It’s High Time We Talk about Marijuana

A short post about turning over a new regulatory leaf

April 20th, better known as 420 to many of our dazed friends, is marijuana’s unofficial holiday. While I’ll be celebrating with decaffeinated coffee, this seems like an appropriate time to talk about some of the economics of grass. 

As of this writing, 36 states have legalized medicinal marijuana, and 17 have legalized its use for recreational purposes. Let’s plough into the weeds and take a look out how legalization has impacted state revenues (hint: they’re higher).

California Dreamin’

Tax revenues generated by sales of marijuana have been enormously helpful to states during the pandemic. Take California (please), which legalized recreational use in 2018. Over the course of the pandemic, the State of California’s revenues have actually increased by more than any other state, due in large part to more than $1 billion in marijuana excise tax revenue. 

Colorado was the first state to legalize recreational use (2012) and experienced a $581 million increase in total revenues during the final three quarters of 2020 (the second largest increase of any state). The $387 million Colorado collected in marijuana excise taxes helped. 

Washington state experienced a $457 million year-over-year increase in revenues during 2020’s pandemic impacted months, but without marijuana excise tax revenues, the State would have lost about $12 million in revenue on a year-over-year basis.

Because the American Rescue Plan Act supplies so much general fund revenue to states and localities, the urgency to further legalize marijuana use may be somewhat dissipated in the near term. But there is little question that many states will imitate those that have already legalized as a sincere form of flattery in the coming years.