With Canada poised to legalize weed in 2017, CBC News reporter Solomon Israel went to Denver to see how the fledgling pot industry there has affected where people live, their health concerns and how it shapes public spending.

From a fiscal perspective, legalizing pot seems like a win-win scenario for cities. In theory, marijuana sales tax revenue can fill gaps in the budget, while police and prosecutors spend less time and money going after residents for marijuana possession.

But Toronto city council might want to hold off on planning a spending spree — because legal marijuana costs money, too.

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A significant portion of marijuana tax revenue gets put back into regulating the industry. (David McNew/Reuters)

In Denver, the capital of a state where recreational pot sales have been legal for almost three years, much of the tax revenue from marijuana gets spent regulating the very industry that generated it.

"There will be people that will tell you that all this tax revenue is going to fix all your city's problems, and that's simply not the case," says Dan Rowland, who manages communications for Denver's Office of Marijuana Policy.

"It's really important to have that dedicated [revenue] stream to go into implementing this the right way so that people's quality of life isn't affected."

Following the marijuana money

In 2016, Denver is projected to earn revenue of nearly $28 million US from marijuana sales — roughly 2.3 per cent of the city's projected total general revenue for this year. This year, $9.1 million of that revenue is earmarked for regulation, enforcement, education, and public health initiatives — nearly double the amount that was set aside for those purposes in 2014, the year recreational marijuana sales began in Colorado.

It's not hard to see why it's expensive to regulate the more than 1,000 licensed marijuana businesses across Denver. Dispensaries and cultivation facilities require the same kinds of building permits, zoning permits, and fire inspections as any other business, but the other regulations — including stringent security requirements — are more industry-specific.

That higher security is needed because most dispensaries carry large amounts of cash. Visa and Mastercard both say they won't process transactions connected to pot, because it's still illegal at the federal level. Most banks also refuse to get involved in the industry for the same reason. 

That could be a consideration in Toronto as well, where both Scotiabank and the Royal Bank of Canada have said they will not offer accounts to any businesses connected to the pot industry, The Canadian Press reported in September. 

Colorado marijuana money

In Colorado, recreational marijuana sales are subject to both state and municipal taxes. (Rick Wilking/Reuters)

Denver's Department of Excise and Licenses performs its own inspections on marijuana businesses to check for proper licensing and documentation, and also enforces security measures like alarms and video surveillance. The Department of Environmental Health regulates and inspects marijuana and marijuana products, and has issued recalls for products contaminated with pesticides.

And that all adds up.

"It's work-intensive, it's time-intensive, and we've had to provide that funding for those additional city resources," Rowland says.

Spending marijuana tax money on social good

Even though Denver has to plow much of its marijuana tax revenue back into regulation and enforcement, the city has also started spending some of it on social programs — especially for youth.

This year, $1.5 million was set aside for special youth programming administered by the Denver Office of Children's Affairs. Half of that helped pay for programs meant to prevent youth drug abuse.

But don't picture the absolutist, "Just Say No" model associated with America's war on drugs. Denver's curriculum delivers drug education within the context of making healthy choices, including nutrition and relationships.

It's delivered at after-school and summer programs run by local non-profit groups, which apply for grants of marijuana tax revenue money from the city.

Pearl Lackner says the lessons focus on teaching children to think critically about both the immediate and future consequences of their choices. She teaches the program at a free summer camp.

Denver Healthy Lifestyles for Youth program

Pearl Lackner teaches a healthy lifestyles course for youth at a Denver summer program funded partly by marijuana tax revenue. (Solomon Israel/CBC)

"We're not even going to say, 'It can mess with your brain, so don't do it,'" Lackner says. "We're going to say, 'It can mess with your brain. You get to choose what you do with that.'

Marijuana tax revenue 'a small piece'

But the marijuana tax revenue provides just "a small piece" of the money needed to operate these programs. They also depend on federal funding and private donations, according to the director of after-school initiatives with Denver's Office of Children's Affairs.

"I'm not saying it's the be-all, end-all," Maxine Quintana says of the marijuana tax revenue. "But I am saying that it has made a positive difference in this time of limited funding."

Denver has put marijuana tax revenue toward other goals, too. Grant money has gone to juvenile justice programs meant to help keep youth out of jail. A one-time boost of $3.2 million was earmarked to help pay for a downtown recreation centre.

And Denver's marijuana policy spokesman says he's optimistic that these social projects are just the beginning.

"Over time, I think more and more marijuana tax revenue can be used for good," says Rowland.