Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Your State Could Legalize Marijuana Sooner Than You Think

By Matthew Frankel, CFP® - Mar 16, 2014 at 12:00PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With the first concrete tax revenue figures out, states that could use the money may stand up and take notice.

Source: Wikipedia / Bogdan.

There has been no end to the wild speculation over the amount of money legalized marijuana sales would bring in. And with no data to report, speculation is pretty much all anyone could do. But now with Colorado's recent announcement that it took in $2 million in tax revenues on $14 million in sales, the great debate over the economic merits of legalization is about to heat up to another level. With numerous U.S. states still saddled with crippling budget deficits, this could be a huge opportunity for them to generate some extra cash to turn things around.

The uniqueness of Colorado
Marijuana has been legalized in other parts of the U.S. and the rest of the world for some time now, but Colorado is the world's first fully regulated recreational marijuana market. Because of this, it is being watched very intently by other states (and countries) to see the effects of marijuana sales on tax revenue and other aspects of the state economy.

Why other states should care
The obvious answer here is revenue, as there are plenty of states that are currently having budget issues with essential expenses they need to figure out how to pay. In Colorado's case, the state has already earmarked the first $40 million in excise tax revenue from marijuana sales for school construction, and the recent revenue numbers have prompted new debates within the state government regarding how additional tax revenues should be spent.

States on the cusp
There are legalization bills and ballot measures currently being discussed in 19 states (plus the District of Columbia) that would permit recreational use of marijuana. The states closest to passing bills are Alaska and Oregon, both of which are expected to have a measure on the ballot once 2014's election comes, and these two will more than likely pass.

However, some of the other states on this list are still facing significant opposition, but some concrete numbers to go along with the supporters' arguments in favor of legalization could be just what is needed to move them along.

For example, Pennsylvania's Senate Bill 528, which would legalize and regulate recreational use of marijuana, is currently in committee, and I'd be willing to bet that Colorado's revenue has come up in recent discussions. The state is currently facing a budget deficit of more than $1 billion due to other tax changes, and could really use any help it can get to bridge the gap.

New York currently has a bill pending that would allow adults to possess up to 2 ounces of marijuana and has already approved a medical marijuana bill. The state has estimated that once it finalized the taxation and regulation of the market, medical marijuana alone would generate about $200 million annually in tax revenues. If recreational use were legalized, this figure could be much higher.

Having a new revenue stream that can be used for whatever a state happens to need is a pretty good result of legalizing something that has been around for decades.

National legalization, and what it could mean for the states
As fellow Fool contributor John Maxfield pointed out, the biggest obstacle to the marijuana industry in general is that it is still illegal at the federal level, despite what each state does. This creates several challenges for the industry, including the fact that it's still illegal to transport marijuana across state lines, regardless of whether or not it was obtained legally. It also prohibits banks from providing services to the industry, which has pretty much turned the marijuana business into an all-cash operation.

A recent CNN survey shows that 55% of U.S. adults believe that marijuana should be legal, and the nationwide trend has been toward legalization for some time now. Additionally, the federal government could definitely use the money, as well. If marijuana were to become legal on the national level, it would eliminate a lot of barriers of entry to the industry, creating wider availability of product, and even more revenue for the states.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/04/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.