Study: Legalizing Marijuana Could Generate Up To $75 Million In Revenue

Jan 16, 2015

A study on marijuana legalization in Vermont released Friday has found that the state could get as much as $75 million in new revenue by taxing and regulating the drug, but it would come with some consequences and other expenses.

The report, called for in legislation signed into law last year, was completed by Rand Corp. and obtained by the Vermont Press Bureau Thursday. The study found that legalizing marijuana in Vermont could produce revenue ranging from $20 million to $75 million annually, based on myriad policy choices.

The calculation is based on tax models in Colorado and Washington, where marijuana is legal. In those states, assessments capture about 30 to 40 percent of the cost of marijuana and deposits it in state coffers.

“The calculations … would suggest a potential tax revenue of close to $50 million per year if taxes were set this high and the black market were largely eliminated,” the report said.

The study used several data sources to determine that the likely amount of marijuana used in Vermont annually is between 15 metric tons and 25 metric tons. That amounts to annual spending on marijuana in Vermont between $125 million and $225 million. The report cautions, however, that the figures are simply estimates because marijuana is still sold in an unregulated black market.

Should lawmakers act soon to legalize marijuana in Vermont, out-of-state purchases would likely dwarf the consumption of Vermont residents. Policymakers would need to decide if they want to welcome out-of-state residents or try to minimize marijuana tourism.

Lawmakers would have to make a host of policy decisions that would impact overall revenue generated for the state.

“Low taxes would tend to allow a nascent market to compete with local black and gray markets; to provide a low-cost product to consumers; to limit regressivity; and to increase compliance with tax laws, thus reducing enforcement and collection costs,” the report said. “But low taxes and low prices can increase underage use, substance-use disorders, and exports to other states substantially, while benefiting casual users only trivially—because, by definition, those casual users are not spending that much on marijuana anyway.”

 

"Revenue is not the only goal, and maybe not even the primary goal, of a tax scheme." - RAND Corporation marijuana study

Legalizing marijuana in Vermont could lead to potential negative impacts, the report warned.

“Revenue is not the only goal, and maybe not even the primary goal, of a tax scheme. In the case of marijuana, an upsurge of problem use and underage use in the wake of legalization could create social, educational, and health damage that would outweigh all the revenue collected from even the most ambitious tax plan. The dangers of such an upsurge ought to dominate decisions about the level and form of taxation,” the report said.

Meanwhile, federal law still prohibits the possession, distribution and production of marijuana. The report noted that the U.S. Department of Justice has not approved Colorado or Washington’s legalization, but it has issued guidelines to prosecutors setting priorities. An August 2013 memo suggests that DOJ will tolerate state-legal marijuana activities as long as the states have “strong and effective regulatory and enforcement systems” and avoid infringing on the following federal enforcement priorities:

• preventing the distribution to minors
• preventing enrichment of gangs and criminal enterprises
• preventing diversion to other states
• preventing dealing other drugs
• preventing violence or the use of weapons
• preventing drugged driving and exacerbation of other public health consequences associated with marijuana use
• preventing growing marijuana on federal land or in federal reserves
• preventing possession on federal property.

Of course, a new president could withdraw the guidelines and pursue the arrest and prosecution of those participating in the marijuana industry in states that have legalized it.

The study also includes findings on the criminal justice impact of current laws in Vermont. Of 2,045 inmates held by the Vermont Department of Corrections, there are just three who are incarcerated for only marijuana charges. That represents just 0.15 percent of all inmates, according to the report.

The report found that in the year after Vermont acted to decriminalize the possession of small amounts of marijuana, making it a civil violation, the state spent between $1 million and $1.3 million enforcing its laws, but also collected about $200,000 in marijuana-related fines and surcharges. The report estimated that if Vermont legalizes marijuana there would be a criminal justice cost ranging between $546,000 and $749,000.

There would also be costs associated with creating and operating a regulatory structure, the report said.

The RAND study showed that 14 percent of drug treatment admissions at state-funded programs in Vermont are related to marijuana use.
Credit RAND Study

There would be increased costs for treatment of marijuana-related disorders. The report states that treatment for such disorders, which is third most common treatment issue behind alcohol and opiates, cost the state $2.1 million in 2011.

Legalizing marijuana could also lead to an increase in health problems, the report said. Current literature identifies “some clear acute and chronic health effects, especially of frequent, high-dose marijuana use,” the report states. Among the acute risks, it said, are accidents and impaired cognitive functioning while intoxicated, anxiety, dysphoria and panic.

Longer-term risks of persistent, heavy use include dependence and bronchitis, according to the report.

“There is some suggestive evidence of other serious risks for heavy marijuana users, including psychotic symptoms (which is different from being diagnosed with schizophrenia), cardiovascular disease, and testicular cancers,” the report notes. “More research is needed before firm conclusions can be drawn.”

There is mixed evidence, the study found, on the relationship between marijuana and crime and school attendance.

“Although the literature showing a relationship between marijuana use and crime is extensive, there is little evidence that use itself increases criminal behavior, so one would not expect legalization to have important effects on non-drug crime, either favorably or unfavorably. Finally, the literature that persistently identifies a negative association between marijuana use and school attendance and achievement has not definitively determined whether the association is causal or not,” the report said.

If Vermont moves forward with legalization through the legislative process, rather than a ballot initiative as has occurred in other states, there will be significant interest throughout the country, the report warned.

“Not only will northeastern neighbors pay close attention; so will federal officials and the national and international media. Given the controversial nature of legalization and opponents’ desire to quash it, there will likely be considerable scrutiny as the rules are debated,” the report said. “In addition to the value of the compensated and donated labor involved with creating a new regime, Vermont policymakers will need to consider the opportunity costs of spending time and political capital trying to make this work versus focusing on other legislative priorities.”

"My bias on legalization is towards legalization." - Gov. Peter Shumlin

Some lawmakers, such as independent Rep. Adam Greshin from Warren, were disappointed by the wide range of revenue estimates, while Cynthia Browning, a Democratic representative from Arlington, was displeased the report did not include the public health costs related to legalization.

Gov. Peter Shumlin said Friday in an interview that he has only briefly reviewed the report but believes it will help policymakers move forward.

“I think the report does a good job of talking about both the advantages and the challenges of legalization for Vermont. My bias on legalization is towards legalization. I believe that it’s the right thing to do for Vermont at the right time,” he said. “I think if you really determine that this was the right thing to do you could do it in less than a couple of years. There’s really no great magic to this or great mystery in terms of how we could do this the Vermont way.”

Marijuana is already available in Vermont. Shumlin said the state must decide if it wants to try and eliminate the black market and regulate it.

“Let’s remember, we have this conversation and we pretend that you can’t get marijuana now. In the real world, folks, if you want to get marijuana in Vermont, we’re in Lala Land if we’re pretending you can’t,” he said. “The question is how do we move to a smarter approach that doesn’t promote addiction, that doesn’t promote abuse and really accepts the reality, which is, it’s not like we’re saying yes marijuana or no marijuana. What we’re really asking is, ‘Do we want to continue having an illegal market for marijuana that you can get, or do we want to do this in a smarter way.’”

 

This story was originally published by the Vermont Press Bureau and reprinted under a partnership with the bureau.