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Op-Ed: Legalizing Marijuana Can’t Cure Social Inequality, but it will Ease the Budget Crisis

This Op-Ed by Vireo’s Chief Strategy Officer, Ari Hoffnung, originally appeared in Crain’s NY. See the original article (subscription required) here:

The George Floyd protests and the Coronavirus pandemic have impacted the cannabis industry in a myriad of ways. Pro-cannabis legislation at both the State and Federal levels has been deprioritized and dispensaries that were designated as essential businesses have been looted. What remains to be seen is how these tumultuous times will impact cannabis policy in the mid- to long-term and what role legalization could play in addressing racial injustice and assisting with economic recovery.

While the War on Drugs disproportionately harms people of color and state governments face budget deficits from dwindling tax revenues, record unemployment, and rising health costs, there is a debate as to whether protests and economic challenges will serve as the impetus for legalization or cause it to take a back seat.

Even legalization proponents that point to the reduction in the overall number of arrests and increase in cannabis tax revenues in adult-use cannabis states should agree that ending cannabis prohibition is not a panacea for achieving racial justice or closing an estimated $500 billion deficit faced by governors.

Legalization should be considered as part of a multi-pronged strategy to reduce racial injustice and close budget gaps. After all, legalization has spared thousands of people from criminal records while investing in infrastructure and creating new jobs. Imposing cannabis excise taxes also does not raise the relocation concerns associated with increasing personal income or corporate taxes.

As more states consider legalizing cannabis, there is a need for reliable estimates of the potential revenues that excise taxes could generate for both social and economic purposes. While there will always be a place for economists to conduct complex analyses, it is useful to have simple estimation tools such as my weighted average per capita methodology (“WAC”). This methodology is informed by the work of Carl Davis, the Institute of Taxation and Economic Policy’s Research Director, who recently published a thoughtful blog post on per-capita cannabis excise tax collections.

Davis found that in 2019 more than $1.9 billion of tax revenue was collected across seven adult-use states (AK, CA, CO, MA, NV, OR, WA) with a combined population of nearly 68 million people. This data allows us to calculate a weighted average cannabis tax revenue per capita of approximately $30.

In my home state of New York, a state actively considering adult-use legislation, multiplying the rate of $30 by the state’s population of 20 million projects cannabis excise tax revenues at $600 million. This is similar to the robust economic analyses conducted by the State, which projected excise tax revenues between $250 million and $650 million, and NYC Comptroller Scott Stringer, which projected $596.3 million.

This methodology is certainly not without limitations. First, it does not address the trickier social and economic issues with which policymakers must grapple such as how to allocate revenue, what type of taxes to levy, and projecting collections in early years. Second, the weighted average cannabis tax revenue per capita will need to be updated as new data becomes available.

That being said, I do believe that this methodology is an appropriate tool to project tax revenues for a mature state-based cannabis market and to inform policy conversations.

If we were to apply the weighted average per capita to all 50 states, approximately $10 billion could be raised annually.

While legalization alone will not prevent discriminatory policing policies or close budget gaps, it would certainly represent a step in the right direction.

Ari Hoffnung is the Chief Strategy Officer of Vireo Health and previously served as New York City’s Deputy Comptroller.

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