Legalization of Marijuana Does Not Get Rid of Illegal Market or Net Projected Tax Revenue

Proponents of the legalization of marijuana make wild claims of increased tax revenue or crime going down. None of these are really coming to fruition. Yes, some tax revenue comes in to the states that legalize marijuana, but it does not get rid of the illegal marijuana market.

Forbes did posted an article pertaining to the tax revenue claims politicians make and the actual revenue that comes in. You can read the story here. What caught my eye was the legalization stats.

“Then there’s the question of, how do you tackle the illicit market?” the analyst continued. “The legal dispensaries aren’t going to be competing with each other as much as they’re competing with the illicit trade in the early days.”

A case in point is California, the world’s largest market for recreational marijuana, with legal sales totaling approximately $3.1 billion in 2019. According to the report, “Legalization has not yet overcome the well-established illicit market, which is estimated to still control 74 percent ($8.7 billion) of the total market for marijuana,” the report pointed out.

The very year after recreational marijuana was legalized in California, the illicit market grew 29 percent, likely due to high tax rates in the state (above 40 percent of the retail selling price) and a lack of enforcement against illicit sellers.

The inability to out-compete the illicit market means that excise revenue is not nearly as high as many policymakers and analysts expected, the report says. Those groups had anticipated that the state could collect $1 billion each year in excise taxes, it says. Governor Gavin Newsom himself estimated a take of $355 million for FY 2019.


Published by Hoosier Econ

Located out of Central Indiana. Blogger of economics, politics and societal trends.

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