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Legalized Marijuana's Hidden Billion-Dollar Potential

Source: Flickr / Julien Haler.

According to some recent reports, the tax revenue might just be the tip of the iceberg in terms of the financial benefit of legal marijuana to the states' economies. Tourism is skyrocketing in Colorado, especially with younger travelers, as Denver has catapulted into the top spring break destinations in the country. I recently wrote an article about Colorado's tax revenue resulting from the legalization of recreational marijuana use and how other states might stand up and take notice, but maybe there's much more revenue to be had.

Colorado is not just a ski destination anymore
According to a recent article, Colorado is receiving an influx of tourists, and college students in particular. compiled a list of 2014's top spring break destinations, as determined by the number of hotel bookings using a ".edu" email address. Very surprisingly, Denver was the third most popular city on the list, behind only Las Vegas and New Orleans.

Even more impressive is the list of cities known as spring break destinations that Denver beat, most notably Panama City Beach, Fort Lauderdale, Miami, and Cancun. I don't want to be too judgmental here, but it's probably safe to assume the ski resorts weren't the only factor here. To further confirm this assumption, consider that Colorado marijuana shops have reported about half of their customers have out-of-state IDs.

Just how much money are we talking about?
It's hard to say just how much marijuana tourism will contribute to Colorado's economy, but if other popular tourist destinations are any indicator, it's not going be a small amount. For instance, Panama City Beach estimates tourists accounted for more than $1 billion in spending last year.

Elsewhere in Florida, Fort Lauderdale tourists spend just over $9 billion annually, and account for about $40 million in local tax revenue. While this amount of tax revenue undoubtedly helps the local government, don't forget about the economic impact of job creation that comes with billions of dollars injected into an economy. Also, bear in mind this is just in one city, not an entire state.

Source: Flickr / eggrole.

Some of the states on the cusp of legalization could really use the extra cash
While we don't really know the full impact of tourism of Colorado's tax revenue and local economies, some of the states considering legalization can't wait to find out.

Vermont is one of those states. Medical marijuana is also legal, and there seems to be overwhelming support to legalize, tax, and regulate on a recreational level. There is a currently a bill in the Vermont House of Representatives that aims to order a study on all of the potential revenue effects of legalization, including direct taxes, the cost savings from enforcing marijuana laws, and tourism. Other states on the path to legalization such as Oregon and Alaska are undoubtedly taking tourism into consideration when debating legalization.

For cash-strapped states such as Pennsylvania, which is facing a budget deficit of around $1 billion, tourism revenue may be the tipping point needed to sway lawmakers to the legalization side. The state has a bipartisan bill in Senate committee right now which would legalize and regulate recreational marijuana use. The governor has been strongly opposed to legalizing marijuana, but he may start feeling the pressure as more potential revenue figures begin to roll in. Pennsylvania also has the unique opportunity to be the first east coast state to legalize, and could get tourists from densely populated areas such as New York City and New Jersey.

The potential effect
A lot of states have been pushing to legalize based on tax revenue for some time now, and are yet to really take tourism revenue into account. I'm sure the tourism effect in Colorado will be studied, and it will be interesting to see the economic impact on the unemployment rate, small business profits, and of course, taxes.

This may cause states on the cusp to act more quickly, as the "tourism effect" will become less powerful as more states begin to legalize recreational use. Whatever the actual numbers turn out to be, whoever is early to the party is likely to benefit the most, similarly to how Las Vegas and Atlantic City's economies benefited from gambling.

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2014, at 3:13 PM, userzer01 wrote:

    Want to make legal money in the MJ trade? Hidden Gem Buy FDMF. Company is going to announce soon that is joining the MJ sector, Most likely Bio-diesel applications. (Referred to in news on 3/12) Buy FDMF. Always do your DD.

  • Report this Comment On April 06, 2014, at 7:58 PM, pothead wrote:

    Why is it when you ask these politicians why they are against legalization, they never give a rational answer?

    Then when you check their backgrounds, you find that many of them are on the dole of the big pharmacy, alcohol, tobacco, prison and weapons industries. It's against their best interest to be against pot. It seems as though dealing in death is more profitable to them than dealing in life.

  • Report this Comment On April 07, 2014, at 6:36 AM, kingfish63 wrote:

    TEXAS NEEDS TO LEGALIZE AND DECRIMINALIZE MARIJUANA , tax it regulate it, just like ALCOHOL and TABACCO and any other product that is profitable , and it will boost the econamy down south . I hope the REPUBLICANS in TEXAS will realize the billions that will come in . And stop waisting tax payers money . on prosicuting marijuana smokers

  • Report this Comment On April 07, 2014, at 3:41 PM, sullymichaels wrote:

    Not sure about the pot stocks for now... I am holding a very diversified position in them, but they are TANKING for now. Is it the "dump" of the pump & dump? Some phonies getting called out on articles & getting dumped bringing others along with them as they fall? People not willing to stick around?

    We'll see. I'm holding for now - may even buy just before 4/20, because... duh.

    And, NO, I don't even smoke the stuff.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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