The Economic Benefits of Legalizing Marijuana

Reviewed by Michael J BoyleFact checked by Suzanne KvilhaugReviewed by Michael J BoyleFact checked by Suzanne Kvilhaug

Numerous states have moved to legalize marijuana since 2014, whether for medical use, recreational use, or both. The legal changes have spawned a burgeoning industry of legal cannabis companies, including those that aim to research and develop cannabis-based medical products, those that are working to distribute and grow marijuana, and many others.

Key Takeaways

• There has been a growing popular movement in the United States to legalize marijuana for medicinal and recreational uses, with several states adopting such laws already.
• One motivation for legalization is the economic boon that can come from the regulated commercial availability.
• Increased tax revenues, job growth, and investment opportunities all are powerful incentives to push for legalization.
• 24 states, three territories, and the District of Columbia allow for recreational use.
• 38 states, three territories, and the District of Columbia allow for medical use.

At the federal level, things are also looking more progressive. In October 2022, President Biden pardoned all prior federal offenses of simple possession of marijuana and asked the Department of Justice to review the current classification of marijuana as a Schedule I controlled substance. These efforts could pave the way to nationwide decriminalization.

Let’s explore some of the key economic benefits of legal marijuana.

Impact on Tax Revenue

One of the most immediate effects of marijuana legalization is its effect of tax revenue. In 2023, total tax revenue collected by all states topped $4.18 billion.

In 2023, California brought in the most sales tax revenue from cannabis among states where recreational use is legal, drawing in $1.1 billion.

Washington and Colorado are the two states where marijuana has been legalized for recreational use the longest. Since 2014 through 2023, Washington collected $4.1 billion in tax revenue from adult-use. In the same period, Colorado collected $2.38 billion in total marijuana tax revenue.

If marijuana was legalized nationwide, more tax revenue could be collected across other states, as well as at the federal level.

Note

Colorado began collecting marijuana tax revenue in 2014. Through March 2024, its total-to-date collections have surpassed $2.4 billion.

Income and Jobs

Setting up marijuana nurseries and dispensaries would be the first step for the states that voted in favor of medical marijuana. These would not only create jobs but also set the ball rolling for economic activity in the pot industry in these areas. In the case of states like California and Nevada where such infrastructure already exists, the economic impact has become more quantifiable as the sector has matured.

These jobs would likely come from the quickly growing industry that would spring up across the nation. Workers would be needed to farm, process, distribute, and sell marijuana-based products.

Further, there would be ample opportunities for secondary industries that are related to legal cannabis although not directly involved in its production and distribution. These might include software developers, financing services, construction companies, and many others.

Investment Opportunities

Legal marijuana presents the possibility of tremendous benefits to economies on a local and a national scale. It also could help to secure the investment portfolios of investors across the country and further afield as well. While marijuana remains illegal on the federal level, it is difficult for investors to capitalize on the growth of the industry.

The number of marijuana-related companies trading on public stock exchanges is minuscule, and while investors do have the option of working with over-the-counter exchanges, many of the most successful businesses in the early legal cannabis space have been based in Canada or other countries.

Should marijuana become legal on the national level, marijuana companies would be free to list their stocks on all U.S. exchanges, thereby enhancing liquidity and opening up access to many more investors. Should the growth rates for the cannabis space continue as they have in recent years, it’s likely that investors would express a keen interest in the industry.

Note

As of 2024, the largest marijuana exchange-traded fund (ETF) was AdvisorShares Pure US Cannabis ETF (MSOS) with over $1 billion of assets under management.

Saved Money

When considering the economic benefits of legal marijuana, it’s important to think of the money that might be saved as well as revenue that could be generated through such a process. Currently, federal marijuana enforcement costs several billion dollars per year.

The more states that legalize cannabis, the lower the cost of enforcement would likely be; if marijuana were to be legalized on a national level, these costs would likely drop considerably. If marijuana were removed from the list of controlled substances, far fewer court cases involving the substance would go to trial, resulting in fewer incarcerations and, in turn, more money saved.

Legalized marijuana also stands to benefit medical consumers of cannabis-based products. As marijuana becomes legal in more and more parts of the country, it’s likely that the price will drop overall as a result of commoditization.

This may not immediately seem like good news for overall tax revenue or for marijuana companies looking to maximize profits. However, individuals utilizing marijuana-based products for medical treatment would stand to benefit considerably from lower prices for these items.

How Many States Have Legalized Marijuana?

As of 2024, 38 states have legalized the medical use of marijuana, with 24 of those allowing recreational use as well.

How Much Money Are States Collecting in Marijuana Tax Revenue?

In 2023, the states that legalized marijuana for personal consumption generated $4.2 billion in annual tax revenue. This revenue does not include city revenue or proceeds distributed to smaller municipalities.

What Is the Economic Impact of Legalizing Marijuana?

States that legalize marijuana have recognized various economic benefits. There are direct tax proceeds generated for the state. States employ thousands of employees of oversee the production, distribution, and management of the sector. There are also potential savings to the legal enforcement of the substance if certain criteria are no longer considered illegal.

The Bottom Line

There is ample pushback against the idea of legalizing marijuana across the country. Critics cite the potential for confusion among law enforcement officers aiming to keep up with shifting regulations, a concern about increased homelessness or youth use of the substance, the potential for decreased property values, and much more. Some are opposed to changing the regulatory status of marijuana simply because it means a change to the status quo.

All of these reasons combine to decrease the likelihood that marijuana will become legal at a national level any time soon. However, as more and more states move to individually decriminalize cannabis use in various ways, and as the economic benefits of a legal marijuana industry take effect, there are also many compelling reasons to consider nationwide legalization.

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