NEWS
Legalizing Cannabis Could Bring New Zealand $500 Million In Annual Tax Revenue
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The cannabis industry could be a financial success in New Zealand, but only if voters and lawmakers come together to legalize adult-use sales.
Published on May 26, 2020

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This September, New Zealanders will vote in a non-binding referendum to show whether they support or oppose the legalization of a taxed and regulated legal weed market. Earlier this month, the country's legislature released the final draft of an adult-use legalization bill, which it has promised to pass if a majority of voters support the referendum.

If the measure passes, legal weed sales could bring the country as much as $490 million annually, according to a new report by the New Zealand Institute of Economic Research (NZIER). This estimate is based on the 25 percent cannabis tax rate proposed in the new legislation, in combination with the country's standard sales tax. But because there is little information regarding how much weed Kiwis smoke, NZIER used data from Canada and Colorado to come up with its predictions.

''The key insight from that is that heavy users do actually consume a lot of this product,” explained NZIER principal economist Peter Wilson, RNZ reports. The analysts assumed that New Zealand’s rate of cannabis use would be similar to that of Colorado, and then scaled this data to match the country’s population. Based on this analysis, NZIER predicts that a legal weed market would sell around 1,100 tons of weed a year.

Wilson notes, however, that sales can only reach this level if the new legal market can successfully displace the country's existing black market. Although Canada and most US adult-use states are still struggling to defeat illicit weed operations, Wilson believes the data shows that a properly-regulated market offering quality products will eventually negate illegal pot.

''It may take some time to achieve that, but if legal cannabis is safe and the price reasonable, findings from countries which have legalised cannabis tell us that people will make the switch,” said Wilson in a statement. “If regulatory costs and taxes are too high an illegal market will likely re-emerge and gain market share.”

Wilson also notes that the government's adult-use bill contains a unique provision that could eventually decrease their share of tax revenue. The bill, which is partially modeled on Canada's restrictive adult-use legislation, will require the government to work to reduce the country's use of cannabis over time. If the government succeeds at this end, then overall weed sales will decline, as will tax revenue. 

“Overseas lessons show the detail of the legislation is important to avoid unintended consequences and achieve the Government’s overall objectives of reducing use through time,” Wilson explained.

Although the report is promising, the fate of the legalization bill remains uncertain. The referendum, which is being included in this year's general election ballot, is non-binding — meaning that majority support does not guarantee its success. Voters will also be choosing new government officials during that same election, and the country's new Parliament is under no obligation to uphold any promises made by the current administration.

In other words, even if voters are totally in favor of legal weed, the adult-use bill could still fail. If that happens, New Zealand will continue to prohibit cannabis in any form, as it does today. Even medical marijuana remains completely illegal, although recent laws have made it less risky for terminally ill patients to use medicinal pot. 

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LEGALIZATION
ADULT-USE LEGALIZATION
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Chris Moore
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Chris Moore is a New York-based writer who has written for Mass Appeal while also mixing records and producing electronic music.
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