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Legalizing Drugs Would Boost US Budgets By $100 Billion, Harvard Researcher Concludes

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Ending the prohibition of marijuana and other currently illegal drugs and instead taxing and regulating their sales would supplement federal and state government budgets to the tune of up to $106.7 billion a year, according to a new analysis from a Harvard University researcher.

“At both the federal and state levels, government budgets would benefit enormously from drug legalization policies,” Jeffrey Miron, director of undergraduate studies in the Department of Economics at Harvard University, wrote in the report published on Monday by the libertarian Cato Institute.

“This report estimates that $47.9 billion is spent annually on drug prohibition enforcement, whereas $58.8 billion could potentially be raised in tax revenue.”

Miron, who also serves as director of economic studies at Cato, published a previous estimate of the economic impact of legalizing cannabis and other drugs in 2010, but actual revenues from states that have since legalized marijuana blew those projections out of the water.

“Washington collected nearly $70 million in marijuana tax revenues during the first year of legalization, almost exactly the estimate in the 2010 report once adjusted for inflation. In fiscal year 2016, however, Washington collected nearly triple that amount, and in fiscal year 2017 tax revenues reached nearly $320 million. Oregon collected only $20.6 million in fiscal year 2016, about half the 2010 estimate, but it collected $70.3 million in fiscal year 2017, well above the 2010 estimate. In Colorado, marijuana tax revenues have risen from $67.6 million in calendar year 2014 to $247.4 million in calendar year 2017. Even adjusting for inflation, those figures far outstrip the 2010 estimates as well as the updated estimates presented in this paper.”

In the new analysis, Miron speculates that the real numbers could be higher because of robust cannabis tourism in legalization state so far, or it could be because marijuana prices haven’t fallen as far as he initially projected would occur under legalization.

“Revenues may continue to increase over time as more stores open or if demand increases as a result of greater cultural acceptance of marijuana,” he wrote. “But revenues in existing legalization states may also moderate if other states or the federal government legalize marijuana. Another consideration is that a nontrivial share of tax revenue in Colorado, Oregon, and Washington has been generated from collection of one-time application and licensing fees… As recreational marijuana becomes a more established industry, states will likely see a decline in the number of new entrants and therefore a decline in licensing revenue.”

Aside from revenues, Miron also looks at potential criminal justice cost savings resulting from the end of drug prohibition, which he estimates are “likely to be modest in practice, even if the number of drug arrests falls substantially.”

“Early experience suggests that governments will reallocate rather than reduce those expenditures.”

See below for Miron’s state-by-state calculations on the impact of drug legalization, courtesy of Cato:

Table 1: State and local expenditures attributable to drug prohibition, billions of dollars, 2016

All drugs Heroin/cocaine Marijuana Synthetic Other
29.37 12.78 6.04 4.93 5.62

 

Table 2: State and local expenditures attributable to drug prohibition, millions of dollars, 2016

State All drugs Marijuana Heroin/cocaine Other
United States 29,374.9 6,036.9 12,779.2 10,555.4
Alabama 252.9 51.2 111.5 90.2
Alaska 111.8 17.4 54.0 40.4
Arizona 615.1 96.7 286.3 232.0
Arkansas 192.9 40.3 82.8 69.9
California 5,963.4 951.4 2,718.4 2,293.0
Colorado 422.3 64.2 200.1 157.9
Connecticut 314.9 74.1 142.3 98.5
Delaware 113.5 25.1 48.5 39.9
Florida 1,170.0 180.4 564.3 425.2
Georgia 1,339.2 424.0 457.9 457.8
Hawaii 172.6 33.9 72.8 65.8
Idaho 140.7 23.2 63.8 53.7
Illinois 713.1 125.4 334.9 252.7
Indiana 637.6 236.5 193.0 207.4
Iowa 204.8 59.0 77.1 68.5
Kansas 206.5 54.2 81.5 70.7
Kentucky 276.9 56.8 122.2 97.9
Louisiana 376.2 72.2 170.0 133.9
Maine 174.5 63.5 67.1 44.0
Maryland 514.9 77.5 248.7 188.6
Massachusetts 481.0 115.5 215.5 150.0
Michigan 860.3 200.9 356.2 302.7
Minnesota 443.5 130.7 164.1 148.4
Mississippi 278.7 86.3 96.9 95.6
Missouri 335.8 76.6 141.5 117.5
Montana 160.4 28.7 68.4 63.3
Nebraska 147.2 31.1 63.2 52.8
Nevada 223.3 34.6 106.6 82.1
New Hampshire 175.7 65.2 67.0 43.5
New Jersey 669.3 117.8 320.5 231.0
New Mexico 345.1 59.3 149.4 136.4
New York 1,889.6 308.8 915.1 665.4
North Carolina 891.2 263.3 319.0 309.3
North Dakota 310.7 153.7 62.6 94.0
Ohio 650.2 111.0 311.3 227.7
Oklahoma 589.5 209.5 182.1 198.2
Oregon 375.4 57.2 177.7 140.4
Pennsylvania 1,033.0 179.6 493.7 359.6
Rhode Island 203.6 76.1 77.4 50.2
South Carolina 244.7 47.4 108.9 88.4
South Dakota 158.8 67.5 40.9 50.2
Tennessee 342.7 53.9 165.1 123.7
Texas 1,711.5 291.3 798.2 621.9
Utah 767.3 151.9 300.1 315.3
Vermont 69.3 19.5 29.5 20.4
Virginia 602.1 81.2 296.1 224.7
Washington 545.8 82.4 259.3 204.0
West Virginia 270.1 94.5 85.4 90.3
Wisconsin 414.8 62.7 199.1 152.9
Wyoming 223.5 42.9 89.3 91.3
District of Columbia 47.2 8.5 22.0 16.7

