The legalization of the cannabis industry can lead to a boon of NIS 2.3 billion ($675 million) in tax revenues a year for Israel, according to a new study by the Jerusalem Institute for Market Studies, a nonprofit economic policy think tank.
The study recommends the full legalization of the industry because of the “big economic advantages” that would stem from such a move, which is also not expected to lead to negative social consequences like increased crime and road accidents.
In addition, the government can save some NIS 191 million a year by cutting back on police enforcement and court costs, if use of the drug is legalized. That, together with the extra tax revenue, would mean some NIS 2.49 billion in added government budget annually, the report said.
The illegal cannabis market in Israel has an estimated turnover of some NIS 6 billion a year on which taxes are not paid, the study, led by Josef Tagar, said.
Israel decriminalized the recreational use of cannabis in March, but has not legalized the industry. Under the new policy, first time offenders caught using the weed in public will be subject to fines but will not face criminal charges. Repeated offenses could lead to larger fines and rehabilitation and educational programs, and a suspended driver’s license. A person caught offending a fourth time could be subject to prosecution and a prison term.
Among Western countries, Israel already has one of the highest per capita rates of legal cannabis use, with over 21,000 people medically licensed to use the drug, and the nation is considered a pioneer in the development of medical cannabis.
Some 27 percent of the adult population in Israel aged 18-65 used cannabis in the past year, according to 2016 data collected by the Anti-Drug Authority cited in the report.
In addition to the tax bonanza, legalization of the drug will lead to new employment opportunities in areas such as agriculture, research, medicine, commerce and services, related to recreation and tourism, the report said.
The move will also hurt the black market and illegal organizations that deal with the smuggling and trafficking of cannabis, the study said.
“Regulation of the cannabis market will improve the allocation of resources in the economy from a macroeconomic point of view,” as it will resolve “micro-economic market failures that exist in the cannabis market.”
Furthermore, the study said, based on data from US states in which the drug has been legalized, and based on the fact that use of cannabis and alcohol have been found to be interchangeable, there are no adverse economic effects and new costs expected from legalization of the drug, such as of added work accidents, lost work days, an increase in organized crime or added medical expenses.
“We believe that the legalization of the cannabis market will have no negative social consequences,” such as increased crime, increased use of youth and road accidents, the report said. “Our recommendation, derived from the great economic advantages, from the analysis of the social effects on the US and public opinion in Israel, is to fully legalize cannabis.”