Drugs

How Cities Could Lose Big If They Don’t Sell Legal Weed

Legalization is next week but some municipalities are still opposed to retail stores.
Manisha Krishnan
Toronto, CA
October 9, 2018, 9:28pm
Toronto skyline and some nugs.
Photos via Flickr user Christine Wagner/VICE

Marcy Morrison had no interest in allowing legal cannabis sales in Manitou Springs after Colorado moved to legalize recreational weed in 2012.

Morrison, 83, who served as mayor of the town of 5,000 from 2001-2007 and later was in the Chamber of Commerce was staunchly opposed to retail sales, worried that kids would easily be able to get their hands on weed. But she was overruled and today, that’s something she’s happy about.

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“The point is, to be perfectly blunt, it has brought a sizeable amount of money into our budget,” Morrison, a Republican turned Independent after “Mr. Trump changed my mind,” told VICE over the phone from Manitou Springs.

Just how much is a “sizeable amount of money”?

According to the LA Times,

in 2016, Manitou Springs took in $1 million in taxes from its two rec weed dispensaries in 2016; it is now in its third year of having the pot shops open. Colorado itself took in around $200 million, while Denver’s weed taxes amounted to $24 million.

In Manitou Springs, the funds have been used to fix up the area’s roads and make upgrades to its water system, Morrison said. As for the downsides to having two recreational weed shops, she said she can’t think of any—the buildings are well maintained, there’s security, and people aren’t loitering outside to consume cannabis.

“As someone who opposed it—and I want to be balanced in my thinking—how can I honestly say this has been terrible?” Morrison said.

Like Colorado, Ontario has decided to allow municipalities to opt out of hosting retail recreational weed stores once cannabis is legal on October 17. Markham, Richmond Hill, and Oakville, have all indicated they won’t allow weed sales, though things could change with local elections happening on October 22. BC municipalities like the city of North Vancouver, West Vancouver, Tofino, Abbotsford, Pitt Meadows and Whistler have also decided not to allow legal pot shops, at least for now.

Unlike Colorado though, cities in Canada don’t charge sales tax.

Ottawa has agreed to tax cannabis at $1 per gram or 10 percent of the final retail price—whichever is higher—with 75 percent of the revenue going to the provinces and the remaining 25 percent going to the federal government. Alcohol and cigarettes in Canada are subject to a federal excise tax as well as provincial taxes. The Canadian Taxpayers Federation told Global News up to 50 percent of the cost of beer in Canada is tax. About 68 percent of a pack of smokes is tax, according to a CBC report.

Given that municipalities can’t directly tax weed, how would they gain from selling it? It boils down to basic economic growth, experts say.

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“When you have thriving businesses downtown, they pay property taxes and they have a potential of… revitalizing retail shopping areas,” David Soberman, marketing professor at the University of Toronto’s Rotman School of Management told VICE.

In particular, with the onslaught of online shopping and big box stores, downtown retail districts are suffering, he said. “Pot distribution throughout smaller stores would have the chance to revitalize those areas.”

Brad Poulos, who teaches a business of cannabis course at Ryerson University, told VICE he believes municipalities who reject legal weed are “missing the boat.”

“You’re not eliminating cannabis in the community,” he said. “All you’re doing is removing potential commercial opportunities.” Those opportunities include new hires, more foot traffic to shopping areas, and crossover from people buying weed who go on to patronize nearby businesses.

He said smaller towns have great opportunities with craft growers, especially given that federally licensed producers will only be allow to have one retail location in Ontario.

“We’ll definitely see a few smaller municipalities embrace it and they’ll become cannabis destinations.”

He also said municipalities without retail outlets will simply be allowing the black market to continue to exist.

That’s an issue that’s come up in Colorado Springs, a city of 465,000 people that voted not to allow any recreational pot dispensaries.

Councillor Richard Skorman told VICE the mayor and some councillors were against the idea, especially given the city’s proximity to several military bases. However, he said Colorado Springs is suffering as a result. The city, which neighbours Manitou Springs, has a startling 128 medical dispensaries, which require a state-issued medical card. Skorman believes many people obtained medical cards because of the lack of recreational retail shops, but the city can’t place a high tax on medical weed, so it’s not getting revenue in the same way as places that sell rec.

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“People are getting rec either through the medical dispensaries or through our neighbours… and the city is not getting the tax benefit.”

Skorman also said caregivers’ licenses to grow weed are being used to sell cannabis to the black market, and the lack of tax revenue from rec sales means “we don’t have the tax money to shut down the illegal grows.” The other big issue he’s noticed is an increase in driving high because people are forced to drive to other jurisdictions to pick up their weed. Again, he said tax revenue from rec sales would help the municipality police impaired driving.

While Canadian cities can’t charge their own sales tax, they can issue business licences to weed retailers. Vancouver set up a system charging compassion clubs $1,000 for a licence and other retailers $30,000 for a licence.

Poulos told VICE he thinks it makes sense for cities to set up basic licensing regimes to deal with enforcement—e.g. shutting down black market shops—but he doesn’t think they should be “getting greedy.” He does believe municipalities can argue for their share of provincial and federal tax because they bear the brunt of enforcement.

The Ontario government has also said it will give municipalities $40 million over the next two years to help with the cost of legalization, including police enforcement.

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