Coronavirus Could Lead to More States Legalizing Cannabis

While COVID-19 has shaken the global economy, local government bodies are also bracing for extreme revenue shortfalls in the months to come. Business analysts from DataTrek Research believe that the pandemic, however, could lead to the acceleration of state legalization efforts.

“There’s a simple and effective solution for states and cities to help cover their huge budget shortfalls after the COVID-19 pandemic subsides: legalize recreational sales of marijuana.” — Jessica Rabe, co-founder of DataTrek Research, in a written statement

“We’ve been thinking a lot about how life will change post-virus, and one big difference will be that state and local governments are going to encounter large unexpected tax receipt shortages,” Rabe wrote. “That’s particularly true when it comes to sales and income taxes amid stressed consumer balance sheets and massive layoffs. And unlike the Federal government, states can’t print unlimited amounts of money.”

Rabe suggests that traditional revenue-boosting strategies such as increasing income, sales, or real estate taxes could push taxpayers away and further weaken state economies. A brand new taxed and regulated cannabis marketplace, however, would help reinforce state coffers without directly alienating taxpayers. In New York, for example, the state is expecting a massive revenue drop of between $4 and $7 billion from coronavirus’s fallout. Experts conservatively estimate that a legal cannabis market in New York would generate over $1 billion in annual tax revenue, which would make up a significant chunk of the state’s missing revenue.

Rabe warns, however, against over-taxing the already hyper-regulated industry and points to California — where high taxes and regulatory restrictions have allowed unregulated sales to thrive — as a cannabis market failure.

“The economic impact from this virus may be enough for some states, such as New York, to finally get enough votes to pass such legislation,” Rabe wrote. “While we recognize legal marijuana is a controversial topic for many people, the budget shortfalls that COVID-19 will create may sway opinions about the issue.”

Adult-use cannabis is legal in 11 states — Washington, Oregon, California, Nevada, Colorado, Illinois, Michigan, Massachusetts, Maine, Vermont, and Alaska — plus Washington D.C.