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Legalizing marijuana can save hundreds of thousands of lives from being destroyed by the War on Drugs every year; it helps disadvantaged communities heal; it helps achieve equity; it is safer and better controlled than street pot; it defangs organized crime; it provides an alternative to addictive opioids … But one argument rises over the rest in the land of unfettered capitalism: It is incredibly profitable.
In a large-scale study led by the Marijuana Policy Project, the organization compiled information from all 19 states that legalized recreational marijuana, as well as Washington D.C. Due to the quickly increasing pace of legalization across the nation, nine of these states reformed their cannabis laws in 2020 or 2021, and in eight of those states, tax collections have not yet begun.
Cannabis Revenue Outpaces Alcohol
In 2018, alcohol brought in less than $7.5 billion in tax revenue in all 50 states, amounting to 0.2% of the general revenue of $3.3 trillion. Despite the wide-ranging popularity of alcohol and its ubiquitous nature in the U.S., it is less profitable than legal cannabis, the study reveals.
In just 11 states and a few years at most—as cannabis sales began in 2014 in Colorado and Washington for the first time in the U.S.—legal cannabis brought states an additional $7.9 billion in additional tax revenue from recreational sales alone. This does not include local taxes, revenue from medical marijuana, application and licensing fees paid by cannabis businesses, corporate taxes paid to the federal government or income taxes paid by workers in the cannabis industry, all of which also bolster the American economy.
In Washington in 2018, all state-level alcohol taxes amounted to $370 million in revenue. That same year, the much less established recreational marijuana industry brought in $437 million. While Colorado received $47 million from alcohol, the state earned $243 million from legal pot that year.
Not only does cannabis outpace alcohol despite alcohol being the more popular psychoactive substance, but the popularity of legal pot is quickly increasing, as can be seen in the two states where it has been commercialized the longest, Colorado and Washington.
In the first year of retail sales, Washington State generated only $22 million in cannabis revenue, while Colorado got $46 million. In 2020, these two states earned $614 million and $362 million respectively.
The gap in revenue between Washington and Colorado, despite being the only two states on the starting blocks in 2014, can be explained in part by Washington’s larger population, as well as a different approach to taxation. Initially, legal recreational pot was taxed at 25% thrice, making it impossible to compete with the illegal market, explaining the slower start of the industry until the tax was simplified into a 37% retail tax in 2015—cannabis revenue doubled suddenly when taxation was reformed, from $159 to $302 million in one year. Colorado, which taxes cannabis 15% twice, when sold wholesale and again at retail, saw a much slower growth.
In terms of sudden growth, no state can compete with the two heavyweights of the competition, California and Illinois. California, which benefits from a large population but a relatively light tax burden, has almost doubled its cannabis revenue each year: $397 million in 2018, $638 million in 2019, and more than $1 billion in 2020 alone. Illinois started with comparable brio, with $174 million in cannabis revenue during the first year of legal sales, a number which was nearly met in just the first few quarter of 2021, a year on pace to blow 2020’s pot revenue out of the water.
What This Money Is Used For
So far, Washington is the state that benefited most from legal cannabis, with nearly $2.6 billion in cannabis revenue. “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,” the study explains. A portion of the remainder is dedicated to funding education, research and local budgets, in particular with the objective to support the state’s low-income population.
California, second biggest winner in dollar amounts with more than $2 billion in cannabis revenue, directs most of it to childcare services, environmental programs, public safety and to fund local nonprofit programs.
Colorado, third biggest winner, focuses the bulk of its $1.5 billion cannabis dollars on education. The money is divided between improving the state’s public school system, offering cannabis scholarships, and a marijuana fund dedicated to public health, environment, public safety and human services.
Then, in order, comes Oregon, with half a billion dollars in revenue. “Of the cannabis-related tax revenue it collects, the state distributes 40% to public schools, 15% to law enforcement, and 25% to mental health and treatment programs,” says the Marijuana Policy Project.
Illinois, coming in fifth place with nearly $300 million collected in just one year and one quarter, has been a beacon of social justice by reinvesting cannabis revenue into the state’s “Recover, Reinvest and Renew” program, which supports a large-scale effort to right the wrongs of the War on Drugs and reinvest in local communities. Illinois established the model for all social justice-minded cannabis legalization efforts in the future.
Each state has chosen a stance that fits it specifically—not only are the tax systems varying wildly from one state to another, but the use reserved for cannabis revenue is tailored to each community. Beyond the examples displayed above, we can cite Arizona investing a third of this revenue in community colleges, Montana dedicating it to public health and taking care of veterans, or even New Jersey, which requires reinvesting 70% of cannabis revenue into economic assistance and services in communities most hurt by Prohibition.
So what could Wisconsin generate in tax revenue with legalization and a reasonable tax structure? We can compare our state with Colorado, which has a nearly identical population as Wisconsin. Colorado earned $362 million from taxing recreational marijuana in 2020. Wisconsin could walk in Colorado’s footsteps and support our budget with just one move—or we could use this money for infrastructure or reinvestment in state-delivered services. But, as long as we refuse to end Prohibition, this money remains out of reach.
