Marijuana legalization brings the money – there is no doubt about it. Year after year, states that have legalized the leaf have shown that chopping the head off the beast of the black market pot trade can have billions of dollars in economic impact. Even before a single marijuana product is sold, real estate agents and contractors go to work assembling the cannabis industry. Most of this money stays local. Meanwhile, law enforcement resources are spent everywhere other than in the pursuit of the small-time pot offender.
Then once the legal cannabis market is finally set into motion, thousands of jobs are created and millions of dollars are produced through taxes and tourism. A study published last year shows there is $2.40 in economic activity for every dollar spent on legal weed. The gist of the situation is everyone in these communities, regardless of whether they support legalization or not, are benefiting from a taxed and regulated system.
But are we only looking at one side of the coin?
A couple of studies released over the past week suggest that maybe we haven’t considered every angle when discussing the benefits of marijuana legalization. One report shows that a steady decline in marijuana prices has put some cannabis firms at risk of bankruptcy, while also crippling the ability for states to generate the kind of tax revenue that they did in the very beginning. Another report finds that for every dollar Colorado earns from legal weed, the state is spending $4.50 to combat public health and safety issues. These two issues alone could sandbag the legal weed movement.
According to an analysis from the Washington Post, wholesale marijuana prices are dropping at insane rates in states that have legalized. The price has fallen by 70 percent over the past four years in Colorado. And in Oregon, marijuana is being sold for as little $100 per pound. Sure, the concept of cheap weed is great for the consumer, but it could be devastating for the market. It means legal states are coming out of the gate generating high dollar tax collections, but the take is eventually getting lighter.
“Because states generally set their marijuana tax rates as a percentage of price, their revenue per sale sinks in direct proportion to the fall in marijuana prices,” the report reads.
So, why don’t legal states just raise pot taxes to compensate for the loss? Well, Colorado tried that and it didn’t work. Last year, the state increased marijuana taxes from 10 to 15 percent. But the additional money didn’t account for any gains, it was just absorbed through the additional price drops that occurred over the past 12 months.
“States may have failed to anticipate this problem because of misleading predictions about the effects of legalization,” according to the Post’s analysis.
This dilemma was predicted early on. Some experts said that marijuana legalization would whittle away at prices by around 50 percent. It now seems that was a modest assessment. Others even said that most marijuana would eventually become so cheap that it would essentially have no value in retail commerce.
“It’s just a plant,” said Jonathan Caulkins, a professor at Carnegie Mellon University. “There will always be the marijuana equivalent of organically grown specialty crops sold at premium prices to yuppies, but at the same time, no-frills generic forms could become cheap enough to give away as a loss leader – the way bars give patrons beer nuts and hotels leave chocolates on your pillow.”
There is some concern that if legal weed heads in this direction, states will not have the means to keep the regulatory wheels greased. Because of this, some states, like California and Maine, have taken a different approach to weed taxes – going at it by weight instead of price. It remains to be seen just how this method will work out.
But there may be other problems to consider.
A report published this week by the Centennial Institute (part of the Colorado Christian University) indicates that Colorado is already losing tons of money just trying to keep up with its legal marijuana market. It shows that hundreds of millions of dollars are being spent each year on hospitalizations, motor vehicle accidents and other aggravating circumstances. However, the report is largely based on the latest data provided by the Colorado Department of Safety, which concludes that “it is critical to avoid ascribing changes in many social indicators solely to marijuana legalization.”
So while the state might be working through some issues, legal marijuana cannot be singled out as the culprit. By all accounts, even outgoing Colorado governor John Hickenlooper says all is good in the neighborhood.
“The worst things that we had great fear about – spikes in consumption, kids, people driving while high – we haven’t seen any of that,” he said in a recent interview with Rolling Stone.
Still, Hickenlooper has said in the past that legal marijuana “hasn’t been the economic miracle, the economic sensation that people thought it was going to be.”
Yet, marijuana legalization has proven lucrative for cities, like Pueblo, Colorado that was left to die when the steel industry burned out. A report published earlier this year shows that legal weed has provided the community with a real economic boost — $58 million in 2016. Even after investing $23 million in setting up the infrastructure for the cultivation and sale of marijuana, Pueblo still reaped an economic benefit of $35 million. That’s not a bad haul for a city that had lost all hope.
So is marijuana legalization economic salvation or hype?
While there is undoubtedly some costs of doing business (there always is), the positives seem to outweigh the negatives in a big way. The creation of a cannabis industry has spawned hundreds of thousands of jobs nationwide, provided states with a new revenue stream, saved on law enforcement resources and even contributed to the creation of community-focused outreach programs. The trade now needs the support of the federal government to take the industry to the next level. A move of this magnitude could create over 1 million new jobs and generate more than $131 billion in federal tax revenue.