Tuesday December 28, 2021
The latest two states to legalize recreational cannabis are New York and New Jersey. However, if one believes governors and legislators in those states have finally adopted a more libertarian view of the topic, one will be severely disappointed. Legalization of recreational cannabis in both states is driven by the need for tax revenue—tax revenue to plug the holes in state budgets for social programs, holes in the state budget that were exasperated by the failed covid policies in both states. Politicians, clever as they are in hiding their true intentions for public policy changes, want the public to believe that legalization is mostly aimed at ending decades-long practices of racist cannabis enforcement, pointing to the disparities in drug enforcement. However, one will quickly realize that this is only a smokescreen to hide the true reason.
A good starting point is Colorado. In 2002, voters in Colorado passed Amendment 64 and legalized recreational cannabis. Over the last six years, Colorado has collected over $1.6 billion in cannabis taxes and fees at the state level alone. In 2014, Colorado collected just shy of $70 million in cannabis tax revenue, and by 2020 it collected close to $390 million. The State of Washington, probably the closest example to use in estimating the size of potential cannabis tax revenue for both New Jersey and New York, depending on how each state structures the taxes and fees imposed, collected in 2015 close to $65 million in cannabis taxes. By 2020, the number had increased to $470 million, an increase of $400 million in five years. While Colorado levies a 15 percent excise tax and a 15 percent sales tax on cannabis, Washington State levies a 37 percent retail tax on cannabis (for details, see the Tax Foundation).
Even in Oklahoma, which created arguably the most free-market cannabis industry in the country, with no limits on how many business licenses can be issued, after voters approved Oklahoma State Question 788 in 2018, lawmakers are very candid about being motivated by dollar signs in times when states are facing a budget crisis. From June 2020 to 2021, Oklahoma collected almost $140 million in revenue from excise and license fees.