State-level marijuana legalization has had a “significant” economic impact—generating jobs, tax revenue and impacting real estate—according to a new report from a Federal Reserve Bank district.
The Kansas City arm of the central bank, which covers five full states and parts of two other states, published the analysis last week, finding that the legal cannabis industry represents key sectors of the economy that are expected to grow as more states enact tax-and-regulate models.
It also acknowledged that federal prohibition has created unique “challenges,” particularly as it concerns the current lack of access to traditional banking systems.
NEW RESEARCH → 4 states in the Tenth District now have some form of legal #marijuana. A new #EconomicBulletin examines how the industry has influenced jobs, real estate, and tax revenues in these states.
— Kansas City Fed (@KansasCityFed) October 6, 2022
“Overall, the marijuana industry has had a significant effect on the economies of Tenth District states in the initial years after legalization,” it said. “The emergence of the industry has led to higher employment and stronger demand for commercial real estate.”
“In addition, tax revenues have increased as marijuana sales have grown,” it continued. “However, marijuana legalization has also been associated with challenges for both the industry and localities more broadly, including access to banking services and concerns among some local officials about its effects on public health and safety.”
This analysis was published nearly three years after the Federal Reserve Bank of Kansas City released a report focusing on Colorado’s experience with legalization. That publication concluded that the cannabis market is primed to continue to grow as public support for legalization increases.
In 2020, the St. Louis division of the Fed published a separate report outlining the potential benefits and consequences of state-level marijuana legalization, noting the economic impact of the policy change as well as the possibility that people will use cannabis as a substitute for alcohol.
The latest report from the Kansas City branch notes that voters in another state that it covers, Missouri, are set to decide on adult-use legalization at the ballot next month. All signs point to the idea that reform’s “expansion may continue in the years to come,” it says.
— Kansas City Fed (@KansasCityFed) October 10, 2022
Activists in two other states in the bank’s jurisdiction—Nebraska and Oklahoma—sought to put legalization on the ballot but didn’t make the cut for 2022.
“If these expansion efforts succeed, they may have important implications for the Tenth District economy,” the report says. “Although the size of the District’s marijuana industry has thus far remained moderate, the industry has already influenced employment, real estate, and tax revenue in legalized states.”
The Fed division said that while cannabis jobs currently represent a small fraction of the workforce in states that it covers, “new jobs in the marijuana industry can nevertheless contribute substantially to total employment growth, particularly in the years immediately following legalization.”
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“Tenth District employment growth in the marijuana industry may moderate in the coming years as the industry matures in other states and the initial wave of strong hiring to open retail stores, grow product, and manufacture edibles slows to a more moderate pace,” it said.
The cannabis market has also “tightened real estate markets nationwide, including in Tenth District states,” the report says.
The bank principally attributed that trend to the fact that licensed cannabis businesses have been buying up retail storefronts, land and warehouses. But a study published last year also showed that many Americans view legal access to cannabis businesses as a plus, potentially driving some to locate in areas where reform has been implemented.
“In addition to employment and real estate, the marijuana industry has also influenced state tax revenue through marijuana sales,” the bank said.
“Although sales in the Tenth District are strong, they vary considerably across states due in part to differences in consumer demand, state regulations, and the cost and ease of permitting,” it said. “With the most well-established marijuana industry in the District and perhaps in the nation, Colorado has much higher marijuana sales than other District states.”
It added that while “these revenues have benefited Tenth District states and earmarked projects such as education and veteran services, tax revenues from marijuana remain a small share of overall state and local government revenues.”
“Even in Colorado, which has the highest revenues, marijuana revenue made up just 2.3 percent of state tax revenue in 2021,” it said.
A report published late last month found that Colorado and Washington State took in more revenue from marijuana sales than from either alcohol or cigarettes in Fiscal Year 2022.
The bank doesn’t advocate for federal reforms, but it suggested that the state markets could be empowered by congressional action to provide marijuana businesses with access to the banking system.
To that end, lawmakers are working to finalize a package of cannabis reform proposals that’s expected to include marijuana banking language.
Sen. Cory Booker (D-NJ) said on Friday that he’s “very hopeful” Congress will be able to enact marijuana policy changes during the lame duck session after the November election.