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5 Economic Reasons to Legalize Marijuana

Legal cannabis could lead to job creation, added tax revenue, and a host of other benefits.

Within the U.S., the marijuana industry has come an incredibly long way in just over two decades. According to a Gallup Poll from 1995, the year before California became the first state to legalize medical cannabis for compassionate-use patients, just 25% of respondents favored legalizing pot. Mind you, this was also during a time when the Drug Abuse Resistance Education (DARE) program was still a mainstay in public schools.

However, just 23 years later, there are now 29 states that have broadly sweeping medical marijuana laws, and nine states that have OK’d adult-use cannabis. Gallup’s October 2017 survey also found that an all-time-high 64% of respondents favor legalizing marijuana. In fact, five national polls conducted over the trailing year have all shown overwhelming support for legalizing weed (with a range of 59% to 64% for approval).

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Why isn’t cannabis legal in the U.S.?

So, if the public is in favor of legalizing pot, why isn’t marijuana legal at the federal level?

To begin with, Republicans aren’t exactly angling for reform. Though there are few categories of people who are opposed, or mixed, in their view of cannabis, Republicans and senior citizens tend to be the most opposed to the expansion of weed. Considering that the GOP is firmly in control of Congress at the moment, there’s virtually no incentive for them to take up reform — especially with a busy docket.

Along those same lines, cannabis isn’t a political game-changer — at least not yet. A survey conducted by Quinnipiac University in April found that 82% of respondents could still vote for a candidate even if that candidate didn’t share their view on legalizing cannabis. In other words, politicians don’t yet have to worry about being voted out of office for having a negative view on cannabis.

There’s also a steady stream of concerns regarding legalization, such as what might happen with adolescent access if there were a sudden proliferation of legal weed, or how driving-under-the-influence laws could be impacted. Though there are numerous marijuana breathalyzer prototypes in development, there isn’t that line-in-the-sand regulation for driving under the influence with marijuana as there is with alcohol, which poses a challenge.

All of these factors pretty aptly summarize why marijuana remains a Schedule I drug, and therefore wholly illegal.

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Five economic reasons to consider legalizing weed

But there are a laundry list of economic reasons why legalization might make sense. If we were to look at marijuana from a purely dollar-based standpoint, here are five compelling reasons why legalizing cannabis is attractive.

1. It would raise a substantial amount of revenue for federal and/or state governments

For starters, legalizing marijuana could put a lot of money into the pockets of individual states and the federal government. Cannabis data analytics firm New Frontier Data released a report in 2017 estimating that the immediate legalization of marijuana at the federal level would lead to $131.8 billion in aggregate federal tax revenue being collected between 2017 and 2025. New Frontier Data came up with this figure based on a 15% retail sales tax, payroll tax deductions, and business tax revenue.

It’s worth noting that the corporate tax rate used in these calculations was 35%, which was the peak business tax rate before the tax cuts in December 2017. With a new (and reduced) peak business tax rate of 21%, this tax-revenue estimate has probably fallen a bit. Nonetheless, the point is that the federal government could go from collecting virtually no revenue annually from cannabis (it does currently tax corporate income for marijuana-based businesses), to generating perhaps $10 billion-plus annually.

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2. Legalizing cannabis would create a lot of jobs

Legalizing marijuana would also be a major boon to the jobs market. Understandably, it’s not as if that’s hurting at the moment, with the latest jobs report showing an 18-year-low unemployment rate of just 3.8%. However, New Frontier also estimates that the immediate legalization of cannabis, and its steady growth through 2025, could lead to the cumulative creation of 1.1 million jobs.

Where would these job opportunities come from? We’d obviously see immediate demand from jobs that put workers in direct contact with the cannabis plant: farmers, processors, distributors, and retailers. Basically any business directly involved with the cannabis supply chain.

Yet, we’d also see a considerable uptick in ancillary pot businesses. Think about consulting firms, software developers that cater to the cannabis industry, financing and lending services, and construction firms tasked with building retail outlets and greenhouses. The list could go on, but the main point here is that it would immediately create a lot of new direct and indirect jobs.

