NZIER principal economist Peter Wilson said the projected tax-take on cannabis was only an estimate.
There was not a lot of information in New Zealand about cannabis use.
Wilson said NZIER used more detailed information from Canada and Colorado, which provided detail on just how many people actually consumed cannabis.
"The key insight from that is that heavy users do actually consume a lot of this product and we assumed that our use and distribution is the same as Colorado and scale that for population and said that if that is the case then how much would we sell in a legal market and we came up with the round number of 1100 tonnes.
"To achieve the full $490m per year in tax revenue, our modelling assumes that legal cannabis will need to displace the illegal market entirely."
He said the experience from Colorado and Canada was that a legal market could drive out the illegal market if it was well regulated and provided a quality product that consumers wanted to pay for.
"It may take some time to achieve that, but if legal cannabis is safe and the price reasonable, findings from countries which have legalised cannabis tell us that people will make the switch."
Wilson said the predicted tax take was a material sum for the Government.
He said if regulatory costs and taxes were too high an illegal market would likely re-emerge and gain market share.
Wilson said because the Cannabis Legalisation and Control Bill had a requirement in it to reduce cannabis use over time, this could decrease the amount of tax revenue the Government could earn from cannabis.
"Overseas lessons show the detail of the legislation is important to avoid unintended consequences and achieve the Government's overall objective of reducing use through time."
