If you want to change state laws to legalize something that is currently not allowed, just agree to have that thing or activity taxed. Legislators tend to have an appetite for taxes. Convince them that legalization is financially worthwhile, and you have an ally for your cause. Marijuana is the perfect example. A recent report shows that tax windfalls continue in those states that have welcomed recreational use with open arms.
Legalizing something simply for revenue-generating purposes is not necessarily bad. But by the same token, how many of us complain that taxes are already too high? Every time lawmakers dream up a new tax, consumers end up paying more into government coffers while keeping less of their own money.
At any rate, this post isn’t about taxation in general. It is about the financial reward of legalizing recreational marijuana. That reward comes in the form of billions of dollars in tax revenues. It is staggering to consider just how much tax revenue legalization has generated since Colorado and Washington approved recreational use in 2014.
Billions in 2021
A recently released report from the Marijuana Policy Project (MPP) shows that combined recreational cannabis sales generated in excess of $3.7 billion in tax revenues for the states last year. The number itself is quite surprising. It is made even more so when you realize 2021 tax revenues were 34% higher compared to the year before.
The MPP goes on to estimate that the combined tax revenues from all recreational states over the last seven years tops $10 billion. That is a lot of money for legislators to look at in their respective state budgets.
Eighteen states have already given the green light to recreational marijuana. A total of thirty-eight have established medical cannabis programs as well. It is important to note that the reported tax revenues from MPP apply only to recreational sales. They do not include taxes generated by medical cannabis sales.
Taxes and License Fees
The medical cannabis industry isn’t all that different in terms of revenue generation. The owners of Deseret Wellness in Park City, Utah say business owners in the Beehive State pay annual license fees to operate their businesses. Cannabis is also taxed at every level in the state. So even though Utah does not allow recreational use, they are still reaping considerable tax revenues from their medical program.
Could the combined total of recreational and medical cannabis taxes exceed $5 billion? Knowing what we know from the MPP report, it seems plausible. Yet that isn’t even the most surprising aspect of this whole discussion. That honor goes to the black market and its ability to remain a viable force in nearly every state in the union.
As recently as summer 2021, California legislators were entertaining a significant financial package designed to bolster the state’s legal cannabis industry. Why? Because illegal operators still outpace legal operators by a margin of 3 to 1. Illegal operators do not pay taxes. They do not obtain licenses and pay annual licensing fees.
A Genuinely Huge Market
We already know that legal sales in recreational use states generated nearly $4 billion in tax revenues in 2021. If we added to that number to tax revenues generated by the medical market and those taxes that would have been generated had the black market gone straight, we could be looking at tens of billions of dollars.
It goes without saying that cannabis represents a genuinely huge market that still hasn’t been tapped to its fullest potential. Whether that is good or bad is up to you. From a tax revenue standpoint, it’s all good.