 

Table 3: Federal expenditures attributable to drug prohibition, billions of dollars, 2015 (in 2016 dollars)

All drugs Marijuana Cocaine Heroin Other
18.47 3.96 8.42 1.47 4.61

 

Table 4: State and federal tax revenues from drug legalization, billions of dollars, 2016

Total Marijuana Cocaine Heroin Other
Federal revenues 39.21 8.04 17.28 10.18 3.71
State revenues 19.60 4.02 8.64 5.09 1.86

 

Table 5: State tax revenues from drug legalization, distributed by population, millions of dollars, 2016

State Total Marijuana Cocaine Heroin Other
All states 19,603.33 4,020.00 8,640.00 5,090.00 1,856.67
Alabama 296.52 60.81 130.69 76.99 28.08
Alaska 45.07 9.24 19.86 11.70 4.27
Arizona 416.48 85.41 183.56 108.14 39.45
Arkansas 181.91 37.30 80.18 47.23 17.23
California 2,382.11 488.49 1,049.89 618.51 225.61
Colorado 332.86 68.26 146.71 86.43 31.53
Connecticut 218.99 44.91 96.52 56.86 20.74
Delaware 57.67 11.83 25.42 14.97 5.46
Florida 1,236.75 253.62 545.09 321.12 117.13
Georgia 623.07 127.77 274.61 161.78 59.01
Hawaii 87.06 17.85 38.37 22.61 8.25
Idaho 100.97 20.71 44.50 26.22 9.56
Illinois 784.33 160.84 345.69 203.65 74.29
Indiana 403.97 82.84 178.05 104.89 38.26
Iowa 190.72 39.11 84.06 49.52 18.06
Kansas 177.57 36.41 78.26 46.11 16.82
Kentucky 270.30 55.43 119.13 70.18 25.60
Louisiana 285.22 58.49 125.71 74.06 27.01
Maine 81.22 16.65 35.79 21.09 7.69
Maryland 366.23 75.10 161.41 95.09 34.69
Massachusetts 414.44 84.99 182.66 107.61 39.25
Michigan 605.87 124.24 267.03 157.31 57.38
Minnesota 334.92 68.68 147.61 86.96 31.72
Mississippi 182.62 37.45 80.49 47.42 17.30
Missouri 371.19 76.12 163.60 96.38 35.16
Montana 63.05 12.93 27.79 16.37 5.97
Nebraska 115.69 23.72 50.99 30.04 10.96
Nevada 176.17 36.13 77.64 45.74 16.69
New Hampshire 81.26 16.66 35.81 21.10 7.70
New Jersey 545.86 111.94 240.58 141.73 51.70
New Mexico 127.09 26.06 56.01 33.00 12.04
New York 1,206.34 247.38 531.68 313.23 114.25
North Carolina 613.04 125.71 270.19 159.18 58.06
North Dakota 46.23 9.48 20.38 12.00 4.38
Ohio 708.95 145.38 312.46 184.08 67.15
Oklahoma 238.70 48.95 105.21 61.98 22.61
Oregon 245.86 50.42 108.36 63.84 23.29
Pennsylvania 781.45 160.25 344.42 202.90 74.01
Rhode Island 64.49 13.22 28.42 16.74 6.11
South Carolina 299.02 61.32 131.79 77.64 28.32
South Dakota 52.41 10.75 23.10 13.61 4.96
Tennessee 402.89 82.62 177.57 104.61 38.16
Texas 1,675.66 343.62 738.53 435.08 158.70
Utah 182.70 37.46 80.52 47.44 17.30
Vermont 38.25 7.84 16.86 9.93 3.62
Virginia 511.17 104.82 225.29 132.73 48.41
Washington 437.42 89.70 192.79 113.58 41.43
West Virginia 112.47 23.06 49.57 29.20 10.65
Wisconsin 352.36 72.26 155.30 91.49 33.37
Wyoming 35.83 7.35 15.79 9.30 3.39
District of Columbia 40.95 8.40 18.05 10.63 3.88

