Legalising and taxing cannabis could raise hundred of thousands of pounds a year and save the justice system a fortune, a leaked Treasury report has claimed.

The Institute for Social and Economic Research (ISER) estimated that legalising and licensing cannabis could help reduce the UK budget deficit by up to £1.25 billion per year.

The leaked report responded to this figure to argue that it was probably over-optimistic, but it conceded that legalising the substance could “generate notable tax revenue” and “lead to overall savings to the criminal justice system”.

The Home Office has said that it has no plans to change the law prohibiting the use of cannabis, which remains a Class B illegal drug.

Cannabis consumption and tax revenue

One cannabis user told loveMONEY that the street cost of herbal cannabis in the UK is in the region of £5 per gram. Prices vary depending on the dealer, the quality of the product and the area.
Let’s take a look at what sort of tax revenue could be generated using that price as a guide.

The study suggests that approximately 216 tonnes of cannabis are consumed in the UK every year, by 2.2 million people between the age of 16 and 59. If 216 tonnes were sold at £5 per gram, that would mean a street value of approximately £1.1 billion pounds.

VAT levied on cannabis would raise around £220 million alone. An additional Cannabis Duty, that used Tobacco Duty on cigarettes as a blueprint, at a rate of 16.5%, could raise a minimum of an extra £181.5 million, plus a fixed sum for every purchase made.

Cannabis
That’s a total of well over £300 million. The £1.25 billion figure from the leaked report is perhaps, as the Treasury suggests, a stretch.

But there are very significant sums of money to be had here.

Further to potential tax revenue, the Treasury study agrees with ISER that regulating cannabis would save the state up to £200 million in court and police costs each year. Along with reducing the cost, it would also do away with what Lib Dem health spokesman Norman Lamb called the “ludicrous criminalisation” of users.

Legalising weed

Legalisation would reduce costs of production and transport, as dealers have to find ways to move drugs around without getting caught – and can suffer huge losses in profit when police seize their product.

Therefore, legalisation could actually cause a drop in the price of marijuana, when farmed under legally licensed conditions. This would result in scope for extra tax to be levied without alienating users by driving the price of their drug of choice out of their budget.

The Transform Drug Policy Foundation (Transform), a charitable think tank that has campaigned for the legal regulation of drugs since its formation 1997, argues that prohibition simply hands money to criminals.

By their calculations, the drugs market has an annual turnover of $320 billion worldwide – outstripping criminal profits in counterfeiting ($250 billion), human trafficking ($32 billion) and cyber crime ($1 billion).

What about the dangers?

There are potential dangers to using any drugs, including legal-by-prescription and recreational drugs like alcohol and tobacco. The results of a 2015 study published in the journal Scientific Reports “confirm that the risk of cannabis may have been overestimated in the past,” while the risks of alcohol may have been commonly underestimated.

The Home Office made a statement to say that there “is clear scientific and medical evidence that cannabis is a harmful drug which can damage people’s mental and physical health, and harms individuals and communities”.

But Transform says that any harm would be reduced by a legalised licensed system, which would prevent children getting their hands on drugs, and also make sure that drugs reaching users would not be mixed with potentially dangerous adulterants that have been known to cause fatalities.

That’s not the whole story on harms, either. Dr Carl Hart is a neuroscientist who has spent 16 years studying substance abuse and addiction.

Speaking during a TEDMED Talk in 2014, he argued that some common ‘facts’ about drugs simply aren’t true.

Speaking on talk show The Joe Rogan Experience, Dr Hart also said that there are relatively few people who really understand what drugs do and don’t do, and said that none of the groups who “control the narrative of drugs” such as parents and law enforcement “are uniquely qualified to speak to this issue, but they have dominated the conversation”.

While there are realistic concerns about the harms of drug use, some may have been overstated. If the result of a legalised system is less harm and more tax, is it not a reasonable goal?

Could we tax other drugs?

The 2006 documentary Cocaine Cowboys documents the illegal drug trade in Miami through the 1970s and 80s. During this time, cocaine became the drug of choice to import due to its incredibly high profit margins, and Miami was a key landing point for shipments moving through from countries in South America.

One of the key economic points that it touches upon is that drug money was spilling out of the hands of dealers due to the amount they were making. They financed a construction boom and fuelled Miami with the cocaine trade and a huge flow of cash from illegitimate to legitimate businesses.

The cost was the brutal gang violence that the dealers and their associates wreaked upon the city. But could we ever enjoy the benefits of the economic boost from the drugs trade without the horrendous cost?

Removing the necessity of criminal activity in the supply of drugs – in other words, legalising it – is also likely to remove the violence. The government could then tax the use of these substances, while simultaneously focusing on harm reduction.