Realistically, How Much Does NZ Stand To Make From Cannabis Tax Revenue?

New research shows that cannabis legalisation could add $240 million annually to New Zealand’s coffers

After years of campaigning, the government of New Zealand last December passed a law to make medical cannabis legally and widely available for chronically ill patients. This new law change will not only provide relief to thousands of New Zealanders suffering from terminal or chronic diseases, but it will also bring more business opportunities within the country while raising NZ’s annual tax revenue. This decision appears to be a pivotal step towards full-scale cannabis legalisation, and could jumpstart a historical movement throughout the country.

About a week after this major movement, NZ’s justice minister promised a referendum on legalising the recreational use of cannabis at or by the 2020 General Election. This binding referendum would allow New Zealanders to vote on cannabis legalisation for personal use by the end of next year. Industry spectators and economists see full-scale cannabis legalisation in NZ as a means to a significant addition to the country’s annual tax revenue. 


How much tax revenue could New Zealand collect after marijuana legalisation?

In order to show how much New Zealand could prosper from the legalisation of recreational cannabis, NZ’s famous news website Stuff last year commissioned the New Zealand Institute of Economic Research (NZIER) to calculate the tax revenue the government would yield from legalisation. The findings of this research indicated that cannabis legalisation would generate approximately $40m in tax revenue and $30 million from the Goods and Services Tax, totaling an annual amount of $70 million. For this figure, the research team made many informed assumptions about the number of cannabis users, tax rates and how price change and tax would impact the final price of the product. They gathered data from the Ministry of Health's latest survey on drug use.

According to a member of the Opportunities Party, New Zealand could generate $5 billion annually with full-scale legalisation of cannabis. Sandra Hughes, CBS News correspondent, says Canada with a strongly regulated market and other nations looking into legalising marijuana consider this as a big boom for tax revenues. She says New Zealand should learn from these examples and build an understanding of the advantages and drawbacks of cannabis legalisation.


Cannabis legalisation in NZ could add up to $240m in tax revenue

Should cannabis become legal in New Zealand, a whole new marijuana industry will emerge in the country. The US state of Colorado, which has an almost equal population to New Zealand, legalised cannabis in 2012. Colorado generated $199 million in tax revenue in 2017 from marijuana sales of $1.3 billion. The marijuana industry in Colorado created 18,000 new full-time jobs in 2015 and received $2.4 billion in economic activity.


Colorado and Washington are making millions in tax revenue after marijuana legalisation
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Research commissioned by the NZ Drug Foundation indicated that New Zealand could be $86m a year better off in "societal gains" with cannabis legalisation. This research looked at scenarios the Government could take towards drug decriminalisation. It concluded that legal growing and selling of marijuana would generate tax revenues of between $185m and $240m annually. It would also save the justice sector between $6m to $13m because of fewer people going to court and prison for cannabis offences.

According to Ministry of Health Drug Harm Index (DHI), annual policing expenses on cannabis-related interventions totalled about $90m, with another $109m spent on the courts and justice system. The DHI estimates that the NZ government missed out on $68.3m in GST and $145.8m on company tax in 2016.

According to a 2016 dissertation by a Bachelor of Laws student at the University of Otago, the current annual cost of marijuana prohibition in NZ was about $400m. The black market price of cannabis showed the maximum price that legal cannabis could rise to while still undercutting the black market. He said the street price was nearly $20 per gram or $350 per ounce of marijuana. People would also prefer legal cannabis due to improved quality, consistency and range of products. They would pay a premium to avoid being involved in criminal activity.

Overseas experiences have always shown that the legal accessibility of cannabis for nationals has resulted in increased tax revenues for the nations that have legalised the drug. Economists and researchers speculate that New Zealand will also experience the same after legalisation. However, a well-crafted and properly regulated policy is essential.