It is a perfect time for our politicians to remember their campaign promises and legalize cannabis. It will generate very needed tax revenue and will stop turning millions of citizens into criminals.
The Jerusalem Institute for Market Studies (JIMS) estimated that if Israel was to legalize, the tax revenue over the next five years could reach 17.8 billion shekels.
In 2014, when Colorado legalized, Israel started to investigate the idea, gaining the support of the majority of the public and politicians (at least according to their campaign declarations). However, until today cannabis is still illegal, and our politicians are missing on 2.5 billion NIS a year in potential tax revenue.
The Colorado experience is very relevant to Israel because the cannabis culture and market size were very similar before it legalized.
So What Happened in Colorado?
From 2014 to 2019, the cannabis industry directly created 19,000 full-time jobs, contributing 5.4 percent of all employment growth in Colorado since January 2014. Colorado tax authorities received $1.2 billion and legalization came without bringing negative social changes.
Few envision the enormous changes that the cannabis industry will go through after legalization. Businesses are now allowed to offer new goods and services based on cannabis, but with a higher added value. Those products are much more sophisticated and costly than the raw flower. Since Colorado collects part of its taxes as a percentage of the consumer price, higher-value products imply more tax revenue.
As an analogy to the more familiar wine market, the raw flower of cannabis is the equivalent of the grape, and the chocolates, candies, and other cannabis-based products are the wine. Taxing the wine brings much higher revenues than imposing taxes on the grapes; the same is true for the cannabis industry.
As the market matured, cannabis became an input in the production of higher value-added consumers' products.
To replicate the Colorado experience, JIMS recommends the same tax rate of 30%. The states that adopted lower taxation saw higher than expected revenue; heavy taxers like California saw less income than expected. It is important to remember that a frugal tax rate might damper consumers' demand, reduce business opportunities, fail to discourage the black market, and in fact, lower the total tax revenue.
Under a reasonable tax rate regime, Israel's innovative entrepreneurial culture will also lead to the building of a thriving cannabis sector creating jobs and economic growth in a time when it is the most needed.
It is not too late for Israel to legalize!
To read the full study in English, JIMS
For Hebrew, Cannabis Magazine