The Economic Effects of Legalizing Cannabis

As Cannabis has been legalized by more and more States, the drug has become recognized as a legitimate business.

The potential economic effects for Australia arising as a direct result of legalization.

Marijuana is Australia's hot topic, but for the wrong reasons

For those who take even a small interest in the subject, a marked shift has been evident, in the last couple of years, in the Australian press, when it comes to covering stories involving cannabis. The subject appears now almost weekly in the Australian media.

Source: Statistica

Most cannabis related articles are still concerned with the illegality of the drug and individuals who fall foul of the law. Less discussed as a topic is the potential economic effects to Australia which might accrue as a direct result of the legalization.

Increase in Annual Revenue

Where cannabis has been legalized, the drug has become recognized as a legitimate business. So far, the Western countries (or states) which have changed their laws have all insisted that businesses wishing to sell Cannabis are registered with local governments. This sort of rule lets councils set restrictions on how those businesses can operate, for example, insisting that they operate their retail outlets at a certain distance from schools. 

Anyone who would be interested in setting up a cannabis-related business would need to formally submit an application and acquire a license. This would mean they would have to pay for the licenses and pay yearly taxes to the government.

Colorado, a country with a population around 20% of Australias is one example of a State which implemented regulation has a cannabis economy worth around $58m a year. Of that, the state has benefitted by around $35 million.



Colorado, a country with a population around 20% of Australias is one example of a State which implemented regulation has a cannabis economy worth around $58m a year. Of that, the state has benefitted by around $35 million.

Reduction in Law Enforcement Costs

There are numerous ways in which governments will be able to save money by legalizing cannabis. The Australian government spends up to $1.5 billion every year on drug-related offenses (just to be clear, that figure is contested and should be used only as a national guide.) Potentially up to 70% of it on enforcing policies related to cannabis. 

This is a cost that could be reduced significantly if cannabis was to be recognized as a legal drug. It would mean law enforcement would allocate fewer resources towards court cases and incarcerations for cannabis-related offenses. The reduced load on the judicial and prison system would free up much-needed resources.


The Australian government spends up to $1.5 billion every year on drug-related offenses Potentially up to 70% of it on enforcing policies related to cannabis.

Increase in Employment Opportunities

The legalization of cannabis would also create a lot of employment opportunities for the public. In areas where it has been legalized, projections show that the legalization of cannabis has the potential of creating over a million jobs, worldwide. 

As Leafly shows, the cannabis industry already employs 150,000 people in the US – and only 9 states have legalised so far.


The cannabis supply chain needs farmers, transporters, processors and retailers. When such a model is established, both skilled and unskilled workers are required to make it functional which creates a valuable opportunity for everyone. 

Financial and consulting firms will also be in a position to get a piece of the pie because a lot of assistance will be required when designing business models and seeking funds for investments in the industry.

Increase in investor Benefits

Legalization of cannabis would also open up a new export market that is expected to grow at a rate faster than almost any other. This means that there would be a lot of opportunities for investment for the residents of the state or country.

The cannabis industry can be subdivided into three main sections.

The first is the production sector. This is where agricultural research is done and different strains of cannabis are produced for different purposes. The second sector is sales. This is where individuals can establish outlets and online stores where cannabis can be purchased at retail prices. The third is distribution. After a sale has been made, a distribution network will be required to transport the product from the retailer to the end user. 

Investing in any of these three sectors could be quite profitable as cannabis becomes more accepted around the world.

Progressive Reduction in Prices

As availability of cannabis grows, it will definitely be good for the patients who require constant doses of cannabis to manage their medical requirements.

In areas where cannabis has not been legalized, patients incur huge costs when purchasing pharmaceutical drugs. Cannabis would provide a cheaper option for them, allowing them to cut back on their medical expenses.

The conclusion is clear – legalizing weed is good for the economy

There is a significant and positive net economic effect likely to be felt by each country which takes the step of legalization of cannabis for recreational use. A recent detailed study, conducted by the National Drug and Alcohol research Center suggested that the net benefit to Australia would be in the region of $300 million. 

As experience in other countries has now show, such a change would  mean the government will be in a position to cut down on the total cost of tracking down and prosecuting cannabis-related offenses. Beyond the benefits from Law Enforcement cost cutting, there will also, likely, be more investment opportunities available for those wishing to take a stake in higher risk business. The cannabis industry is associated with higher rates of employment, too, as those investments hire employees. The sum of all these benefits is increased revenues for the government. 

Overall, it is safe to say, based on what we’ve seen overseas that the economic impact of legalization will be positive, if Australia chooses to legalise.