Cannabis Taxation as a Revenue Source for Development: Opportunities and Challenges

Recent years have seen an increasing number of countries across the globe establish legal markets for the production, distribution, and consumption of medicinal or recreational cannabis. With this has come the expectation that more markets will follow suit. Malta has legalised recreational cannabis in 2021, Germany has recently presented an outline of how its legalisation process will look like. The global legal cannabis market is currently estimated at over GBP 20 billion and expected to quadruple in the coming decade. Notably, while much of the attention has originally been directed toward high income consumption markets, like the US and Canada, there have been movements towards legalisation within low- and middle-income countries (LMICs) which traditionally have been large production centres supplying illegal markets across the globe: Morocco, Lesotho, Mexico, Colombia, to mention just a few. In this latter group of countries, the discourse on the development potential of cannabis legalisation was at times hyper-optimistic, citing the potential for job creation, rural development, lowering crime and raising tax income. A huge range of estimates on the size and potential of the cannabis industry have further fanned this enthusiasm. In South Africa it was estimated that the sector could contribute up to 130,000 jobs and be worth as much as USD1.6 billion – about half of the minimum value that has been estimated for the Mexican market (USD3 billion). While this might seem huge figures, there is evidence of substantial investments into these sectors in LMICs. Between 2015 and 2019, the medical cannabis sector in Colombia received more than USD600 million in investment, while Lesotho received more than USD40 million in 2020 alone.