How Can The Legalization of Marijuana Affect a Country's Economy?

More than half of the 50 U.S. states have legalized marijuana in some form. Some states have legalized the medical use of marijuana while others have also allowed its recreational use. These numbers increase as more states embrace the potential medical benefits of marijuana, leading closer to federal legalization. However, federal legalization has various barriers. Even if the majority of U.S. states have legalized marijuana, the substance will remain illegal under federal laws. Still, the legalization of marijuana will lead to significant changes in a country’s economy. Federal legalization can lead to more funds from taxes, opportunities in banking and investments, increased employment, better government financing, and increased consumer spending.

Effects on Taxes

The marijuana industry pays taxes more than regular businesses, leading to higher tax revenue from cannabis-related sales. Each state has its own marijuana tax regulations which allow the local government to set considerable taxes that they can use for government programs and campaigns. In 2021, Washington's marijuana tax revenue was $559.5 million while Colorado collected $423 million in tax revenue. Other states that have legalized marijuana have also collected similar tax revenues with all states garnering $3.7 billion in aggregate revenue from the marijuana industry (Krishna, 2022). This trend will continue in states that have legalized marijuana, providing them with additional funding for their local government projects. As more states move to legalize the substance, the government can collect more marijuana tax revenue; benefitting the national economy.

However, local governments need to set taxes that are reasonable to prevent any detrimental effects. According to Hanson (2015), lawmakers face the challenge of balancing collecting enough marijuana revenue for drug-related programs and setting low taxes to prevent increased black market activities. Anti-drug programs are essential, especially with the legalization of marijuana, to educate the public and mitigate any adverse effects of irresponsible medical drug use. States will need to charge high taxes to fund different programs. At the same time, an overly high tax can lead consumers and distributors to prefer the black market. Since both distributors and consumers carry the marijuana tax burden, they may lean on the black market for cheaper products and distribution. States have to ensure that marijuana taxes are considerable.

Effects on Banking

The federal status of marijuana makes any product-related transaction risky for banks and other businesses. Despite being legal in certain states, federal laws prevent banks and businesses from transacting with marijuana-related companies (Hanson, 2015). This limits both marijuana businesses and consumers. Marijuana businesses may only transact with other local businesses and in other jurisdictions that have legalized the substance. For consumers, they may experience problems regarding payment options since banks run the risk of breaking federal law by accepting a marijuana-related transaction. 

Investment Opportunities

Federal legalization and banking transactions will provide investment opportunities to state citizens. According to Krishna (2022), federal legalization will allow marijuana companies to list their stocks in the U.S. exchange market. This will improve the companies’ liquidity and enhance their growth. Investors will also be able to invest in the marijuana industry which can strengthen its financial growth. Since the marijuana industry is a fresh field, new partnerships and acquisitions can shape its direction. For instance, heavy investments from the agriculture industry can provide marijuana businesses with more land for production. This will stabilize supply, which can also have its benefits.

Employment and Consumer Spending

The federal legalization of marijuana will result in the construction of production areas, dispensaries, and other facilities. These facilities will require manpower, creating thousands of jobs. According to various studies and reports, the marijuana industry can generate 41,000 jobs in Nevada, 81,000 in California, and one million jobs nationwide by 2025 (cited in Krishna, 2022). Facilities will require farmers, guards, janitors, managers, officers, and other personnel. With more states legalizing marijuana, the number of available jobs will increase as well as labor income. This effect will provide opportunities for the population, especially for those with marijuana-related convictions.

With more jobs and income, the legalization of marijuana can lead to increased consumer spending. According to Robison (2019), marijuana industry jobs have an average annual salary of around $45,000, and all the workers combined can spend $49.6 billion per year. This significant increase in consumer spending will improve cash flow leading to a healthier and sturdy economy. 

Effects on Government Fund Allocation

Currently, the U.S. government dedicates a portion of its budget to marijuana enforcement. As mentioned earlier, the states utilize taxes to fund anti-drug programs. They spend the taxes on education, prison maintenance, rehabilitation, drug testing tools, and other drug enforcement particulars. The legalization of marijuana can terminate this, allowing the country to save more than $13 billion a year (Miron, 2010, cited in Robison, 2019). Federal legalization will mean that the states will not need to spend money on marijuana prevention. They will not need to allot a budget for inmates with marijuana-related convictions nor spend money on court cases.

However, it is also important to note that various studies suggest that legalization can lead to increased marijuana-related crimes. States that have legalized marijuana experienced increased burglaries, violent crimes, traffic fatalities, and property damages; especially near marijuana dispensaries (Connealy et al., 2019; Evans, 2019). This may counteract the potential money that the government can save from reduced marijuana enforcement. The saved money may end up becoming funds for addressing the consequences of crime.

Conclusion

Federal legalization of marijuana can benefit a country’s economy greatly but also carries adverse potential. Increased tax revenues from the marijuana industry ensure that the government has enough funds for its programs. New investment opportunities become available for businesses and the public. The employment rate will increase due to the job openings in the marijuana industry. The government can allot funds for marijuana enforcement to other projects, giving benefits to other sectors. However, the relationship between marijuana legalization and the crime rate implies additional government spending. Before the U.S. decided to make marijuana federally legal, it is necessary to assess not only the economic benefits but the detrimental effects that the decision can have on society.

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References

Connealy, N., Pizza, E., & Hatten, D. (2019). The Criminogenic Effect of Marijuana Dispensaries in Denver Colorado: A Microsynthetic Control Quasi-Experiment and Cost Benefit Analysis. Justice Evaluation Journal, vol. 3(1). Available at https://academicworks.cuny.edu/cgi/viewcontent.cgi?article=1349&context=jj_pubs . Accessed June 27, 2022.

Evans, D. (2019). Marijuana Legalization Will Cause Many Problems for Missouri Law Enforcement and Schools. Missouri Medicine, vol. 116(3). Available at https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6690273/.  Accessed June 27, 2022.

Hanson, K. (2015). Regulating Marijuana: Taxes, Banking, and Federal Laws. National Conference of State Legislatures, vol 2(43). Available at https://www.ncsl.org/research/health/regulating-marijuana-taxes-banking-and-federal-laws.aspx. Accessed June 28, 2022.

Krishna, M. (2022). The Economic Benefits of Legalizing Marijuana. Investopedia. Available at https://www.investopedia.com/articles/insights/110916/economic-benefits-legalizing-weed.asp#citation-3. Accessed June 28, 2022.

Ncsl.org. (2022). State Medical Cannabis Laws. National Conference of State Legislatures. Available at https://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx. Accessed June 28, 2022.

Robison, A. (2019). The Economic Effects of National Marijuana Legalization. Honors Theses. Available at https://egrove.olemiss.edu/hon_thesis/1138/. Accessed June 28, 2022.