Ahead of tomorrow's budget announcement, perhaps it'd pay for David Cameron and George Osborne to cast their minds back to last New Year's Eve, when thousands of Americans took to the streets of their towns and cities and set up camp in sub-zero temperatures. While this might sound like a massive final reckoning party for a doomsday cult – or just a really fucking depressing way to spend NYE – these brave souls weren't gathered to usher in the end of an era, but the start of a new one.
Colorado became the first US state to legalise the recreational use of cannabis in late 2012, and – after a long administrative battle – over 20 businesses in the Centennial State began legally selling weed on the 1st of January, 2014. Of course, the possession and sale of cannabis remains illegal at the federal level, so what prompted Coloradan lawmakers to take this bold legislative move?
On top of all the usual pro-bud, "It's only a plant, man" rhetoric, one argument was that legalisation would create a tax-profitable "green economy". Now that more and more states are edging towards this point of view, could the same thing be applied in the UK, potentially solving our own massive deficit problems?
ASSESSING HOW THE YANKS ARE PLAYING IT
First, it makes sense to look at the current situation in the States. So far, 136 stores in Colorado have been state-licensed to sell cannabis, and the Colorado Futures Centre (CFC) – an independent, nonpartisan research body – predict a demand of 2,441,069 ounces a year in their home state. It’s difficult to determine what the average cost of weed will be throughout 2014, as huge demand has pushed prices in Colorado up to $400 (£240) an ounce – almost twice as much as the average recorded price in the area.
This is most likely due to a case of demand outstripping supply, and will probably level out over time. However, assuming that – in the long term – Coloradans will be willing to pay a little more for a high quality, legal product, an average price of $300 (£185) an ounce would be a fair guess.
If the CFC's demand prediction is correct, that would amount to around $732 million (£440 million) in annual retail sales, bringing in $21.2 million (£12 million) a year from the existing 2.9 percent Colorado state sales tax, as well as $73.2 million (£44 million) from the special 10 percent sales tax that Colorado has introduced for cannabis products. Also, assuming the CFC’s wholesale market prediction of $147.6 million is correct, a further $22.1 million (£13.2 million) would be gained from a 15 percent excise tax at the point of production.
Adding together taxes from retail and wholesale, this amounts to an estimated yearly tax revenue of $116.5 million – or around £71 million. Add savings from the police budget and extra income tax from job creation to that figure, and you're looking at a decent amount of extra public funds. And while the CFC say this won't be enough to solve Colorado’s budget problems, any alternative to extra public spending cuts and austerity is surely welcome.
HOW WEED COULD SAVE THE UK BILLIONS
Ignoring the moral, ethical and political debate over the legalisation of weed, it's impossible to deny the size of the market – and the potential for regulation and taxation. So what would it look like if the UK followed suit?
In 2011, CLEAR – a UK political party dedicated to cannabis law reform – funded a study by the Independent Drug Monitoring Unit (IDMU). They estimated that the amount of cannabis consumed in the UK between 2004 and 2011 was, on average, 36,579,100 ounces per year – almost 15 times the amount that Colorado's stoners get through.
Assuming that all of this consumption can be regulated and taxed, and using Colorado as a guide for how much UK dispensaries would charge on average (£185/oz), we can estimate that the UK cannabis economy is worth approximately £6.8 billion a year. To give you some context, that’s just under half the size of the British tobacco industry.
The system of taxation, however, would be different to the one employed in the US. Firstly, CLEAR proposes a flat rate of £1 tax per every gram of cannabis sold, and VAT would be levied at 20 percent on all cannabis sales. Assuming the levels of consumption remain the same after legalisation, with £6.8 billion made through sales, this system would yield £1.037 billion in excise duty and £1.36 billion in VAT, giving an approximate total of £2.4 billion in tax revenue per year from sales alone.
That's obviously a lot of money. But to put it into perspective, £2.4 billion a year could be used to pay for the starting salaries of 110,071 teachers; 10,666,666 nights in an NHS bed; 109,090 police cars and their maintenance for four years; every single elderly person’s winter fuel allowance; or one billion school dinners.
There are also significant public spending savings to be made through legalising cannabis. Based on the 2009/10 figures, cannabis offences made up 4 percent of criminal activity in the UK, and considering the police budget for 2010 to 2011 was £4.8 billion, that’s a potential £200 million in savings.
The prison service also releases detailed figures on what inmates have been jailed for. Between 2000 to 2009, there were an average of 1,139 cannabis offenders in custody a year. Seeing as it costs around £45,000 a year to house an inmate, quashing all previous cannabis convictions would result in a potential annual saving of approximately £51.2 million.
On top of these savings, the whole legal process of conviction also needs to be considered. Courts, probation services and legal aid are all additional costs to the taxpayer – costs that, according to CLEAR's estimations, end up at between £239 million to £646 million per annum, with an average cost of £512 million per year.
So far, that's an approximate saving of £763.2 million to the British taxpayer every year.
CLEAR have also suggested that a load more tax could be gained from cannabis sales if excise duty was charged based on the potency of the plant, meaning – as a consumer – you'd end up paying slightly more for a better product. Which makes total sense.
In their 2011 report, the party estimated that a tax and regulate policy on cannabis could produce a net benefit to the UK economy of £6.7 billion per annum. That sounds like a lot, but – just like Colorado – definitely isn't enough to balance the UK's budget deficit. In fact, the money made on tax per year through the legalisation of cannabis would only increase tax revenues by 1.4 percent – a minor dent in the UK's massive budget problem.
But it's a dent nonetheless, and our economy could do with all the help it can get.
Thanks to the accountants at Crunch for their help with the financial figures.
Follow Nick on Twitter: @nickchef88