Those who follow the new Alaska Marijuana News section of Anchorage’s Alaska Dispatch News will know that Alaska hit a new milestone in June. Marijuana revenues for the state topped US$500,000 per month for the first time.
Colorado, whose legalization went into effect more than a year before Alaska’s, hit a milestone of its own in May: Over US$500 million — yes, million — in government revenue has been raised since legal marijuana sales began on Jan. 1, 2014.
All of which raises the question of how much money weed will generate for the Yukon’s governments, assuming legalization occurs as planned in Canada next year.
If you annualize Alaska’s June revenues, it works out to about $10 per resident (all figures in Canadian dollars unless noted). Annualizing Colorado’s revenue so far in 2017 produces $50 per resident. This is a big difference, and is probably driven by the industry’s earlier start in Colorado and differences in tax rates (more on that in a minute).
Multiplying those per-resident figures by the Yukon population gets a range from roughly $400,000 to $2 million.
In the US, the federal government still considers marijuana illegal so doesn’t share in the tax revenues. Both Colorado and Alaska share revenues with other levels of government in various ways.
Colorado shares 15 per cent of its retail marijuana sales tax with local governments. Forbes magazine reports that Aurora City spent $1.5 million fighting homelessness and Pueblo County put $420,000 towards college scholarships. In Alaska, Anchorage has its own five per cent marijuana sales tax, which generated around US$70,000 in April for the city.
The differences between the Alaska and Colorado tax models show the kind of choices we have to make in Canada. According to the Alaska Department of Revenue, the state has an excise tax of US$50 an ounce for “any part of the bud or flower” and US$15 an ounce for any other bits of the plant.
Colorado, on the other hand, put in place a complex system with several parts: the 2.9 per cent general sales tax, 10 per cent retail marijuana sales tax, 15 per cent wholesale marijuana tax and various license and application fees. Colorado then allocates the revenues to lower levels of government, as noted, as well as to public school capital and operating budgets.
You’ll notice that Colorado levies its taxes as a percentage of value on marijuana products, an approach known as “ad valorem,” while Alaska charges a fixed sum per ounce. The percentage method exposes the government to lower revenues if competition forces marijuana prices down, but also gives the government a share of the upside if retailers start selling more expensive “value added” marijuana products.
The Yukon will also have to coordinate how the revenue will be shared with the federal as well as Yukon First Nation and municipal governments. First Nations deliver health and justice programs that will be affected by the marijuana business in their traditional territories, and municipalities also have responsibilities around bylaws controlling how marijuana is treated within city limits.
Gasoline shows how complicated things can get when you mix several levels of government and both per-unit and ad valorem taxes. The feds charge 10 cents per litre. Provinces and territories charge from 6.2 cents (the Yukon) to 33 cents (Newfoundland). Cities like Whitehorse charge zero, but Vancouver charges 17 cents per litre. Federal GST of five per cent is collected nationally, with some provinces charging provincial sales tax on fuel and others not.
Further complicating the choices is the black market. Like tobacco, governments have to balance between setting taxes too low and not collecting much revenue, or too high and inadvertently encouraging the black market. Since the marijuana black market is well established in the Yukon, it may make sense to charge lower taxes at first and only gradually ratchet them up.
So how much money could weed generate for our governments? We won’t know for sure until the negotiations are completed, but let’s look at gasoline and tobacco as examples and then make some assumptions to get a rough sense.
Most provinces have higher gasoline excise taxes than the feds and get a majority of gasoline excise tax. Some charge sales taxes higher than the GST, but others don’t charge sales tax on gasoline at all. So it’s roughly an even split, although varying significantly by province.
As for tobacco, another good example, figures from Physicians for a Smoke-Free Canada show that in 2015-16 provinces kept 61 per cent of federal-provincial tobacco tax revenue, and the federal government kept 39 per cent.
So let’s assume the feds keep, say, 40 per cent of marijuana revenues. The Yukon would then have 60 percent to split between the territorial, First Nations and municipal governments. Assuming also that we had Colorado levels of revenue generation, that would work out to $1.2 million per year.
To put that in perspective, the Yukon government makes about $4.6 million a year from liquor tax and $10.5 million from tobacco tax.
If each level of government kept a third, that would mean $400,000 for the territorial government. Then $400,000 to be divided between First Nations, and the last $400,000 to be divided between the Yukon’s municipalities.
That’s before considering the cost of administering marijuana taxes and regulating the industry, as well as any cost savings for the police and court system from prosecuting fewer small-time marijuana offenses.
So while marijuana taxation raises lots of complex issues for politicians and finance officials to wrestle with, it is unlikely to be a new cash cow for our governments. The main beneficiaries may be marijuana consumers, retail entrepreneurs as well as tax consultants.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.