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How Legalizing Marijuana Could Help a State's Budget Crunch

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How Legalizing Marijuana Could Help a State’s Budget Crunch

One of the less talked about aspects of the 2020 United States presidential election was that several states held votes to decide whether to legalize marijuana. In the end, the citizens of South Dakota, New Jersey, Montana, and Arizona voted to allow marijuana to be legal for recreational use. Mississippi held a vote to allow medicinal marijuana, and it was successful as well. The former four will join Colorado and Washington as states that allow the recreational use of the drug. 

These votes were very much about the free will of citizens to be able to enjoy something, much like they can enjoy alcohol or tobacco. However, it’s much more than that. Those states have realized that there may be other benefits involved as well. Those benefits are financial. Making marijuana legitimate means that it becomes taxable as well. Governments can increase their revenue and help boost their budgets. 

How to Marijuana Taxes Work?

There are 33 states that have legalized marijuana for either medicinal or recreational use. They vary between them as to how they apply taxes to the product. Most use a tax structure similar to a normal sales tax. The government takes a certain percentage of the sale price and charges that as a tax. Other states do things a little differently. Taxes are charged on the weight of the product sold. Some states, such as California, charge up to $10 per ounce. Technically this tax is levied on the distributors, but the cost is generally passed down to the buyer. 

The final way to levy taxes on marijuana is by potency. Alcohol is taxed this way in many jurisdictions, where beer would have a lower tax rate than liquor. The tax that is charged can be based on how much THC is in the product. Currently, Illinois is the only state that has this type of tax structure for its medicinal marijuana. 

How Can This Affect the Budget?

The two states that have already legalized recreational marijuana have enjoyed the benefits of tax revenue related to marijuana sales. Colorado raked in over $302 million in 2019 alone, and 2020 is expected to be even higher as more citizens get used to legal cannabis being available. Based on their experience, and the expected cannabis sales across the country, the federal government could add over $105.5 billion in taxes on an annual basis. According to some estimates, this would be enough to end homelessness in our country 4 times over. 

That said, it’s not just straight tax revenue that would provide benefits. Whenever you legalize something that had been previously banned, you need to create infrastructure to support it. This means that states who legalize it will have to set up places to grow it, logistical networks to ship it, and dispensaries to sell it. This investment would mean creating jobs and potentially economic activity in distressed areas. The income these workers make will also provide tax benefits for the state. One study shows that for a state the size of Nevada, legalizing marijuana would create as many as 41,000 jobs

How Does it Work?

There are many ways that legalized marijuana works. Where it’s legal, entrepreneurs have opened up dispensaries with licenses and have shops where they can sell to buyers. To get marijuana for medical reasons, in most states you need to provide proof that it is required for a health issue. For example, in Maryland, recreational marijuana is not legal, but with a Maryland medical marijuana card you are eligible to get your medicinal cannabis. 

You don’t even have to go to a dispensary to get it. Many states offer shipping and delivery, so you can enter your details online and your medication will come directly to your home. This is especially beneficial for those who require treatment for mobility issues, or who have immune disorders that make going out in public dangerous. 

This also applies to recreational marijuana. However, unlike with medicinal marijuana, there are purchasing limits to prevent someone from purchasing too much at a time. You also must be over the age of 21 to buy marijuana products. However, there are services that will ship to you, even for recreational purposes. 

For many years, marijuana had a bad name. It was a part of the war on drugs, and buying and selling it has been underground to avoid being arrested. However, more countries around the world, and more states here at home, have begun to make it easier to get legally. Whether it’s for medicinal or recreational purposes, marijuana is extremely popular. That’s why it can be such a boost to any state that makes it legal. The tax revenue generated by marijuana sales can provide a huge boost to a tight budget. 



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