Now that 15 states have legalized the use of recreational cannabis — and only six states still count it as fully illegal — industry experts say the federal government is facing more pressure to ease its tough standards on the use and sale of the drug.
President-elect Joe Biden has promised to tackle criminal justice reform — including marijuana laws, and Vice President-elect Kamala Harris was an early supporter of the MORE Act, which would lay the groundwork for federal decriminalization by expunging marijuana convictions and prohibiting the denial of benefits on the basis of a “cannabis-event.”
Businesses in the $17 billion cannabis industry would benefit from full legalization with easier investment and banking opportunities, much of which is regulated federally. And state and federal governments may profit from a simpler tax scheme on the drug.
“If you don’t allow that legal operation, somewhere in the community, the sales will continue,” Chris Lindsey, a legislative analyst of Marijuana Policy Project, told Marketplace.
Lindsey compares current federal cannabis policy to alcohol prohibition in the 1920s. Prohibition made it federally illegal to produce, import, transport, and sell alcoholic beverages but consumers were safe from prosecution. This led to criminal organizations controlling a black market and — most importantly — gaining all the profits.
“The federal government really just needs to stop becoming a hindrance,” Lindsey said. “This is not a bipartisan issue, the culture war on cannabis is over.”
The uncertainty can make it hard to do business without a regulatory system that allows cultivation, processing, and sales under a federally-mandated framework, according to Lindsey.
In 2014, Colorado became the first state to allow recreational cannabis to be sold. Six years later, a total of 15 states — including South Dakota, Montana, Arizona, and New Jersey who all passed ballot measures in the most recent election — have followed suit.
In 2019, legal cannabis brought in around $1.9 billion in state and local taxes. Matt Karnes, a former auditor and equity analyst, who now runs the research group GreenWave Advisors, said that the market value of the industry could be around $70 billion if it were federally legalized, which would allow for considerably more in tax revenue.
A uniform system for taxation and regulation — which does not exist now — would increase business growth and benefit local economies, Karnes said. But because the federal government still classifies marijuana as a Schedule I drug, there is no guidance from the federal government on taxation and it varies greatly by state.
For example, Oregon has 17% sales plus a 3% added tax for certain state localities on retail marijuana. In comparison, Washington state charges a much higher rate of 37% on excise and 8% on sales tax. These neighboring states have shown a stark difference in approaches to taxation and revenues.
Karnes said it is just a matter of time before Pennsylvania, New York and Connecticut expand their medical marijuana programs into legal recreational-use. These big markets for cannabis — all bordering recently legalized New Jersey and each other — would make it easier for big food, beverage, and/or pharmaceutical companies to feel comfortable entering the industry, Karnes…
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