Lessons from Washington and Colorado: the potential financial gains of recreational marijuana to Canada.

Author:Goltz, Nachshon

ABSTRACT: Canada lags behind jurisdictions such as Colorado and Washington in the legalization of recreational marijuana--but not in consumption. An empirical study conducted in downtown Toronto and studies by Statistics Canada reveal that marijuana use is widespread amongst Canadians, which suggests that the current regulatory regime is not effective as a deterrent. This paper details the results of the above-mentioned studies, reviews the regulatory framework of recreational marijuana use in Colorado, Washington, and Canada, and uses taxation data from Colorado to estimate the potential financial gain of marijuana legalization in Canada. The paper concludes with a brief discussion of the non-financial benefits of legalization. If you would like to smoke a joint, it will cost you about ten dollars in Denver. If it is your first time, you will also need to purchase a small reusable white bag for an additional two dollars. In Seattle, you do not need the bag, though the joint will cost you twice as much. In 2015, marijuana sales in Colorado almost reached the billion dollar mark* 1 while in Washington State the sales reached 257 million dollars. (2) In Toronto, a joint will cost you a 1000 dollar fine or six months in jail, or both. (3) However, Canada's criminalization of recreational marijuana does not seem to be an effective deterrent, based on the smoking patterns of Canadians.

TABLE OF CONTENTS I. Marijuana Smoking Patterns In Canada II. Regulatory Regimes in the United States A. Colorado 1. Legalization History 2. Regulatory Framework 3. Taxation B. Washington 1. Legalization History 2. Regulatory Framework 3. Taxation III. Lessons Learned A. The Possibility of Legalization IV. The Financial Cost of Marijuana Criminalization V. Conclusion A. Other Costs of Marijuana Criminalization APPENDIX A I. MARIJUANA SMOKING PATTERNS IN CANADA

Smoking marijuana is not a rare activity in Canada. According to Statistics Canada, in 2012, forty-three percent of Canadians reported that they used marijuana at least once in their life, while twelve percent used it in the past year. (4) Of those who used marijuana in the past year, 94% had used it more than once. (5) According to a study that this paper's authors conducted in Toronto, the average smoker is eighteen to thirty years of age, with a slight positive bias to males, people of color, and those originating from countries where marijuana smoking is more prevalent (e.g., Jamaica (6)). Males and cigarette smokers are more likely to be marijuana smokers, as well. Smoking marijuana is less common in more upscale neighborhoods, within mature populations and among young families. (7)

The authors' empirical study indicates that marijuana smoking is widespread in Toronto. According to the study, the estimated ratio of joints to cigarettes publicly smoked in the city is 1:25. More significantly, this revealed public attitudes to smoking marijuana: people are comfortable smoking in public at any time of day and discarding their butts on the street, willing to risk facing a sanction from law enforcement or a measurably negative reaction from the general public.

Despite indications of widespread use of marijuana in Canada, it still remains illegal. Marijuana is derived from the marijuana plant, which is included in Schedule II of the Controlled Drugs and Substances Act (8) ("CDS"). Accordingly, its possession, obtaining, and trafficking constitutes an offence under the CDS, with punishments of up to five years' imprisonment if indicted for possession or obtaining of the substance, (9) and up to a life sentence if indicted for trafficking (lesser penalties are applicable to charges pertaining to smaller amounts of the substance and subject to summary conviction). (10) The only exception is medical marijuana; its growth, sale, and use are governed by the Narcotic Control Regulations (11) and Marihuana for Medical Purposes Regulations, (12)

Although the existing regulatory regime was fairly recently upheld by the Supreme Court of Canada (see R v Malmo-Levine; R v Caine), (13) and despite the resources devoted to prosecution by law enforcement, the frequency with which marijuana provisions are violated indicates that they fail as a deterrent, serving only to increase the cost and risk of the activity. This failure is increasingly recognized by various federal jurisdictions that have legalized, decriminalized or relaxed recreational marijuana use, including the countries of Colombia, Costa Rica, Czech Republic, (14) Ecuador, the Netherlands, (15) Portugal, Spain, Switzerland, Uruguay, Jamaica, Norway, Peru, Romania and Mexico, (16) as well as the American states of Colorado, Washington, Oregon, (17) and Alaska. (18) In the cases of the District of Columbia (19) and Maine's Portland (20) and South Portland, (21) it was municipalities that legalized use in each jurisdiction. Seven more U.S. states, Massachusetts, California, Missouri, Hawaii, Maine, Nevada and Ohio, are in the process of voting on permitting recreational marijuana. (22)

As these jurisdictions make the shift from criminalization to legalization and regulation, in recognition of the need to conserve law enforcement resources, enhance revenue, and promote individual freedom, the question of potential reform in Canada still looms large. This paper outlines the regimes which legalize and regulate recreational marijuana use and sale in the American states of Colorado and Washington, and explores the practical benefits that Canadians may derive from legalization, with a special emphasis on tax revenues. This paper does not address the morality of decriminalization.


    1. Colorado

      1. Legalization History

        Colorado legalized marijuana use in 2012, through Amendment 64 on section 16 of Article XVIII of the state's constitution. (23) The Amendment was passed subsequent to a referendum, "in the interest of the efficient use of law enforcement resources, enhancing revenue for public purposes, and individual freedom." (24) It prescribed that marijuana is to be regulated "in a manner similar to alcohol," (25) with a resulting emphasis on (1) permitting use by persons aged twenty-one years or over, (2) implementing restrictions on driving while under the influence of THC, (26) (3) the need for sales to occur through "legitimate, taxpaying business people, and not criminal actors," and (4) the need for further regulation to ensure that consumers are "informed and protected." (27) The section further permitted personal use of marijuana, including its possession, use, display, purchase, gift-giving, and transport in the amount of one ounce or less, and simultaneous growth of up to six plants, with three flowering at any given time. (28) It allowed for marijuana cultivation, harvesting, processing, packaging, and sales by operators licensed under regulations to be adopted by July 1, 2013.29 The Colorado Retail Marijuana Code (30) ("CRMC") became the governing statute.

      2. Regulatory Framework

        A comprehensive set of regulations under the CRMC, which established a licensing scheme for retail marijuana growers and retailers, as well as a set of controls for retail marijuana sales and cultivation, was made available on September 9, 2013 by the Marijuana Enforcement Division ("MED") of the Colorado Department of Revenue. (31) The MED set out licensing procedures, security requirements, regulations of the retail process, as well as health and safety regulations, standards for cultivation and processing, and restrictions on advertising and display. The MED's evident regulatory priorities include: (32)

        (1) Maintaining business legitimacy through criminal background checks for all owners, management, and staff, as well as denial of licenses to persons convicted of drug-related felonies within ten years (or any felony within five years) prior to the license application, or to persons with a criminal...

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