A windfall or up in smoke?: Revenue picture hazy for states looking to legalize marijuana
In conversations about legalizing recreational marijuana, proponents often tout potential windfalls of tax revenue to boost state budgets and prop up struggling public schools.
But planing for that revenue has proven to be a difficult task.
The biggest hurdle for budget forecasters is a lack of historical data, said Josh Lehner, senior economist with Oregon’s Office of Economic Analysis, in an August 2019 report published by The Pew Charitable Trusts.
"For standard forecasting models, it’s helpful to have more detail about demographics, consumption, and product types," Lehner said in the Pew Trusts report. "We’re not there, and other states I’ve talked to aren’t there yet either."
The Pew Trusts report found that state governments have trouble predicting consumer demand ahead of legalization because survey respondents are reluctant to admit they're using a federally prohibited drug.
It's unclear how much revenue Pennsylvania would stand to gain in a regulated recreational cannabis market, but forecasters can look to states such as Colorado and Washington, which legalized marijuana in 2012, for insight.
Revenue from marijuana taxes, licenses and fees in Colorado has steadily increased each year since retail sales began in 2014, according to the Colorado Department of Revenue.
In 2014, the state collected $67.6 million.
Several years later, from January through November of 2019, the state collected $277 million, and overall state revenue since 2014 is at $1.2 billion.
For reference, Colorado has an estimated population of 5.7 million people, while Pennsylvania has an estimated population of 12.8 million people, according to the U.S. Census Bureau.
Washington, which also legalized in 2012 and began retail sales in 2014, collected $367.4 million in marijuana taxes and license fees in fiscal year 2018, according to the Washington State Liquor and Cannabis Board's 2018 annual report.
Data for 2019 was not available.
If Pennsylvania does legalize recreational cannabis, a least a portion of the funds collected by the state should be used for education, said state Rep. Carol Hill-Evans, D-York City.
"We can’t ignore the revenue aspect of it," she said.
Hill-Evans said the funds should go toward health education, addiction resources and property tax relief for seniors and veterans.
As for private revenue, cannabis businesses in Colorado self-reported recreational marijuana retail sales of $1.2 billion in 2018, according to the Colorado Department of Revenue.
And Washington cannabis businesses generated $534 million in sales during fiscal year 2018, the Liquor and Cannabis Board reported.
But doing business in a cannabis-friendly state while the drug is still illegal at the federal level has caused issues for entrepreneurs.
Kevin Oliver is executive director of the Washington chapter of National Organization for the Reform of Marijuana Laws and owner of Washington's Finest Cannabis.
Oliver said national and international banks will not offer their services to cannabis-based business owners, and there are no business loans available.
The local credit unions do provide basic checking services but don't offer any ancillary services, such as home or auto loans or investment portfolios, he said, and that makes it difficult to stay afloat while getting a business going.
"Even if you have an 800 credit score and you’re using your marijuana business to buy a car or home, they’re not going to give you a loan on that," Oliver said.
That's one thing the Secure and Fair Enforcement Banking Act would fix, Oliver said.
The SAFE Banking Act, which passed the U.S. House of Representatives and is now in the Senate Committee on Banking, Housing and Urban Affairs, would allow cannabis-based business to qualify for small business loans and would ensure access to all financial services open to other businesses.
"Not having access to financial services is 100% a barrier (to entry)," Oliver said.
This is part of a monthly series at The York Dispatch. Each month, Dispatch staffers will delve into a new topic that we believe deserves a Closer Look.