Institute of Economic Affairs says criminalisation has failed and reform could create £1bn

This article is more than 2 years old

This article is more than 2 years old

Margaret Thatcher’s favourite free-market thinktank has called on the government to legalise cannabis, arguing that the move could save more than £1bn generated from extra taxes and other savings in public services.

Britain’s black market in cannabis is worth £2.6bn annually, with 255 tonnes sold to more than 3 million people last year, according to the Institute of Economic Affairs (IEA).

A report by the thinktank concludes that the criminalisation of cannabis in the UK has failed, saying the black market is awash with dangerous high-strength products.

Cannabis growth is killing one of the cutest (and fiercest) creatures in the US Read more

Chris Snowdon, head of lifestyle economics at the IEA, said: “It’s high time for reform of cannabis policy in the UK. Canada and the USA are showing the way. Done properly, the legalisation of cannabis is a win-win-win: criminals lose a lucrative industry, consumers get a better, safer and cheaper product, and the burden on the general taxpayer is reduced.”

Public resources devoted to seizing cannabis, prosecutions and treating health problems caused by high-strength “skunk” place a significant burden on the justice and health systems, while teenagers find it easier to buy cannabis than alcohol.

The IEA report says: “The dominance of hazardous, high-strength ‘skunk’ cannabis in the black market should be a key reason for legalisation. Licensed sales would allow safer, regulated cannabis to displace the more dangerous strains and generate tax revenue that could be spent on mental health services.”

The home secretary, Sajid Javid, recently launched a review into medicinal uses of cannabis, following public pressure from the families of two children who have forms of intractable epilepsy that appear to be eased by the use of cannabis oil.

The IEA report recommends that, for legal cannabis products, regulators set maximum limits on tetrahydrocannabinol (THC), the psychoactive substance that makes people high, and minimum limits on the non-psychoactive cannabidiol (CBD).

It estimates that there are just over 3 million cannabis users in the UK, consuming an average of 82.5g a year. The average cost of a gram of cannabis is currently £10, valuing the UK market at £2.55bn annually.

UK epilepsy drug to become first cannabis-based medicine in US Read more

If cannabis were legalised, the IEA proposes that it should rank somewhere between alcohol and tobacco in terms of how strictly it is regulated. The thinktank suggests a regulatory regime in which sales are restricted to those over 18. Cannabis would be sold in specialist licensed premises and a licence would be required for growing and importing.

Assuming a pretax retail price of £4 per gram, legalisation could cause demand to rise from 255 tonnes to at least 321 tonnes a year. The IEA believes that would be acceptable because of the limit on THC.

A commercialised market capping THC levels at 15% would virtually eradicate the black market, according to the IEA. If licensed cannabis made up 95% of the market and it were taxed at 20% VAT plus a 30% excise tax, that would produce annual tax revenues of £690m.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Legalisation would also create new jobs and businesses, generating extra tax, while savings to the NHS and other public services would amount to at least £300m a year, the report says.

The IEA stresses that tax rates should not be set so high that an illicit trade remains viable. The US states of Colorado, Washington and California, which have legalised cannabis, have all seen black markets flourish because of high prices caused by excessive taxation.

• This article was amended on 29 June 2018. An earlier version suggested that the £1bn could be generated by extra tax revenues. This has been amended to make clear that the £1bn could be saved in tax and other public spending.