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States Rush to Tap into Marijuana Industry and Tax Revenue

The stakes are high for marijuana legalization efforts this November. Right now 1 in 20 Americans live in states that permit marijuana consumption for medicinal or recreational purposes. If each state votes to pass legalization, that ratio will shift to 1 in 4.

In all, nine states will vote on various proposals relating to medical or recreational marijuana. Five states will consider legalizing marijuana wholesale on November 8th: Arizona, California, Maine, Massachusetts, and Nevada. Three will consider legalizing medical marijuana: Florida, Arkansas, South Dakota. Montana will vote on whether to reduce restrictions from existing medical marijuana laws. The sticky issue of legalization is no longer solely an urban, liberal initiative as had been observed in the past in states like Colorado and Oregon; more conservative leaning states, like Arkansas and South Dakota, are pushing proposals to soften restrictions. Both states are completely controlled by Republicans in the state house, senate, and gubernatorial positions.

States are rushing to legalize for a variety of reasons. The growing medical literature details its salubrious effects on a diffuse range of maladies, including autism in children, pain from arthritis, stiffness from multiple sclerosis, and perhaps even the spread of certain forms of aggressive cancers. Further, activists champion the purported effect legalization will have on advancing racial equality. According to the ACLU, 7 million people were arrested from 2001 to 2010 for marijuana related crimes. During that time, whites aged 18-25 were more likely to use marijuana, while African-Americans were four times more likely to be arrested.

But states are motivated by one reason in particular as voters go to the ballot box this November: the large amounts of money available in tax revenues.

States in the Game

Just how much have marijuana-legal states reaped from the new “Green” gold rush?

As the first state to legalize, Colorado offers the most complete case study of legal marijuana’s efficacy. In 2014, the marijuana industry represented over $700 million in revenue, with most estimates confidently projecting 2016 revenues to exceed $1 billion.

In 2014 the state collected $56 million in taxes. The next year saw more counties grant permits to dispensaries to open, allowing supply to better serve the burgeoning demand. The state coffers more than doubled that figure in 2015 to $113 million. The Tax Foundation projects that if current growth rates continue in 2016, marijuana tax revenues could account for over $185 million, triple the amount collected just two years ago.

Other states have also tapped into the new stream of tax revenue. Initially Washington State marijuana sales were stagnant compared to Colorado’s. The following year the state lowered the tax rate allowing more shops to open to meet the growing demand. The state generated over $129 million in excise taxes through the end 2015. Through 2016, that figure has jumped to $205 million. For three straight months the state has collected over $25 million in excise taxes off of marijuana sales.

In Oregon, sales are likewise experiencing an upward trend, as dispensaries sold over $100 million worth of product in the first six months of 2016. The state imposed sales tax of 25% on marijuana has raised $25.5 million since the beginning of the year.

Other States Look to Tap into the Industry

 Looking at the revenue generated in a relatively short amount of time by Colorado, Oregon, and Washington, it’s no surprise that other states are racing to push marijuana initiatives through. Playgrounds have been built, scholarships for underprivileged students funded, homeless shelters renovated, and drug abuse and treatment facilities have been improved, all through the revenue these states have accrued through taxes on marijuana.

For states with marijuana on the ballot this November, the potential economic impact varies. Maine could see increases in tax revenues anywhere between $8.8 and $34 million. Nevada, with a population roughly double Maine’s, could accrue $464 million over a seven year period, or an average of over $66 million per year. The high number of tourists visiting the gambling mecca would give an enormous boost to a recreational market in the Silver State. By the California Legislative Analyst’s Office’s estimation, the state could reap over $1 billion in tax revenues if voters legalize recreational marijuana with Proposition 64.

2017 and Beyond

 Many states are bullish on the potential new source of revenue through legalization. But in some states, the vote is projected to be tight as some voters remain concerned over the unintended consequences, such as drugged driving, accidental ingestion by children, and unclear national regulations. Currently, marijuana is still listed as a Schedule I drug,  along with heroin and LSD. Such opposition to legalization is strong in Massachusetts in particular, where both the Republican Governor and the Democratic Mayor of Boston oppose the proposal to legalize recreational marijuana.

Support for legalization has spread from West to East Coast, North to South. It remains one of the few issues on which an increasing number of Republicans and Democrats can find common ground. The alacrity of its adoption on the state level has drawn careful consideration over its unintended consequences, but simultaneously remains as a source of optimism for state budgets in need of a boost.


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