Ottawa, June 19th, 2019—The Conference Board of Canada’s Economist Robyn Gibbard offers the following insights on today's release of data on government revenues from the sale of cannabis:
“Today Statistics Canada released its first-ever figures on government tax revenues from the sale of cannabis products. The numbers have been lower than expected, thanks in part to the bumpy rollout of legalization last fall. However, we think that as the kinks are worked out, governments can expect strong growth in revenues from cannabis sales going forward.”
- There are two types of taxes that apply to cannabis products: the general sales tax that applies to all goods and services, and an additional excise tax specifically on cannabis products. Altogether, revenues from these taxes totaled $186 million in the five-and-a-half months since legalization.
- This figure captures only tax revenues and does not include additional government earnings from the crown corporations in charge of retail and wholesale sales.
- The first revenue payouts to provinces (for Q4 2018) were lower than expected, likely due to supply shortages and other issues with the roll-out of legal product. But we saw total government cannabis revenues grow by 36 per cent in Q1, indicating that at least some of those issues have been resolved.
- According to Statistics Canada, cannabis sales on the black market still dwarf legal sales, with $377 million of legal product sold in Q1 versus $1.0 billion in black market sales.
- The ratio of legal to black market sales was nonetheless improved compared to Q4, and we expect that consumers will continue to gradually shift their spending away from the black market. That will in turn lead to higher tax receipts.
- There are two more reasons for governments to be optimistic about future revenues: some provinces still have not fully rolled out their retail storefronts, and edible cannabis product legalization remains to come this year. Both moves will boost consumer spending on legal products.
- Given all these factors, we think governments can expect strong growth in revenues from cannabis going forward.