 

Table 6: Summary of expenditure savings and additional revenues from drug legalization, billions of dollars, 2016

All drugs Marijuana Heroin/cocaine Other
Expenditures State 29.4 6.0 12.8 10.6
  Federal 18.5 4.0 9.9 4.6
Total 47.9 10.0 22.7 15.2
Revenues State 19.6 4.0 13.7 1.9
  Federal 39.2 8.0 27.5 3.7
Total 58.8 12.0 41.2 5.6

 

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.

Tom Angell is the editor of Marijuana Moment. A 20-year veteran in the cannabis law reform movement, he covers the policy and politics of marijuana. Separately, he founded the nonprofit Marijuana Majority. Previously he reported for Marijuana.com and MassRoots, and handled media relations and campaigns for Law Enforcement Against Prohibition and Students for Sensible Drug Policy. (Organization citations are for identification only and do not constitute an endorsement or partnership.)

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Top IRS Official Says Marijuana Banking Reform Would Help Feds ‘Get Paid’

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The Internal Revenue Service (IRS) would like to get paid—and it’d help if the marijuana industry had access to banks like companies in other legal markets, an official with the federal department said. She also talked about unique issues related to federal tax deductions for cannabis businesses.

At an event hosted by UCLA’s Annual Tax Controversy Institute on Thursday, IRS’s Cassidy Collins talked about the “special type of collection challenge” that the agency faces when it comes to working with cannabis businesses while the product remains federally illegal.

While IRS isn’t taking a stand on federal marijuana policy, Collins said that the status quo leaves many cannabis businesses operating on a cash-only basis, creating complications for the agency, in part by making it harder for banks to “pay us.”

“The reason why [the marijuana industry is] cash intensive is twofold,” she said. “Number one, a lot of customers don’t want a paper trail showing that they’re buying marijuana, and number two, the hesitancy of banks to allow marijuana businesses to even bank with them.”

Of course, the reason why many financial institutions remain hesitant to take on cannabis companies as clients is because the plant is a strictly controlled substance under federal law.

“There’s been a number of legislative bills that have been introduced—and I am definitely not expressing any opinion personally or on behalf of the IRS about any pending or proposed legislation,” Collins, who is a senior counsel in the IRS Office of Chief Counsel, said. “But it is interesting to note that, if the law changed so that the marijuana businesses could have banks, that would make the IRS’s job to collect [taxes] a lot easier. As part of collection, we want the money. That’s our end goal there.”

A major part of what makes cannabis businesses unique is that they don’t qualify for traditional tax credits under an IRS code known as 280E. That policy “prohibits them from claiming deductions for business expenses because they’re technically being involved in drug trafficking,” Collins explained at the event, from which small excerpts of her comments were reported by Bloomberg.

There are some options available to lessen the burden on marijuana firms, however. At the end of the day, “IRS will work with marijuana companies because, again, we want to get paid,” Collins said.

One of the ways the agency works with marijuana business operators is to have them visit designated IRS “tax assistance centers” that accept cash payments in excess of $50,000. But the official warned businesses to “be prepared to be there for a little while” as the center checks—and double checks—the amount of cash being submitted.

“Revenue officers will assist the marijuana companies in paying us,” she said.

IRS officials could also help cannabis firms by having officials accompany them “to the bank in order to try to help the taxpayer secure a cashier’s payment to pay the IRS, as well as using money orders,” she said, adding that “our revenue officers are are wanting to work with the marijuana companies to help assist them to pay us.”

“When the revenue officers are there in person with the taxpayer, that could potentially help increase the likelihood that the bank will cooperate and help the taxpayer transition into a cashier’s check,” she continued. “And that has been a trend since this first became legal [at the state level], that more and more banks are allowing cannabis companies to bank with them.”

In a report published earlier this year, congressional researchers examined tax policies and restrictions for the marijuana industry—and how those could change if any number of federal reform bills are enacted.

