From lawbreakers to coveted voters

Updated: Mar 2, 2020

Are Israeli politicians finally understanding the economic potential of legalization?

Every round of elections, Israel gets closer to legalization. The votes of those thousands of Israelis that enjoy cannabis and don't want to be criminals are precious in a competitive election, and it's good for freedom.

Politicians are making a good deal with legalization, they pass a law at zero cost, they get votes during the campaign, and they make money in tax revenue after the elections. Libertarians are even willing to accept taxes to obtain legalization because the drug on war is much worse than paying a sin tax.

The Jerusalem Institute for Market Study(JIMS) is releasing next week a study quantifying the future economic growth of the cannabis industry and how it will impact tax collection in a legalized environment. Calculations show that if Israel had adopted legalization in 2014, with a 30% tax rate (*), like in Colorado, the tax authority would already have collected an extra 10.2 billion NIS.

Colorado took the risk, and they are enjoying its rewards. A few years after legalization with a more mature market, tax revenue in 2019, reached the incredible amount of $302 million, way above the previous forecasts. This unexpected bounty isn't because many more people are using cannabis. This increased tax collection came without bringing negative social nor economic changes.

The reason for this boom is the entrepreneurship, innovation, and business opportunities that were inconceivable before full legalization took place. More refined and expensive goods and services are steadily replacing the traditional raw flower. Legalization allowed high-end cannabis products such as candies, chocolate, cosmetics, oil for cooking, workshops, and tasting tours to flourish, leading to a substantial expansion of businesses, jobs, retail products, and tax revenue.

(*)The original estimates assumed a 52% sin tax, but such a high punitive tax rate could discourage business opportunities, job creation, and decreases the total tax revenue. According to the US experience, the States that adopted lower taxation saw higher than expected revenue. However, heavy taxers like California saw less revenue than expected.

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