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3. Investors could benefit from the long-term growth of the legal pot industry

Another reason to consider legalizing marijuana in the U.S. is that it could help put investors on track to retire comfortably. To be clear, marijuana isn’t the only fast-growing industry at the moment, and I’m certain it’ll encounter its own set of growth hiccups, as any other industry does over time. The point is that as long as cannabis remains illegal at the federal level, investors have little ability to take advantage of its enormous growth potential, unless of course they’re willing to cross their fingers and buy a penny stock on an over-the-counter exchange.

If cannabis were legal, marijuana stocks would be free to list on reputable U.S. exchanges, which would improve their liquidity and beef up reporting standards. More important, it would give investors the opportunity to take advantage of what could be double-digit growth rates for many years to come.

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4. Billions of dollars saved in law-enforcement costs

Legalizing marijuana wouldn’t be just about the amount of dollars working their way into the system. It would also entail saving some of the dollars that might otherwise be flowing out of the system. In 2013, a report from the American Civil Liberties Union found that federal marijuana enforcement costs approximately $3.6 billion a year. If cannabis were made legal, these costs would drop dramatically.

Additionally, removing marijuana from the controlled-substances list would reduce the number of court cases that go to trial. Fewer court cases mean fewer incarcerations, and therefore a lot of saved money.

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5. A long-term reduction in cannabis prices

Last, but not least, legalizing marijuana in the U.S. would likely lead to a commoditization of dried cannabis over the long run, and therefore lower weed prices.

While lower cannabis prices wouldn’t exactly be good news for marijuana stocks or the federal government, which is collecting tax revenue based on total sales, it could be stellar news for medical patients. Those folks who are benefiting from access to marijuana, cannabidiol oil, and other cannabis-based products would likely find that their medicines are considerably more affordable if pot is legal.

Are these economic reasons enough to convince lawmakers to consider legalizing marijuana in the United States? Only time will give us that answer.

Legal cannabis could lead to job creation, added tax revenue, and a host of other benefits.

The Economic Benefits of Legalizing Weed

Although the Presidential election drew most of the attention in November of 2020, there were several other important decisions made at the polls as well: notably, several states held votes to determine the future of the legal cannabis industry in one form or another. Taking a leaf out of Colorado or Washington’s book, four states—New Jersey, South Dakota, Montana, and Arizona—decided to make marijuana consumption for recreational purposes legal.   Mississippi also voted to allow medical marijuana.

All told, more and more states are moving to legalize marijuana (whether for medicinal or recreational use, or both), and the impact has already been tremendous. The legal changes have spawned a burgeoning industry of legal cannabis companies, including those which aim to research and develop cannabis-based medical products, those which are working to distribute and grow marijuana, and many others. All told, more than half of U.S. states have medical marijuana laws on the books, and fifteen states have legalized certain quantities of marijuana for recreational use as well.    

The economic benefits of legalizing weed have already been apparent as the first states have moved to change their legal positions. Overall, legal marijuana could mean a big push for state economies and big bucks for both the state and the federal governments.   Below, we’ll explore some of the key economic benefits of legal marijuana.

Key Takeaways

  • There has been a growing popular movement in the United States to legalize marijuana for medicinal and recreational uses, with several states adopting such measures already.
  • One motivation for legalization is the economic benefits that can come from the regulated commercial availability of marijuana.
  • Increased tax revenues, job growth, and investment opportunities all are powerful incentives to push for legalization.

Impact on Tax Revenue

Better than expected sales of marijuana in Colorado and Washington over the past several years have resulted in buoyant tax revenues. In 2019, Colorado collected more than $302 million in taxes and fees on medical and recreational marijuana. Sales in the state totaled over $1.7 billion.     Sales in the U.S were $12.2 billion in 2019 and projected to increase to $31.1 billion by 2024, according to a report from Arcview Market Research and BDS Analytics.   Local research supports this view as well; a report from the Colorado State University-Pueblo’s Institute of Cannabis Research recently found that the legal cannabis industry has contributed more than $80.8 million to the local economy in 2017, primarily through taxes and other fees.   Should marijuana become legal on a federal level, the benefits to the economy could be exceptional: A report from cannabis analytics company New Frontier suggests that federally legal pot could generate an additional $105.6 billion in aggregate federal tax revenue by 2025.  

