More On: Legal Marijuana
Governors in the Northeast and Mid-Atlantic have seen how much money they've been missing out on from cannabis sales thanks to Colorado and Washington State.
New York and New Jersey are the most recent states to legalize recreational cannabis. However, if one hopes that those states' governors and lawmakers have finally embraced a more libertarian perspective on the issue, one will be sorely disappointed. The necessity for tax income is driving the legalization of recreational cannabis in both states—tax revenue to cover holes in state budgets for social services, deficiencies that have been exacerbated by failing covid policies in both jurisdictions. Politicians, as cunning as they are at concealing their actual objectives for public policy changes, want the public to believe that legalization is primarily intended at eliminating decades of racist cannabis enforcement, pointing to drug enforcement inequities. However, one will quickly realize that this is only a smokescreen to hide the true reason.
Colorado is an excellent place to start. Colorado voters approved Amendment 64 in 2002, making recreational cannabis legal. Colorado has generated nearly $1.6 billion in cannabis taxes and fees over the previous six years on its own. Colorado generated just under $70 million in cannabis tax revenue in 2014, and it expects to collect close to $390 million by 2020. In 2015, the state of Washington, which is arguably the best model to use in predicting the magnitude of possible cannabis tax income for both New Jersey and New York, earned close to $65 million in cannabis taxes, depending on how each state structured the taxes and fees imposed. 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.
Colorado and Washington State have shown governors in the Northeast and Mid-Atlantic how much potential revenue from the legalization of recreational cannabis has been slipping through their fingers. New Jersey and New York, both with projected budget shortfalls, are eager to take advantage of the new potential revenue source. The first state to act was New Jersey. Governor Philip D. Murphy of New Jersey signed three laws into law in March 2021 that essentially enable and control the use of recreational cannabis. New Jersey was the most populated state in the Northeast at the time, and it was the first to completely legalize cannabis, ahead of Massachusetts. While Governor Murphy and state lawmakers talk about addressing drug enforcement inequalities and the resulting problem of overcrowded jails, politicians are already banking on a new source of cash to keep their spending plans going. New Jersey's new legal cannabis sector is estimated to bring in around $126 million per year in income. Not to be matched by their smaller neighbor, New York state lawmakers backed a measure to legalize recreational cannabis in July 2021, fearful of missing out on major tax money to New Jersey. In the face of a $60 billion budget deficit over the next four years, New York's legalization of cannabis is expected to produce $300 to $400 million in yearly tax income once the legal market is completely established. New York, by far the most populous state in the Northeast, may be a driving force behind the region's cannabis sector. According to the New York Medical Cannabis Industry Association, the cannabis market in New York is estimated to be worth about $4.2 to $4.6 billion and projected to grow to about $5.8 billion in 2027. Pennsylvania, having the longest border with New York, may be forced to legalize recreational cannabis use in order to not lose out on tax revenue. Already a bipartisan bill legalizing recreational cannabis has been introduced in Pennsylvania. More and more states are realizing that legalizing recreational cannabis is the easiest new source of significant government revenue. In April, Virginia became the first state in the South to legalize recreational cannabis.
The long-running battle between the governor's office and the legislature over how to split the massive amount of potential tax income created by legalizing cannabis is more instructive about New York's drive to shift its stance toward legalization. Governor Cuomo and Democrats in the state legislature attempted to legalize cannabis many times, but each attempt failed due to differences over how to govern the sector. The dispute on how to allocate tax dollars from cannabis sales and distribution licenses is perhaps more striking.
Both New Jersey and New York are a few years away from legalizing cannabis sales. It took two years for Massachusetts voters to allow nonmedical cannabis, and another two years for the state's first dispensaries to open. Politicians and politicians are already introducing measures into the legalization process that have nothing to do with building a regulatory framework that is favourable to the growth of the sector. Legislators are considering reserving large parts of company licenses for minorities, handicapped veterans, and impoverished farmers, for example. More money will be squandered on social engineering projects that have little to do with aiding small companies, if the Paycheck Protection Program and the Restaurant Revitalization Fund are any indication of the effectiveness of such an approach. In addition to ending racial cannabis enforcement, states' legalizing of recreational and medicinal cannabis is clearly motivated by a need to tap into a new huge money stream to balance budgets.