IRS, for its part, said last month that it expects the cannabis market to continue to grow, and it offered some tips to businesses on staying compliant with taxes while the plant remains federally prohibited.

As it stands, banks and credit unions are operating under 2014 guidance from the Financial Crimes Enforcement Network (FinCEN) that lays out reporting requirements for those that choose to service the marijuana industry.

Leaders in both chambers of Congress are working on legalization bills to end federal marijuana prohibition. But stakeholders are hopeful that, in the interim, legislators will enact modest marijuana banking reform. Legislation to protect financial institutions from being penalized for working with cannabis businesses passed the House for the fifth time last month.

Rodney Hood, a board member of the National Credit Union Administration, wrote in a Marijuana Moment op-ed this month that legalization is an inevitability—and it makes the most sense for government agencies to get ahead of the policy change to resolve banking complications.

IRS separately hosted a forum in August dedicated to tax policy for marijuana businesses and cryptocurrency.

Earlier this year, IRS Commissioner Charles Rettig told Congress that the agency would “prefer” for state-legal marijuana businesses to be able to pay taxes electronically, as the current largely cash-based system under federal cannabis prohibition is onerous and presents risks to workers.

Former Treasury Secretary Steven Mnuchin said in 2019 that he’d like to see Congress approve legislation resolving the cannabis banking issue and he pointed to the fact that IRS has had to build “cash rooms” to deposit taxes from those businesses as an example of the problem.

IRS released updated guidance on tax policy for the marijuana industry last year, including instructions on how cannabis businesses that don’t have access to bank accounts can pay their tax bills using large amounts of cash.

The update appears to be responsive to a Treasury Department internal watchdog report that was released earlier in the year. The department’s inspector general for tax administration had criticized IRS for failing to adequately advise taxpayers in the marijuana industry about compliance with federal tax laws. And it directed the agency to “develop and publicize guidance specific to the marijuana industry.”

Luxembourg Set To Become First European Country To Legalize Marijuana Following Government Recommendation

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Luxembourg Set To Become First European Country To Legalize Marijuana Following Government Recommendation

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Luxembourg is poised to become the first European country to legalize marijuana, with key government agencies putting forward a plan to allow the possession and cultivation of cannabis for personal use.

The ministers of justice and homeland security on Friday unveiled the proposal, which will still require a vote in the Parliament but is expected to pass. It’s part of a broader package of reform measures the agencies are recommending.

Under the marijuana measure, adults 18 and older could grow up to four plants. However, under the non-commercial model that is being proposed, possessing more than three grams in public would still be a civil offense, carrying a fine of €25-500 ($29-581). Currently, the maximum fine for possession is €2,500 ($2,908).

In terms of access, adults would be able to buy and trade cannabis seeds for their home garden.

Justice Minister Sam Tamson said the government felt it “had to act” and characterized the home cultivation policy change as a first step, The Guardian reported.

“The idea is that a consumer is not in an illegal situation if he consumes cannabis and that we don’t support the whole illegal chain from production to transportation to selling where there is a lot of misery attached,” he said. “We want to do everything we can to get more and more away from the illegal black market.”

While limited in scope, the reform would make Luxembourg the first country in Europe to legalize the production and possession of marijuana for recreational use. Cannabis has been widely decriminalized in certain countries in the continent, but it has remained criminalized by statute.

Government sources in Luxembourg told The Guardian that plans are in the works to develop a program where the state regulates the production and distribution of marijuana. Tamson said they are working to resolve “international constraints” before taking that step, however, referring to United Nations treaty obligations that multiple U.S. states and other countries like Canada and Uruguay have openly flouted.

For now, the country is focusing on legalization within a home setting. Parliament is expected to vote on the proposal in early 2022, and the ruling parties are friendly to the reform.

This has been a long time coming, as a coalition of major parties of Luxembourg agreed in 2018 to enact legislation allowing “the exemption from punishment or even legalization” of cannabis.

Meanwhile in the U.S., congressional lawmakers are working to advance legalization legislation. A key House committee recently approved a bill to end marijuana prohibition, and Senate leadership is finalizing a separate reform proposal.

In Mexico, a top Senator said this week that lawmakers could advance legislation to regulate marijuana in the coming weeks. The Supreme Court has already ruled that adults cannot be criminalized over possession or cultivation, but there’s currently no program in place to provide access.

New Bipartisan Marijuana Research Bill In Congress Would Let Scientists Study Dispensary Products

Photo courtesy of Mike Latimer.

