Cannabis legalization could bring many benefits to the Mexican economy

The long awaited cannabis legalization in Mexico is coming along and experts believe that this decision will greatly benefit the country’s economy. During the first four years after legalization, the state government plans to collect up to $737.9 million in taxes alone, which would help to stabilize the country and take it out from the current economic crisis cause by the coronavirus pandemic.

Legalizing cannabis in Mexico is about to happen, the only thing remaining to be done is for the regulations to be sent and approved.

In the meantime, the potential actors are doing the math and analyzing whether or not decriminalization can be a profitable option. One of them is the director of the National Association of the Cannabis Industry, José Arturo Bulos García, who in an editorial published in Milenio reviewed “the benefits of legalization.”

The consensus among citibanamex analysts predicts a 9.6 percent contraction in the Gross Domestic Product (GDP) for this year. This would be its biggest decline since 1932 when it fell by 14 percent.

In this context, one of the biggest challenges facing public finances in the coming months will undoubtedly be the lack of fiscal resources available to meet the demands of the various orders of government.

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The long awaited reform is on the way

However, adequate legislation on the regulation of the cannabis market in conjunction with the long awaited reform of article 115 of the Constitution opens the door for municipalities to the countless advantages offered by the legal cannabis market.

Specifically in terms of tax collection throughout the production chain, from production to sale. For example, and taking into account only the two main commercial partners:

It is estimated that in Canada 16 percent of citizens are users of cannabis and taxes on the plant represent up to one dollar extra for every gram sold to the final consumer. In this scenario, the federal government keeps 25 percent of the proceeds, the rest goes to local governments.

In the first six months of collection since legalization alone, the Canadian government obtained up to $139 million from cannabis users. In the United States, adult use of cannabis is legal in only 11 states, while medical use is legal in 33.

Given its strong federalist tradition, not all states have the same tax rules, even medical cannabis has specific collection rules.

Mexican government plans to collect millions in taxes

According to the TaxFoundation, Arizona has a 6.6 percent state tax on medicines that use cannabis derivatives. In addition, the law also considers a 2 or even 3 percent tax, which is optional for each of the cities.

The highest tax rate for cannabis use is in Washington state, which is 37 percent. There are interesting cases that could well serve as an example for the Mexican case. The government of Illinois is the first in the United States to set tax rates on products depending on their THC content.

Thus, consumers of products with up to 35 percent THC will pay a tax of 10 percent of the value; groceries will have a 20 percent fee and for products with more than 35 percent THC content 25 percent more will have to be paid.

With this differentiated strategy the authorities expect, by the end of the year, to have collected up to $28 million in taxes on psychoactive cannabis products. Meanwhile, in Michigan, all cannabis products are subject to a 10 percent tax, regardless of their THC concentration.

With this strategy, the state government plans to collect up to $737.9 million in taxes from legal cannabis sales in the first four years.

The Mexican cannabis market is growing

In Mexico, there are increasing numbers of cannabis users. It is estimated that 8.6 percent of the population over the age of 18, equivalent to over nine million people, use some form of cannabis or its derivatives. Legalization will allow local governments to control what can be sold, who has access to the plant, and the places and modalities where it can be sold.

Under the current legal scheme, it is the black market agents who make these decisions. On the contrary, in a system with clear rules, with powers for municipalities, many activities, such as the sale to minors, would remain illegal and subject to sanctions. This control over large numbers of consumers can translate into direct revenue for local governments.

If municipalities are allowed to collect taxes and duties on dispensaries, consumption clubs, and sale of medical cannabis, municipalities will find not only relief for their economic needs but also an effective and quick way to revive the economy and generate income of their own.

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(Featured image by Tim Mossholder via Pexels)

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