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Research & Commentary: The Fiscal and Social Implications of Marijuana Legalization

June 1, 2016

Since 2012, four states – Alaska, Colorado, Oregon, and Washington State – have legalized the retail sale of marijuana. Washington, DC has also approved the sale of marijuana, but it is currently waiting for congressional approval.

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Since 2012, four states – Alaska, Colorado, Oregon, and Washington State – have legalized the retail sale of marijuana. Washington, DC has also approved the sale of marijuana, but it is currently waiting for congressional approval. Twenty-five other states have legislation on the books that either has legalized medical marijuana, decriminalized marijuana possession, or both. Opponents of these policies have claimed legalization would not help state budgets, but research shows legalization has had a positive impact on budgets and has increased tax revenue.

In May, the Tax Foundation published a fiscal fact analysis examining the budgetary impact of legalizing marijuana for recreational use. The report concluded states and the federal government could possibly gain a total of $28 billion in additional tax revenue through sales and income taxes if they were to legalize the use of marijuana.

The Tax Foundation’s research Colorado, which in 2012 became the first state to legalize retail cannabis sales. The report notes the state had over $990 million in sales of retail and medical marijuana in 2015, a substantial increase from the $699 million in sales in 2014. From July 1, 2014, to June 30, 2015, Colorado obtained almost $70 million in tax revenue from retail and medical marijuana sales alone. Over the same period, the state only received $42 million in tax revenue from the sale of alcohol. The cost of maintaining such sales only costs Colorado around $3 million to $4 million, and the state has earmarked $35 million of the gained tax revenue to school construction projects. Other funds go toward youth and substance-abuse programs.

Legal cannabis sales are a growing market. According to The State of Marijuana Markets, a report published in February by Arcview Market Research and New Frontier, national sales in states that had legalized recreational marijuana grew by over $1 billion in 2015 – from $4.6 billion in 2014 to $5.7 billion in 2015 – and “legal markets are projected to grow to $7.1 billion” in 2016.

By 2020, legal sales of medical and retail marijuana are projected to exceed $22 billion. To put that in perspective, Forbes reports the National Football League, “which saw roughly 12 billion of revenue last year … is aiming to reach $25 billion by 2027.”

By legalizing the recreational sale and use of marijuana, states could benefit from tax revenues collected on such sales, but they will also save money by eliminating some expenses linked to enforcing marijuana bans. According to the American Civil Liberties Union, in 2010, marijuana possession accounted for 52 percent of all drug arrests, and 88 percent of the 8.2 million drug arrests between 2001 and 2010 were for simple marijuana possession.

A Cato Institute study, The Budgetary Impact of Ending Drug Prohibition, found state and local governments spent $5.4 billion on marijuana-related crime expenses in 2009. The federal government spent $3.4 billion on marijuana prohibition enforcement.

The federal government should allow states to decide if they want to legalize and tax the recreational use of marijuana, just as states are given discretionary authority in education, health care, and other areas.

The following documents contain additional information on the costs and benefits of marijuana legalization.

In The Tank: Marijuana Tax Rebates, PC Beer Labels, and Guess that Campaign Slogan
https://www.heartland.org/podcasts/2015/09/11/tank-marijuana-tax-rebates-pc-beer-labels-and-guess-campaign-slogan
In this episode of the “In the Tank” podcast, Donald Kendal, Heartland’s new media specialist, and John Nothdurft, director of government relations, discuss the costs and benefits of Colorado’s controversial marijuana legalization law, as well as the significant tax revenue that was collected by the state as a result of legalization.

Will Legal Pot Cost More than Black-Market Pot?
https://www.heartland.org/publications-resources/publications/will-legal-pot-cost-more-than-black-market-pot?source=policybot
In this Reason.com article, author Jacob Sullum says because Colorado and Washington State legislators have the power to adjust marijuana-related tax rates, they may be tempted to raise taxes to help generate more revenue. But Sullum says the backers of hefty marijuana taxes are putting too much trust in legislators’ ability to anticipate unintended consequences.

Another Change to Legalize Pot in California
https://www.heartland.org/publications-resources/publications/another-chance-to-legalize-pot-in-california?source=policybot
In California, possessing an ounce of marijuana is an “infraction” and punishable to a $100 fine. State law treats smoking marijuana as a crime comparable to jaywalking, but growing and selling marijuana are felonies that could lead to prison. In this Reason.com article, Jacob Sullum asks if consuming marijuana is not a crime, how can it be a crime merely to help someone consume marijuana? That is a question voters will confront next fall if the California Cannabis Hemp Initiative qualifies for the ballot.

On the Limits of Federal Supremacy when States Relax (or Abandon) Marijuana Laws
https://www.heartland.org/publications-resources/publications/on-the-limits-of-federal-supremacy-when-states-relax-or-abandon-marijuana-bans?source=policybot
Using medical marijuana as a case study, Robert A. Mikos, a professor at the Vanderbilt University School of Law, examines how the anti-commandeering principle ought to protect states’ prerogative to legalize activity the U.S. Congress bans. Mikos says despite the fact the federal government has banned marijuana outright and for years has lobbied against local efforts to legalize medical use of the drug, an ever-growing number of states have adopted legalization measures. This analysis explains why these state laws and most related regulations have not been and cannot be preempted by Congress.

Federal Foolishness & Marijuana

https://www.heartland.org/publications-resources/publications/federal-foolishness--marijuana

In this article published in The Drug Policy Letter by Jerome P. Kassirer, the author argues the federal government’s attempt to ban marijuana has unjustly harmed sick Americans and made their family members into criminals. “The advanced stages of many illnesses and their treatments are often accompanied by intractable nausea, vomiting, or pain,” wrote Kassirer. “Thousands of patients with cancer, AIDS, and other diseases report they have obtained striking relief from these devastating symptoms by smoking marijuana. The alleviation of distress can be so striking that some patients and their families have been willing to risk a jail term to obtain or grow the marijuana.” Kassirer says federal policy prohibiting physicians from alleviating suffering by prescribing marijuana for seriously ill patients is misguided, heavy-handed, and inhumane. He also says it is hypocritical to forbid physicians to prescribe marijuana while permitting them to use morphine and meperidine to relieve extreme dyspnea and pain.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Budget & Tax News at https://www.heartland.org/publications-resources/newsletters/budget-tax-news, The Heartland Institute’s website at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at jnothdurft@heartland.org  or 312/377-4000