This report first published in the Daily Maverick, 22 April 2024.

In the 2022/23 fiscal year, Canada’s federal government collected more revenue from the sale of legal cannabis products than it did from beer and wine – a first since the legalisation of recreational pot for retail sales in 2018. 

As a Canadian, trust me, that is saying something.

To wit, federal excise duties on cannabis products that year amounted to CA$894.6-million (R12-billion), slightly exceeding the CA$887.7-million raised from beer and wine sales. And that does not include the revenue that flowed to provincial governments from pot, beer and wine. 

In the same fiscal year in South Africa, National Treasury reaped R45.1-billion from alcohol taxes. 

Cannabis was – and remains – the missing link on the sin tax front in South Africa, and Treasury is missing out.

“Cannabis products are not yet part of excisable products, meaning they are not liable to health taxes (i.e. so-called sin taxes),” Treasury’s media unit told me via email in response to my queries on the matter.

“The legislative framework for cannabis is still broadly limited to medicinal use or ‘private use’ and has not yet attained commercial status for possible application of excise duties.” 

As I recently noted in this column, pot policy in South Africa remains shrouded in a purple haze of uncertainty.  

This was thrown into sharp relief last month when Health Minister Aaron Motsoaledi banned the sale of edible cannabis products and then did an abrupt U-turn. 

But the majority of pot products being sold openly in shops across the country – edible or smokeable – are technically illegal in the first place, which explains why they are not yet classified as “excisable”.

As a consumer of such products, I can attest to the fact that the shops that sell cannabis-infused goodies appear, for the most part, to be paying VAT, as you get a receipt and card machines are used. It’s not a “cash only, wink wink, nudge nudge” kind of business. 

Such transactions all go through banks, so South Africa’s banking sector is also complicit in the illicit sale of cannabis. 

This genie was freed from the bong by the landmark Constitutional Court decision in 2018 that in effect legalised the recreational use of cannabis. 

In May 2024, the Cannabis for Private Purposes Act gave the green light for adults to consume, cultivate and possess cannabis for private use. 

So, the rough foundations are in place for Treasury – which clearly needs every rand it can lay its hands on – to impose health or sin taxes on cannabis products.

How much could it raise? 

That’s hard to say. But conceivably, it could remove or reduce the perceived need to raise VAT by 0.5 percentage points. 

I have not seen an official estimate on the number of bud shops in South Africa, but they have sprouted all over the place.

While such outlets are still outnumbered by bottle stores, it is clearly a business sector in a growth phase and is generating revenue from sales that could be subjected to health taxes. 

I mean, it’s just a no-brainer.

That the ANC is unable to pluck this low-hanging fruit is testimony to its general inability to craft coherent policy. 

It has so many competing interests – not to mention cadres coveting a piece of the pie for themselves – that many of the “policies” that emerge resemble a stoner’s epiphany. 

So, we have ridiculous situations such as the health minister doing an about-turn on the sale of a product that was being sold illegally for the most part and that should be subject to a health tax but is not because the legislative framework has not been extended to a vibrant commercial sector. 

The owners of such shops and their customers are – trust me on this – clearly not complaining. Imagine if you ran a bottle store and your booze was suddenly exempt from six taxes. You would have a liquidity boost of note. 

But it is astonishing that this cash-strapped government has not worked this out yet. And, at least some cannabis consumers would not mind paying a bit more for their dagga if it meant they did not have to pay an extra 0.5 percentage points for almost everything else they purchased. 

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