1. Legalized Cannabis Fiscal Considerations
Office of the Parliamentary Budget Officer
1 November 2016 1

2. Why this Study?
In Spring 2017, the federal government intends to introduce legislation to legalize and regulate recreational cannabis in Canada
The legalization of recreational cannabis will introduce an entirely new sector into the formal economy
Legalization will create new government revenues and expenses
PBO’s mandate includes analyzing trends in the Canadian economy
2 of 12

3. Users and Consumption (Middle Projection, 2018)
In 2018, estimated 4.6 million annual users, 655 mT consumed
Vast majority of total demand from frequent users
3 of 12

4. Illicit Cannabis Price (Estimated Average, 2015-16)
Prices vary considerably across the country
4 of 12

5. Illicit Cannabis Price (Estimated Average, 2015-16)
5 of 12

6. Illicit Cannabis Price (Estimated Average, 2015-16)
Mid-point average estimate of $8.84 per gram in
Legalization will likely put downward pressure on illicit cannabis prices
6 of 12

7. Legal Cannabis Price (Projection, 2018 & 2021)
Mid-point, pre-tax average estimate of $7.50 per gram in 2018
Initially, prices may be higher due to the potential for supply shortages, regulatory changes, and tax policy
Over the long-term, there will be downward pressure on wholesale prices as production costs decline
However, long-term prices are less predictable as consumer tastes and product offerings evolve
7 of 12

8. Legal vs. Illicit Price (Projection, 2018)
Excise taxes would push the after-tax legal price above the illicit price observed in
8 of 12

9. Resident Consumption (metric tons, Middle Projection, 2018)
All other things being equal, higher cannabis prices (legal and illicit) are associated with lower aggregate consumption, and vice versa
9 of 12

10. Legal Market Share (Projection, 2018)
The higher the premium for legal cannabis over the illicit price, the more Canadians will purchase cannabis on the illicit market
10 of 12

11. HST/GST/PST Revenues ($ millions, Middle Projection, 2018)
Modest revenues at the outset of legalization
Growing potential to capture fiscal revenues as market matures
11 of 12

12. Questions about this Report
Jean-Denis Fréchette
Parliamentary Budget Officer
Mostafa Askari
Assistant Parliamentary Budget Officer
Questions about this Report
Nigel Wodrich
Background Briefing
Visit our website and look for the report under the “our publications” tab.
More Information
12 of 12