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New Bipartisan Marijuana Research Bill In Congress Would Let Scientists Study Dispensary Products

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A bipartisan group of federal lawmakers introduced a bill on Thursday to remove barriers to conducting research on marijuana, including by allowing scientists to access cannabis from state-legal dispensaries.

The Medical Marijuana Research Act, filed by the unlikely duo of pro-legalization Rep. Earl Blumenauer (D-OR) and prohibitionist Rep. Andy Harris (R-MD), would streamline the process for researchers to apply and get approved to study cannabis and set clear deadlines on federal agencies to act on their applications.

“Congress is hopelessly behind the American people on cannabis, and the quality of our research shows why that is an urgent problem,” Blumenauer told Marijuana Moment. “Despite the fact that 99 percent of Americans live in a state that has legalized some form of cannabis, federal law is still hamstringing researchers’ ability to study the full range of health benefits offered by cannabis, and to learn more about the products readily available to consumers.”

“It’s outrageous that we are outsourcing leadership in that research to Israel, the United Kingdom, Canada, and others. It’s time to change the system,” he said.

Late last year, the House approved an identical version of the cannabis science legislation. Days later, the Senate passed a similar bill but nothing ended up getting to the president’s desk by the end of the last Congress. Earlier this year, a bipartisan group of senators refiled their marijuana research measure for the current 117th Congress.

Meanwhile, lawmakers are also advancing a separate strategy to open up dispensary cannabis to researchers. Large-scale infrastructure legislation that has passed both chambers in differing forms and which is pending final action contains provisions aimed at allowing researchers to study the actual marijuana that consumers are purchasing from state-legal businesses instead of having to use only government-grown cannabis.

The new bill filed this week by Blumenauer and Harris, along with six other original cosponsors, would also make it easier for scientists to modify their research protocols without having to seek federal approval.


Marijuana Moment is already tracking more than 1,200 cannabis, psychedelics and drug policy bills in state legislatures and Congress this year. Patreon supporters pledging at least $25/month get access to our interactive maps, charts and hearing calendar so they don’t miss any developments.

Learn more about our marijuana bill tracker and become a supporter on Patreon to get access.

It would additionally mandate that the Drug Enforcement Administration (DEA) license more growers and make it so there would be no limit on the number of additional entities that can be registered to cultivate marijuana for research purposes. It would also require the U.S. Department of Health and Human Services (HHS) to submit a report to Congress within five years after enactment to overview the results of federal cannabis studies and recommend whether they warrant marijuana’s rescheduling under federal law.

“The cannabis laws in this country are broken, including our laws that govern cannabis research,” Blumenauer said in remarks in the Congressional Record. “Because cannabis is a Schedule I substance, researchers must jump through hoops and comply with onerous requirements just to do basic research on the medical potential of the plant.”

The new legislation will “both streamline the often-duplicative licensure process for researchers seeking to conduct cannabis research and facilitate access to an increased supply of higher quality medical grade cannabis for research purposes,” he said, adding that expanded studies will help make sure “Americans have adequate access to potentially transformative medicines and treatments.”

For half a century, researchers have only been able to study marijuana grown at a single federally approved facility at the University of Mississippi, but they have complained that it is difficult to obtain the product and that it is of low quality. Indeed, one study showed that the government cannabis is more similar to hemp than to the marijuana that consumers actually use in the real world.

There’s been bipartisan agreement that DEA has inhibited cannabis research by being slow to follow through on approving additional marijuana manufacturers beyond the Mississippi operation, despite earlier pledges to do so.

In May, the agency finally said it was ready to begin licensing new cannabis cultivators. Last week, DEA proposed a large increase in the amount of marijuana—and psychedelics such as psilocybin, LSD, MDMA and mescaline—that it wants produced in the U.S. for research purposes next year.

Under the new House bill, the agency would be forced to start approving additional cultivation applications for study purposes within one year of the legislation’s enactment.

HHS and the attorney general would be required under the bill to create a process for marijuana manufacturers and distributors to supply researchers with cannabis from dispensaries. They would have one year after enactment to develop that procedure, and would have to start meeting to work on it within 60 days of the bill’s passage.

In general, the legislation would also establish a simplified registration process for researchers interested in studying cannabis, in part by reducing approval wait times, minimizing costly security requirements and eliminating additional layers of protocol review.

Read the full text of the new marijuana research bill below:

Click to access medical-marijuana-research-act-hr-5657-text.pdf

Marijuana Moment is made possible with support from readers. If you rely on our cannabis advocacy journalism to stay informed, please consider a monthly Patreon pledge.
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