Lifestyle Economics

UK’s illicit cannabis market worth £2.5bn a year, finds new report



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IEA releases new report on cannabis legalisation

A new report from the Institute of Economic Affairs finds that the current black market in cannabis is worth £2.6 billion per annum, with 255 tonnes sold to three million users in 2016/17. Based on the latest figures, the IEA’s report is the most comprehensive and up-to-date assessment of the size of the UK’s cannabis market and its potential value after legalisation. It concludes that if cannabis were legalised, tax revenues alone, before considering savings to public services, could exceed £1 billion per year.

The criminalisation of cannabis in the UK has failed. The black market is awash with high-strength, hazardous products. Seizures, prosecutions and health problems place a significant burden on the justice and health systems, whilst teenagers find it easier to buy cannabis than alcohol.

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. Regulators could set maximum limits on THC – associated with psychosis – and minimum limits on the non-intoxicating antipsychotic CBD, to reduce the risk of mental health problems.

Moreover, licensed sale would make it more difficult for those under 18 to access the drug, whilst the ability to tax cannabis would allow governments to cut taxes in other areas. Legalisation would also create new jobs and businesses in the legitimate, tax-paying economy, as well as savings in the criminal justice system.


*   The report estimates that there are just over 3 million cannabis users in the UK consuming a mean average of 82.5 grams per year, or 1.6 grams per week.  This puts total cannabis consumption in the UK (2016/17) at 255 tonnes.

*   The average cost of a gram of cannabis is currently £10, making the UK market worth £2.55 billion a year.

The cannabis market under legalisation:

*   A commercialised market would place marijuana somewhere between alcohol and tobacco in the regulatory continuum. Sales would be restricted to those over 18; cannabis would be sold in specialist licensed premises; THC and CBD levels would be regulated, and a licence would be required for growing and importing.

*   Assuming a pre-tax retail price of £4 per gram, legalisation could cause demand to rise from 255 tonnes to at least 321 tonnes per annum. Total THC consumption would rise by less than this, however, because of the mandatory maximum THC levels.

*   A commercialised market which capped THC levels at 15 per cent would virtually eradicate the black market. If licensed cannabis made up 95 per cent of the market and if cannabis was taxed at 20 per cent VAT plus a 30 per cent excise tax it would produce annual tax revenues of £690 million per annum.

*   A duty of 30 per cent would mean that 36 per cent of the retail price of an average gram of cannabis was tax. This is a lower share of tax than is paid on an average bottle of spirits, litre of petrol or pack of cigarettes in the UK.

*   It is crucial that tax rates not be set so high that an illicit trade remains viable. If regulated products are only slightly cheaper, operators in the black market can lower their prices to compete with them. Colorado, Washington State and California have all seen the persistence of black markets because of high cannabis prices caused by excessive taxation.

*   To ensure the market would be competitive there would be no limit on the number of licences made available to growers, wholesalers and retailers. All adults would be permitted to grow a certain quantity of marijuana at home for personal use.

*   Savings to the NHS and other public services would amount to at least £300 million per annum. When added to tax revenues of £690 million, plus new streams of income tax, business tax and VAT created by the legal industry, claims about cannabis legalisation providing a £1 billion windfall to the Treasury seem pessimistic. Tax revenues alone would exceed this.

Commenting on the report, Chris Snowdon, Head of Lifestyle Economics at the Institute of Economic Affairs, 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.”

Notes to editors:

For media enquiries please contact Stephanie Lis, Director of Communications: or 0207 799 8909 or 07766 221 268

To download a copy of ‘Joint Venture: Estimating the Size and Potential of the UK Cannabis Market’, please click here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.

The IEA is a registered educational charity and independent of all political parties.

Further IEA Reading: Joint Venture – Estimating the Size and Potential of the UK Cannabis Market