Over the past few years there have been many states that have decided to use the legalization of recreational cannabis as a great new source of state tax revenue.Along with this, they also end up saving money via their police forces not having to expend as many man hours on cannabis related crimes.But does this really stand up to all the hype that it’s been bringing?Below we’ll talk more about actual revenue that California and other states have received from cannabis legalization.
California’s State Revenue From Cannabis:
Cannabis has been around California legally since medical cannabis was announced in 1996.Cannabis became an even bigger part of California when it fully legalized recreational cannabis in 2016 with the Adult Use of Marijuana Act.This was a big move because it allowed the government regulation and taxation of any commercial cannabis activity.This also involved more qualifications for existing growers and manufacturers.According to Crop King Seeds, who is a seed bank based out of British Columbia, Canada, but has a location in Los Angeles as well, states “The legalization of cannabis in California has brought an entirely new market for legal cannabis, and has provided a huge opportunity for government taxation, cannabis users, and cannabis manufacturers like us.”
As Crop King Seeds mentioned, one of the biggest reasons California agreed to passing these cannabis regulations was because of the tax benefits for the state of California as well as reduced policing and lawmaker workload.
In California, cannabis is heavily taxed similar to alcohol, and ends up being between 20%-40% on any purchase from a distributor or dispensary.This means huge amounts of tax revenue for the state.
In the fiscal years of 2019, Leafly estimates that the state of California received an estimated $635 million in state and local cannabis tax revenue.This pretty much proves that this proposition has turned out to be quite successful for the state, and has given huge amounts of additional funds for social needs.The state of California is planning to direct about 60% to Youth Anti-Drugs Programs, 20% to Environmental Policies, and 20% to Public Safety Grants.
California has a goal of $1b per year in cannabis tax revenue once the market hits full maturity (estimated for around 2025).The state expects tax revenue and market activity to increase because it takes time to get permits and certifications to qualified distributors and manufacturers. Based on that the proposition has only been out for around four years, I believe that they will sail way past this goal.
Does This Mean We’ll See Other States Follow Suit?
Looking unbiasedly at California, it seems that it has been a pretty positive experience, with tax revenue growing each year and expecting to continue.I believe this would cause a lot of states who are on the fence of cannabis legalization to take the next steps forward and make the leap to recreational legalization.
There are many states that are struggling each year with financial stability, and as both California and Colorado have shown us, legalizing cannabis can provide huge financial gains to local and state governments.
With additional states such as Michigan recently launching legalization of cannabis recreationally, it will be a great test to see if this is the right decision for all states, or if it truly depends on the overall demographic of the state.Some could make the argument that cannabis tax revenue won’t perform equally in each state, so it might not make sense to legalize it in every state.
Overall I believe that cannabis will be a huge government discussion in the next few years, especially with the upcoming presidential election looming.I believe that cannabis legalization is a great source of taxation for local and state governments, and can truly help some states place even more beneficial policies in place with their new financial security.