Senator Proposes Cannabis Tax In Uruguay

Uruguay will forever hold the title of being the first country on earth to pass a nationwide adult-use cannabis legalization measure. Lawmakers in Uruguay made the historic move in 2013, with regulated sales launching in 2017.

Regulated sales are still limited to residents in Uruguay, with tourists currently being prohibited from making legal purchases. It’s one disadvantage to Uruguay’s legalization model compared to Canada’s, where anyone of legal age can make purchases regardless of their residence status.

One distinct advantage that Uruguay’s model has over Canada, at least from a consumer standpoint, is that there is no tax on cannabis purchases in Uruguay. When Uruguay’s law was initially passed, the lack of taxes on cannabis purchases was geared toward directly undercutting the unregulated market.

Lawmakers in Uruguay recognized at the time that the more regulated cannabis costs at the point of sale, the less likely consumers would be to take the regulated route versus making their purchases via unregulated sources. This is not to say that Uruguay’s cannabis industry is free from fees. Producers have to pay licensing fees and people in the industry still have to pay income taxes on profits.

A Senator in Uruguay is proposing a new tax on cannabis to help fund, among other things, athletic competitions. Per El Observador Senator Sergio Botana is proposing a 1.5% tax on cannabis in Uruguay to help generate funds for the Uruguay Olympic Committee.

By comparison, cannabis taxes in Canada are much more complex than the flat percentage rate being proposed in Uruguay by Senator Botana. Still, a 1.5% tax rate would effectively be lower than what is required in Canada, and significantly lower than many (if not all) of the state-level tax rates in the United States.

With that being said, cannabis taxes are always a risky area of public policy and involve a very slippery slope. If/when Uruguay implements a 1.5% tax rate, how long until it is raised even higher? Whenever lawmakers need to drum up more public revenue, cannabis taxes will likely be a popular target, and that is true not only in Uruguay but also everywhere else that cannabis is legally sold.

Every dollar that gets added to the price of regulated cannabis results in some amount of consumers and patients seeking out cheaper, unregulated options. Also, keeping cannabis tax-free hinders the cannabis industry’s ability to pay for its own regulation and to benefit society beyond regulation, such as generating taxes that go to schools. It’s a delicate balance that lawmakers everywhere need to be mindful of.