Legalizing Cannabis May Generate Tax Revenue Post-Pandemic

As the devastating impacts of the novel coronavirus, COVID-19, continue to ripple throughout the United States, this country has reached a moral dilemma: to open certain facets of the economy and risk further infections and human lives, or maintain state or locally implemented lockdowns and risk further economic fallout. 

Due to the pandemic crisis caused by COVID-19, numerous governmental authorities are allowing only “essential” businesses to continue quasi-normal operations. Businesses deemed as “essential” vary from state to state and county to county, but typically consist of gas stations, grocery stores, hardware stores, mail and shipping businesses, medical offices, and pharmacies. Most states and counties consider liquor stores to be essential, and surprising to many, cannabis dispensaries have been deemed as essential businesses in several states where adult recreational or medicinal cannabis is legal. 

According to CNBC, cannabis dispensaries have been deemed as essential businesses in 8 of the 11 states where adult-use of cannabis is legal. Reports from Cowen Inc., a prominent, American multinational independent investment bank and financial services company, illustrate that weekly sales of cannabis in March of 2020 topped $134 million in California, Washington, Nevada, and Colorado, a 17% increase from the weekly average in 2019, and that in the second half of March, the average purchase also increased by 47%. Cowen estimates also indicate that the United States cannabis market is worth approximately $56 billion in 2020 with about 90% of sales going untaxed in the illegal market. This raises the question that, since cannabis dispensaries bring in ample income and have been categorized as essential businesses alongside food and medical businesses, then why not federally legalize cannabis to generate significant tax revenue and help revitalize the country’s economy?

Numerous influential players across the cannabis industry have provided their takes on the beneficial tax effects of cannabis legalization. Matt Hawkins, managing partner of Entourage Capital, a private equity firm with $200 million invested in  various cannabis producers, told CNBC, “[t]here is going to be a need for increased tax revenue and where else to look but at a legalized industry like cannabis, that is one of the few growth sectors in the world right now.” Curaleaf Executive Chairman Boris Jordan commented that right after the Great Depression, the federal government “lifted prohibition on alcohol and therefore started to tax it – and it became a major revenue generator for both the federal and the local governments around the country.” Jordan conveyed that the federal government can generate revenue in a similar fashion as it did after the Great Depression: lift the prohibition on cannabis. Leland Radovanovic, a long-time cannabis legalization activist and founder and CEO of Conscious Communications Collective, an industry communications, branding, and strategy company, told Benzinga (an innovative financial media outlet that focuses on global markets) that “we will need to refill tax coffers after this storm dies down and cannabis is one way to do it.”

Will the significant cannabis sales and tax revenue data be considered by the federal government moving forward in the post-pandemic economy? Based on the fact that cannabis businesses are considered to be “essential” during this economic crisis, our demonstrated evidence of cannabis sales for state tax revenues, and the voices of influential players in the cannabis industry, federal legalization of cannabis should be strongly considered.

As cannabis and hemp lawyers, the lawyers at Ritter Spencer Cheng are prepared to advise your hemp or cannabis business in all facets of the industry, including formation and transactional issues and in cannabis litigation. Contact Ritter Spencer Cheng or give us a call at 214.295.5070 for more information.