Cannabis legalization could bring Germany 4.7 billion euros a year

The German government would reportedly generate 4.7 billion euros in revenue and savings each year by legalizing cannabis. That is the result a study conducted by a team of researchers led by Justus Haucap, a professor of economics at the University of Düsseldorf.

In Germany, the political arguments in favor of legalization These arguments mainly revolve around drying up the black market, which would also help better protect young people and more effectively prevent addiction, without criminalizing millions of cannabis users. Still, the financial windfall resulting from legalization is not insignificant.

To arrive at the figure of 4.7 billion euros, the study added up the following items:

Additional Recipes estimated annual revenue for the government resulting from the legalization of cannabis, in euros

Savings generated annually as a result of the legalization of cannabis, in euros

A new tax on cannabis would thus account for the largest share, generating annual revenue of 1.8 billion euros; this would be a quantity-based tax in which a flat rate would be levied per gram. The goal is for a gram of cannabis to eventually be available for purchase for around ten euros, explains Mr. Haucap, who previously headed the Monopolies Commission. This amount would correspond to the current average price on the black market.

After subtracting the VAT of 19 %—a good ten euros—the amount left is approximately 8.50 euros. For production, processing, transportation, and retail sales—including profit margins—researchers calculated costs of four euros, which would result in a cannabis tax of about 4.50 euros per gram. The VAT alone would generate approximately 650 million euros per year. In total, consumption taxes alone would therefore generate approximately 2.45 billion euros in additional revenue.

The second most significant fiscal impact would be substantial savings in law enforcement and judicial proceedings: Criminal statistics recorded just under 228,000 cannabis-related offenses in 2020. According to estimates, the police alone would incur costs of approximately 1.05 billion euros per year. Economists estimate the costs for the public prosecutor’s office, the courts, and prisons at just under 315 million euros per year.

The remainder of the financial impact on public budgets would come from a new sector of the economy. According to estimates, approximately 27,000 full-time jobs subject to social security contributions could be created in Germany in the areas of production, processing, and sales. This would generate revenue from sales and corporate taxes, payroll taxes, and social security contributions totaling approximately 890 million euros.

These estimates are consistent with a a study conducted for France by the Economic Analysis Council. The latter estimated tax revenue at between 2 and 2.8 billion euros, the number of jobs created at between 27,000 and 80,000, and social security contributions collected at between 250 and 740 million euros.