Legalizing Marijuana: The Grass is Greener on the Other Side

Meridyth Wasserman – What if the United States government had the opportunity to earn billions of dollars by simply changing a single law? That’s right, a single law. The United States has the potential to make an estimated $­­­­14 billion in revenue each year merely by legalizing marijuana. This economic windfall may become a reality very soon pending the results of U.S. v. Schweder, et. al., in California.  United States District Court Judge Kimberly J. Mueller will determine “whether Schedule I Substance classification of marijuana is unconstitutional.” Schweder is one of seven defendants charged with felony marijuana cultivation charges.  If convicted, each defendant is liable for to up to 15 years in prison. The impact that this decision will have on the cannabis industry will be instrumental in improving our country’s economy and ending the costly war against marijuana.

The Schedule 1 classification as it stands puts cannabis in the same category as heroin, a substance known for its extreme danger and the deaths of 22,000 Americans a year. If the Schweder decision becomes an actuality and the classification of marijuana as a Schedule 1 substance is changed, it will serve to bolster the medical and scientific credibility of the industry. Though this decision will not automatically make cannabis legal throughout the country, the reclassification will not only open the door for more states to get on board with legalization and taxation, but may also serve as the final tipping point for the federal government to partake in the action. The impact of this decision will have ripple effects on all pending federal marijuana cases, and may even potentially have a retrospective effect on certain past convictions. If Judge Mueller finds the classification to be unconstitutional, there will also be a significant effect on the government’s prohibition enforcement spending. All in all, the argument for decriminalization is only getting stronger and may become a reality in the near future.

The current trend of state governments decriminalizing cannabis has led many economists to analyze the prospective revenues that the United States could generate from legitimatizing and taxing pot. Colorado exemplifies just how prosperous it is to permit this lawful distribution—the state collected roughly $25.3 million in taxes from lawful cannabis sales in the first six months of this year.

The costs expended by the government to uphold anti-pot laws and to sanction their violators is higher than most Americans would expect. According to Harvard University economist Dr. Jeffrey A. Miron, the administration would stand to save an estimated $7.7 billion per year on prohibition enforcement. These savings break down to about $5.3 billion combined by state and local governments and $2.4 billion by the federal government. These marijuana-related spending reductions emanate from cutbacks of police resources used for arrests, judicial resources used for prosecutions, and correctional resources used for incarcerations. The substantial budgetary savings created by these decreases in cannabis interdiction represent only a part of the economic significance of marijuana decriminalization.

In determining the potential revenues from taxes on pot, it is valuable to know that Americans consume roughly twenty-four million pounds of the green stuff each year. This translates to about $10.5 billion in consumer spending. If the government enacted a tax on cannabis similar to that on alcohol and tobacco, also known as an excise tax, it could generate $6.2 billion annually. However, the administration could instead choose to exercise a tax on goods and servies, identical to those on all other goods, in which case it could produce $2.4 billion per year. In either circumstance, the potential exists to yield billions of dollars from the imposition of this tax, which states could apply to regulatory efforts and public health and education initiatives.

There also exists a third type of tax that state and local governments could pass: a sales tax. A state has the power to attach an additional sales tax on marijuana purchases. This additional sales tax, which varies from state to state, is the same duty that consumers pay on certain goods and services.

Let’s apply these scenarios to the raw data: Florida residents are reported to spend about $850 million on marijuana annually. If Florida decides to allow for lawful marijuana sales and imposes the same fifteen percent (15%) excise tax that Colorado applies to cannabis purchases, the Sunshine State would generate $127.5 million in revenues each year. Alternatively, if cannabis were taxed at Florida’s general sales tax rate (6.62%) on the reported $850 million in consumer spending, Florida has the potential to yield about $56.3 million each year. This equates to a whopping $183.8 million in tax revenue from marijuana per year. The economic argument for legalization is airtight.

However, with so many positives to taxing cannabis, there are also negatives. Marijuana activists brought a case in Colorado recently, No Over Taxation et al. v. Hickenlooper et al., claiming that taxing recreational marijuana requires businesses and consumers to implicate themselves in federal crimes. The government argued that getting rid of these taxes would not stop the federal government from prosecuting those who are accused of violating federal anti-marijuana laws. The court ruled that consumers and sellers of recreational marijuana must continue to pay state taxes, even if it puts them at risk for federal prosecution.

Regardless of the possibility of federal prosecution, cannabis will continue to grow as an industry across the nation. Americans spend millions annually on mostly illegal cannabis purchases. This fairly unchartered market of lawful marijuana sales has the ability to generate billions of dollars in revenue per year. The economic benefits of legalizing cannabis are substantial, undeniable, and should be taken seriously.