Sydney, Australia – A critical analysis of the Penington Institute’s recent report ‘Billions in the Balance: The Economic Impact of Cannabis Regulation in Victoria’ has raised significant concerns over the validity of its economic modelling and its failure to account for major social risks associated with legalising cannabis.
The report, which projects a $1.6 billion cannabis market in Victoria within a decade, relies on overly optimistic assumptions regarding market share, pricing, and job creation, while ignoring well-documented harms in public health, youth outcomes, and enforcement costs.
“What happened in Oregon and Thailand should be a red flag for Victoria,” said Gary Christian, President for Drug Free Australia. “Both jurisdictions saw sharp reversals soon after legalisation or decriminalisation policies were rolled out, without strong safeguards. Victoria risks the same backlash.”
Key concerns identified:
- Overestimated legal market share: The report assumes 95% of cannabis sales will shift from illicit to legal channels – well above the ~70% seen in Canada after 6 years of national legalisation.
- Underestimated black market resilience: Evidence from California and Canada shows illicit cannabis remains cheaper and more accessible due to tax avoidance and fewer regulatory costs.
- Failure to include health and social costs: No modelling of increased psychiatric illness, educational disengagement, or road trauma was included, despite robust peer-reviewed evidence linking cannabis use to these outcomes.
- Unrealistic pricing assumptions: The model assumes legal cannabis will remain competitively priced at $12/gram, ignoring compliance costs such as testing, labelling, and licensing.
Neglected lessons from Oregon and Thailand: Both jurisdictions reversed.
liberalisation policies after sharp public backlash due to increased public drug use, black market activity, and lack of regulatory control.
Drug Free Australia is calling for an independent, full cost-benefit analysis before any cannabis legalisation proceeds in Victoria, and urges lawmakers to prioritise public health, youth protection, and community consultation.
Brief Report: Critical Review of the Penington Institute’s Cannabis Legalisation Modelling
Executive Summary
The Penington Institute’s recent economic modelling projects that a legal cannabis market in Victoria could generate $1.6 billion annually and add $18.2 billion in economic activity over a decade. However, our analysis finds that these projections are based on flawed and overly optimistic assumptions, while omitting serious social and public health consequences. Drawing on international experiences and peer-reviewed evidence, we find the proposed benefits are overstated and the risks significantly underexplored.
Key Findings
- Legal Market Share Overestimated: The report claims 95% of cannabis users will switch to the legal market, while Canadian data shows only 70-72% after 6 years.
- Black Market Likely to Persist or Grow: Illicit markets undercut legal cannabis due to lower prices and tax evasion.
- Public Health & Social Harms Ignored: Peer-reviewed studies confirm adolescent cannabis use is linked to mental health issues, education dropout, and long-term income loss.
- Pricing Assumptions Unrealistic: Legal prices are typically 20-55% higher due to safety, packaging, and licensing requirements.
- Policy Lessons Ignored: Oregon and Thailand both reversed their drug liberalisation policies following public backlash and implementation issues.
Recommendations
- A full independent cost-benefit analysis must be conducted before proceeding.
- Any legalisation must limit THC potency, include strict regulation, and ensure robust youth protections.
- Real-time data monitoring and rollback mechanisms should be built into any future regulatory model.
Supporting Research
* Mental health: European Psychiatry (2024), Frontiers in Psychiatry (2024), Cambridge University Press.
* Youth outcomes: JAMA Pediatrics (2024), Springer Journal of Addiction (2019).
* Labour impacts: NBER Working Paper No. 30813 (2022), Springer Journal of Labor Research (2024).
* International case studies: Statistics Canada (2023), Thai Ministry of Health (2025), Colorado Legislative Report (2024).