Could Federal Cannabis Legalization Boost the Economy?

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In a nutshell, when asked if the federal legalization of cannabis could boost the economy, the most obvious answer would be yes. The numbers don’t lie and they show that states with legal weed is making a killing.

They garner taxes from growers, producers, customers and everyone who has a hand in the cookie jar. So why wouldn’t the country as a whole benefit from the legalization of cannabis? After all, besides the tax revenue that it brings, it also creates more jobs and private investment incentives.

But let’s stand still at the state numbers for a while. Back in 2015, over $135 million in taxes was collected in Colorado alone. Throughout the country in all the legalized states, sales have increased by 30%.

This means that the total sales grew to $6.7 billion and is expected to grow to $20.1 billion by 2021 according to ArcView Market Research. With the state of California, who is much larger in size than Colorado, joining the legalized ranks, they are expected to exceed $15 billion in sales and over $3 billion in taxes.

On the job front, recreational weed doesn’t grow itself. Marijuana nurseries and dispensaries need to be built. This immediately creates jobs in states where there is still little to no infrastructure to drive the pot industry. In states where there is infrastructure, the impact is more quantifiable.   

In the few states where recreational marijuana has been legalized, a total estimate of over 122 000 jobs are on the cards. This will potentially generate over $5.2 billion in labor income, making a significant impact on the job market.  

Let’s get federal

Wherever states have opted to legalize recreational marijuana, an economic impact study preceded the decision. However, this has not been the case when looking at the possible economic impact of federal legalization. Very little studies have been done in this regard, so the benefits are merely speculations and calculations.

At a federal level, the arguments for legalization take a bit of a different angle. Instead of focussing on the potential gains from the industry, a focus is placed on saving. The general conversations revolve around how legal marijuana would allow the government to eliminate certain costs and save money. The prevailing argument focussing around the states somewhat embarrassing failed war on drugs.

There seems to be no logic revolving around the continued running and failure of the drug war. Astronomical amounts are being spent on this futile war and the numbers have not improved. It as if the government is like a gambler just holding on for that big break that just never comes.

Drug use and abuse, as well as the flow of drugs, have not gone down in the slightest. It then begs the question as to why the program is still running. Why is so many funds being wasted on a doomed program?

As the saying goes, the numbers don’t lie, but they can be blurred to show another picture altogether. This is what the Drug Policy Alliance has done so well when highlighting just the right stats to make your hair raise. They make a point of it to highlight the $50 billion that the US government spends on enforcing their drug policies and how non-violent drug offenders have been put away. Yet, the indirect costs to communities who are targeted by racially and politically motivated drug enforcement policies are nowhere to be seen.

However, New Frontier Data have asked the questions of what government stands to gain if weed is legalized on a federal level.

3 leading benefits from lifting federal prohibition

New Frontier Data’s mission is to “inform cannabis-related policy and business decisions through rigorous and comprehensive analysis of the legal cannabis industry”. In short, they look at everything related to the cannabis industry, the good, the bad and the ugly and lay down the facts. So far, what they have found is that government would do rather well if they were to lift the ban on illegal cannabis.

  1. Payroll Taxes

The numbers are staggering and if a government were to decide to legalize cannabis today, an instantaneous 782,000 jobs would be created. By the year 2025, this number would be estimated to grow to over a million jobs. In terms of cash, it means a total of over $4 billion in payroll taxes and over $5 billion by 2025.

  1. Sales Taxes

The payroll taxes dwarf in comparison to the sales taxes that could be garnered by legal marijuana. At an assumed 15% sales tax on weed. The government could be looking to gain over $51 billion in new revenue for the treasury between 2018 and 2025. Currently, the federal government does not collect any sales taxes from weed sales.

  1. Business Taxes

If cannabis were to be legalized on a federal level, and if these businesses were to be taxed like any other business at 35%, they would have to pay $12.6 billion in business taxes. However, the Republican tax plan has reduced corporate tax to 21%, so this number will decrease slightly. The fact remains that there is still plenty of tax revenue that government could be earning.

What does it all mean for the economy?

Based on the research done by New Frontier Data, it is clear to see that the economy would definitely benefit from the federal legalization of cannabis. However, Jeff Sessions is most likely not going to let that happen anytime soon.

The Attorney General has vowed to increase federal enforcement, even in states where legalization has been passed. If Sessions gets his way, He will rescind the Cole memo and have more control over how state prosecutors prioritize marijuana laws.

This basically means that the benefits of federal legalization will remain theoretical for some time to come.

Regardless of how overwhelmingly favorable the numbers might look in favor of federal legalization, there will always be some naysayers who will hold on to the stigma of cannabis. They will choose to see the negative and fight a moral war, rather than a logical one.  

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