Cannabis corporates should be taxed to fund mental health programmes

Mental health is the state of mental well-being that contributes to individual and population health. This state of mental well-being sustains national output and labour force productivity. But governments around the world haven’t been investing resources into addressing mental ill-health. This is despite acknowledging that economics and mental health are intertwined.

It’s documented that cannabis consumption erodes mental well-being. It has adverse effects on school, work, and social life. The consumption of cannabis has also been linked to increases in domestic violence.

The 2019 Africa Regional Hemp and Cannabis report indicates that Africa contributed US$37 billion to the cannabis global market. This figure demonstrates the potential in targeting the cannabis sector for special excise taxes to fund African mental health prevention programmes.

Some developing countries have opted to legalise the use of cannabis. These include Jamaica, Colombia, Malawi, Morocco, Pakistan, Rwanda, South Africa, Lesotho, Uganda, Zambia and Zimbabwe. All of these governments could benefit from implementing special excise taxes.

Mental ill-health costs the world economy US$1 trillion annually. The 2020 Mental Health Atlas estimates the global spending on mental health per capita is US$7.49. These figures highlight the underinvestment in averting mental ill-health. Without a drastic increase in investment, this cost is projected to rise to US$6 trillion by 2030.

Bold political commitment is needed to improve the financing of mental health programmes. In a recently published paper, my colleagues and I argue that imposing excise taxes on cannabis corporations is a feasible option. Excise taxes have rarely been imposed on the cannabis sector despite the wealth amassed by this industry. Current estimates show that the global formal cannabis sector is valued at US$25 billion in 2021 and is projected to reach US$176 billion by 2030.

The growth projection demonstrates the risk of poor mental health as well as the viability of targeting the cannabis sector for special excise taxes. These can be used to finance prevention and promote mental health programmes that have remained neglected in developing countries.

Cannabis tax and legislation

Take Tanzania as an example. The country has criminalised cannabis possession, despite being one of the largest consumers of cannabis in East Africa. It is among the countries with the highest prevalence of domestic violence and assault cases worldwide. According to World Bank estimates, 40% of all women aged 15-49 years in Tanzania have experienced physical violence. The prevalence of spousal violence is highest in rural areas, averaging 52%. Such gender-based violence and assaults are linked with cannabis consumption.

In the East African region, Tanzanians are the largest consumers of cannabis. Up to 3.6 million Tanzanians used the drug in 2018, according to New Frontier Data.

Based on this reality, there appears to be room to legalise and allocate excise taxes on cannabis corporations for investments in mental health programmes in Tanzania. Taxing cannabis aggressively may reduce consumption. Tanzania collected about US$9 billion in tax in 2020, according to government statistics.

This amount covers only about half of the government’s expenses. Hence, it would be impossible for Tanzania to fund mental health programmes sustainably. The growing population needs other essential services too. So Tanzania would have to collect more taxes to fund mental health programmes.

The Tanzanian government can learn much from the US and other high-income countries that opted to legalise and tax cannabis corporations aggressively. The criminalisation of cannabis is regressive. According to the American Civil Liberties Union, it costs US$3.6 billion per year to enforce laws on cannabis possession alone. Police officers must invest many hours and resources in arresting and booking suspects for cannabis possession.

Cannabis suspects spend a night or more in jail and are subjected to multiple court visits to resolve the case. Those detained by the justice system are subjected to poor treatment, inducing poor mental health outcomes. The public health payoff for all cannabis criminalisation is small.

In 2020, the US excise tax revenue from cannabis was estimated to be US$1.6 billion from nine states. This is projected to grow to US$12 billion by 2030. The revenue was ring-fenced and used to finance substance abuse prevention programmes. So far, the legalisation and taxation of cannabis have reduced domestic assaults by 18% in the US. Furthermore, cannabis legalisation and taxation reduced mental health prescription drug use among Medicaid enrolees – saving the US government on expensive drug costs.

Canada legalised the use of cannabis in 2018 and has already collected US$15 billion of tax revenue in 2021 from cannabis companies. Like the US, Canada has invested a significant portion of the tax revenue in programmes for youth mental health. Post-legalisation, there is no marked increase in the prevalence of cannabis use in the young Canadian population.

Way forward

The first hurdle to clear is that all countries need to strengthen their tax collection systems. The rich countries of the Organisation for Economic Co-operation and Development collect 35% of their GDP in taxes. Low-income economies collect only 11%. Such modest tax collection and lack of cannabis legalisation and taxation is a risk to optimum mental health financing.

They then need to respond to three critical areas to improve mental health financing.

Firstly, tax systems must be fair and progressively advance accountability – with undertaxed cannabis corporates paying their reasonable contribution.

Secondly, governments need to reduce the transaction costs of paying taxes by investing in efficient technologies for tax collection.

Finally, tax systems in developing countries need to be transparent to increase public trust. Taxes collected to improve mental health conditions must be ring-fenced and used for mental health prevention programmes.