Photo: Aleksandr_Kravtsov - Getty Images
Marijuana with $100 bill
Since cannabis was first legalized and taxed in Colorado and Washington in 2012, states where adult-use marijuana sales are legal accumulated nearly $10.4 billion in additional tax revenue.
In 2021 alone, states gathered more than $3 billion in additional revenue, according to a recent study published by the Marijuana Policy Project (MPP). The biggest piece of this billion-dollar cake is from California, which gathered more than $1 billion in tax revenue alone due to its massive customer base—MPP recorded $976 million between January and September alone. Second is Washington state, which gathered more than $500 million, followed by Illinois with $387 million.
Currently, 18 states have legalized adult-use marijuana, but only 11 have started selling and taxing marijuana; the remaining seven states passed reform legislation in 2020 or 2021, and the transition has not fully taken place yet. Therefore, the $10.4 billion in tax revenue is the result of market activity in merely one-fifth of the states in a still-immature market.
Even though weed is a newly legal drug, it already outperforms alcohol when taxing vices in some states. In Washington, alcohol taxes and fees brought in $270 million in 2021, while cannabis brought in twice that, at $530 million, and is growing more profitable at a much faster rate than alcohol. In California, alcohol revenue was $405 million, while cannabis revenue was north of $1 billion. In Illinois, alcohol accounted for $291 million in revenue, nearly $100 million less than weed.
But another state made headlines in 2021 for its extreme success in the industry: For Arizona, 2021 was the first year when cannabis was available to purchase, and the state saw $1.2 billion in sales in its first year, demonstrating that marijuana is increasingly popular even in traditionally Republican areas. The Arizona Department of Revenue announced that $196 million in tax revenue had been gathered so far from legal cannabis sales.
Cannabis Sales Doubled in Illinois in 2021
As Wisconsin fails to gather any revenue from the green rush, our southern neighbor struck gold. Illinois was posting impressive marijuana sales numbers in 2020 already, selling $670 millions’ worth of weed last year. These numbers doubled in 2021. At year’s end, the Illinois Department of Financial and Professional Regulation reports that nearly $1.4 billion of legal marijuana was purchased in the state in 2021.
Illinois’s success is an outlier, given that the state only legalized marijuana in January 2020. Although Washington and California have higher profitability in absolute terms, they both had years to grow their markets. In its first year, Illinois earned $175 million, which then was record-breaking with the exception of California. Illinois accomplished this with less than a third of California’s population.
A large portion of those sales are made by Wisconsinites crossing the border for legal cannabis. Illinois tracks what items are purchased by out-of-state customers: It is nearly one-third of all sales. The Sunnyside dispensary in South Beloit, a rock’s throw away from the southern Wisconsin border, was the largest marijuana retail location in Illinois when it opened in 2020. The multi-million-dollar enterprise established itself in a town of 8,000, yet South Beloit Mayor Ted Rehl estimates that his town receives $700,000 in additional revenue per year out of the Sunnyside dispensary, almost exclusively from Wisconsin customers. Illinois sold $8 million of cannabis to out-of-staters in January 2020, the number has creeped up consistently since then; in December 2021 alone, it was $42 million, a fivefold increase in two years.
What This Revenue Pays For
Illinois set itself apart two years ago by being the first state to fully legalize marijuana through an act of the legislature, rather than a referendum, and by baking robust social equity measures into its new marijuana laws. This is less unique nowadays, as Vermont, New York, Virginia, New Mexico and Connecticut all legalized recreational cannabis in the same way since then, but Illinois was the precursor that opened that door. As a result of its socially conscious approach to legalization, Illinois makes good use of Wisconsin’s diverted tax dollars.
By law, 25% of Illinois’s marijuana tax revenue is reinvested through the “Recover, Reinvest and Renew Program,” which funds local organizations providing legal aid, economic support, reentry from the criminal justice system, violence prevention and youth development to underprivileged Illinois residents. To ensure that the money is injected into the poorer levels of the population, most of the program’s budget is distributed to grassroots organizations with a budget of less than $2 million. An additional 20% of the marijuana tax revenue is diverted to funding mental health services. Thirty-five percent goes to the general revenue fund, and 8% goes to local governments.
California has a similar approach, investing much of its revenue in grants and financial support towards communities that were hit the hardest by the War on Drugs. While Illinois chooses to focus on mental health, California invests its marijuana dollars largely in childcare subsidies and environmental programs.
Washington’s priority in this regard is public health. Seventy-five percent of marijuana tax revenue is earmarked for public health and substance abuse prevention programs by law. “For every $1 billion in revenue collected from the cannabis sales tax, nearly $600 million is funneled into public health initiatives, including a fund that provides health insurance for low-income families,” MPP reports.
Wisconsin has a population nearly identical to that of Colorado. Colorado reaped nearly $370 million in marijuana tax revenue in 2021, much of which is reinvested in education, improving public schools, setting up full-day kindergartens, as well as literacy and childcare programs. Marijuana is a revenue well that remains entirely untapped in Wisconsin.