That is the carrot dangled before many states. In December 2019, it was reported that since January 2018, California’s cannabis sales had generated 411.3 million in excise tax, $98.9 million in cultivation tax, and $335.1 million in sales tax.   The Massachusetts Cannabis Control Commission reported in November 2019 that in the first year of opening marijuana retailers, $393.7 million was generated in gross sales.  

Income and Jobs

Setting up marijuana nurseries and dispensaries would be the first step for the states that voted in favor of medical marijuana. These would not only create jobs but also set the ball rolling for economic activity in the pot industry in these areas. In the case of states like California and Nevada where such infrastructure already exists, the economic impact has become more quantifiable as the sector has matured.

An RCG Economics and Marijuana Policy Group study on Nevada says that legalizing recreational marijuana in the state could support over 41,000 jobs till 2024 and generate over $1.7 billion in labor income.   The ICF study estimates at least 81,000 additional direct, indirect, and induced jobs in California as a result of legalized marijuana sales. It also projects an increase in total labor income by at least $3.5 billion.  

New Frontier’s report predicting the impact of federally legal marijuana suggests that nationwide legalization could generate 1 million jobs by 2025.   These jobs would likely come from the quickly growing industry which would spring up across the nation. Workers would be needed to farm, process, distribute, and sell marijuana-based products. Further, there would be ample opportunities for secondary industries that are related to legal cannabis although not directly involved in its production and distribution. These might include software developers, financing services, construction companies, and many others.

Investment Opportunities

Legal marijuana presents the possibility of tremendous benefits to economies on a local and a national scale. It also could help to secure the investment portfolios of investors across the country and further afield as well. While marijuana remains illegal on the federal level, it is difficult for investors to capitalize on the growth of the industry. The number of marijuana-related companies trading on public stock exchanges is minuscule, and while investors do have the option of working with over-the-counter exchanges, many of the most successful businesses in the early legal cannabis space have been based in Canada or other countries.

Should marijuana become legal on the national level, marijuana companies would be free to list their stocks on all U.S. exchanges, thereby enhancing liquidity and opening up access to many more investors. Should the growth rates for the cannabis space continue as they have in recent years, it’s likely that investors would express a keen interest in the industry.

Saved Money

When considering the economic benefits of legal marijuana, it’s important to think of the money that might be saved as well as revenue that could be generated through such a process. Currently, federal marijuana enforcement costs several billion dollars per year. A 2013 report by the American Civil Liberties Union found that the costs at that time were approximately $3.6 billion per year.   The more states that legalize cannabis, the lower the cost of enforcement would likely be; if marijuana were to be legalized on a national level, these costs would likely drop considerably. If marijuana were removed from the list of controlled substances, far fewer court cases involving the substance would go to trial, resulting in fewer incarcerations, and, in turn, more money saved.

Legalized marijuana also stands to benefit medical consumers of cannabis-based products. As marijuana becomes legal in more and more parts of the country, it’s likely that the price will drop overall as a result of commoditization. This may not immediately seem like good news for overall tax revenue or for marijuana companies looking to maximize profits. However, individuals utilizing marijuana-based products for medical treatment would stand to benefit considerably from lower prices for these items.

Bottom Line

There is ample pushback against the idea of legalizing marijuana across the country. Critics cite the potential for confusion among law enforcement officers aiming to keep up with shifting regulations, a concern about increased homelessness or youth use of the drug, the potential for decreased property values, and much more. Some are opposed to changing the regulatory status of marijuana simply because it means a change to the status quo. All of these reasons combine to decrease the likelihood that marijuana will become legal at a national level any time soon. However, as more and more states move to individually decriminalize pot use in various ways, and as the economic benefits of a legal marijuana industry take effect, there are also many compelling reasons to consider nationwide legalization.

As more states vote in favor of legalizing weed, here's a look at the economic benefits to state economies.