Official Washington State Analysis: Marijuana Legalization Would Add Hundreds of Millions to State Coffers
At the beginning of this year, Washington State Rep. Mary Lou Dickerson filed HB 1550, which would legalize, tax and regulate marijuana through the state’s system of liquor stores. Since then, the state’s Office of Financial Management has provided an official analysis of the bill that shows that marijuana legalization would result in hundreds of millions of dollars in additional revenue, and tens of millions in reduced court, police and incarceration costs. From the Office of Financial Management fiscal notes on HB 1550 on state revenue:
Section 24 sets the annual license fees for farmers of cannabis at $5,000. The estimated number of licenses issued per year is 1,000. Therefore, LCB anticipates receiving $5,000,000 per year in license fees.
In FY14, gross sales revenue of $581 million includes a 15% tax from the bill as well as 24.5% markup by the board as a pricing strategy. The net revenue number is gross revenue less costs of goods sold although the bill does not expressly address cost of goods sold. LCB is assuming a model similar to liquor with regard to cost of goods sold. So, revenue numbers displayed on this fiscal note represent total gross revenue less cost of goods sold. It is this amount that would be split 77% Dept of Health, 20% DASA, 2% Dept of Agriculture, and 1% LCB.
First year estimates are as follows:
1) Estimated non-medical cannabis users is 444,060;
2) Estimated annual sales volume: 134,110 pounds (just over 60 million grams);
3) Estimated annual gross sales FY14: $581,546,177;
4) Estimated tax revenue at 15% per gram is $75,853,849;
5) Estimated markup of 24.5% per gram before expenditures is $99,513,751.
On the impact on local budgets due to reduced burden on the criminal justice system:
The proposed legislation may result in significant but indeterminate expenditure reductions for charging and trying fewer misdemeanor and felony crimes. There is also expected to be a reduction in jail sentences due to fewer misdemeanor convictions. Jail sentences are a local expense. These reductions may total over $13.5 million annually for fewer arrests, trials, and local jail sentences. Expenditure reductions include approximately $5,489,100 in felony cases and $8,284,006 in misdemeanor cases.
On additional local revenue from taxes and licenses:
The proposed legislation would result in significant, though indeterminate, impacts on local governments. This legislation may result in a revenue increase exceeding $65 million to local governments from FY 2014 to FY 2017.
It was the issue of the millions in lost tax revenue due to prohibition and the high cost of enforcement that played an important role in the Seattle Times’ recent endorsement of marijuana legalization.
With states and municipalities all over the country facing serious deficits that are resulting in teacher layoffs and tax increases, it is time to seriously look at marijuana legalization as one of the least painful ways to balance government budgets. It has the ability to not only save the government millions from reduced law enforcement costs, but also bring in substantial additional revenue.