmental oversight is the stifling effect on black market activity and a way for the government to have an active role and say in how the drug moves from production to sale to consumer.

Data from Colorado and Oregon, U.S. States that have legalized marijuana, show that a tax rate of 30% was too high and did a poor job at hedging out the illicit market. These states later found that tax rates between 10%-20% can reduce black market activity while still bringing in high profits. In 2015, Colorado collected $115 million in tax revenue. Encouraging buyers to purchase legal marijuana remains a top priority in Canada and the taxation model should adapt to help minimize black market activity.

Actual taxation percentages aside, the question remains – where will these new tax generated dollars go? Should Canadians have a say? We’re entering new territory and ensuring that the distribution of these tax revenues favors public health goals remains a priority as recommended by the Federal Task Force and also as necessary for public good. Colorado has chosen to utilize their tax revenue to support public school renovations, safe-use marijuana campaigns, drug prevention grants, and other public good programs. What if some of the tax that Canada generates as we move to legalization is used to support public health interventions targeted at other illicit substances?

Canada continues to experience major issues with illicit substance use. The current opiate epidemic is evidence of this. With close to 2500 Canadians dying from opioid related deaths in 2016, drug use harms continue to reach into communities across the country. As past Health Minister Jane Philpott stated, “These are preventable deaths.” More generally, Canadians have seen an increase in the use of illicit drugs across demographics. A surge in new synthetic drugs, such as fentanyl, present further public health challenges. Physicians across the country are deeming the introduction of these new synthetic compounds a “public health emergency” as more lives are being lost. Capacity is being built into health systems to deal with this issue, however overdose deaths are still occurring at epidemic levels.

More funding is needed to help tackle issues related to drug use in Canada. Some of the tax dollars generated from marijuana could be used for public health interventions. Clean needle exchanges in British Colombia alongside education and prevention programs in other provinces have been extremely successful in overall drug harm reduction – but lack sufficient funding to make a larger impact. Experts say that intervention strategies such as these save tax payers $4 for every $1 spent, showcasing their effectiveness and benefit in comparison to spending in other spheres.  These public health interventions can also take the form of opening more clinics, furthering education for law enforcement and health care workers, and public health information campaigns for the public. The Federal Task Force recommends allocating a portion of the tax revenue to support prevention and treatment for cannabis dependence however extending this revenue to support the health concerns arising with the opiate epidemic makes sense. There’s already $75 million allocated to the opiate epidemic and public health emergency strategies, but the use of marijuana tax revenue will allow for new public health interventions.

Regardless of how allocation is determined, Canadian marijuana will be taxed and this money will need to go somewhere. Using it to tackle and alleviate issues surrounding our other illicit drug problems could help Canadians, while also preventing the need to find the money elsewhere. Ensuring that the conversation stays open and the public is engaged should remain a priority for the government moving forward especially in the decision-making process regarding the utilization of this new tax money.


Chelsea Cox is a J.D. and Master of Health Administration candidate at Dalhousie University.

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