N.J. Gov. Phil Murphy last year said that if recreational marijuana was legalized in the Garden State, it would generate at least $60 million in taxes annually. The state’s Office of Legislative Services guessed even more, estimating legal sales would reap between $80 and $210 million.
In Pennsylvania, Auditor General Eugene DePasquale has said fully legalized weed would net the Keystone State more than $580 million in additional annual tax revenues, an estimate echoed by State Reps. Jordan Harris (D., Philadelphia) and Jake Wheatley (D., Allegheny) in their recently introduced legalization bills.
But a study released by the Pew Charitable Trusts last week suggests those projections might be the stuff of champagne dreams and caviar wishes.
The report, “Forecasts Hazy for State Marijuana Revenue," throws shade on sunny estimates. It stresses that revenues from so-called sin taxes are “notoriously volatile and difficult to predict, even when the taxes -- such as those on cigarette, liquor, or gambling -- have been around for decades.”
Across the nation, 10 states and the District of Columbia have legalized marijuana for adult recreational use. Bills to legalize are pending in the legislative houses in Pennsylvania, New Jersey, and Delaware.
Projected tax windfalls are often a big part of the sales pitch.
One state’s cannabis revenue projection came close to the mark.
Colorado, a legalization pioneer, projected it would earn about $67 million from new recreational marijuana excise taxes in 2015, the state’s first year of legalized sales. It was remarkably close to the $66.1 million it collected.
Another state beat expectations. Nevada’s first-year excise tax revenues were 40 percent greater than initial estimates.
But others have fallen strikingly short.
California, which had expected to reap $1 billion, saw revenues that were 45 percent below projections in the first six months of collecting marijuana tax, according to Pew.
“The difficulty in forecasting revenue is compounded by the fact that states have only recently begun to understand the recreational marijuana market: the level of consumer demand for recreational marijuana products, the types of users and how much they might pay for the drug, and competition with the black market,” concludes the Pew report. “While these new dollars can fill immediate budget needs, they may prove unreliable for ongoing spending demands.”
Pew posited that California’s disappointing revenues were the result of taxes that were overaggressive. The state imposes more than 22.25 percent in sales and excise levies on recreational marijuana. California charges an additional tax of $9.25 an ounce. It’s little wonder consumers have remained loyal to the underground economy for its untaxed cannabis.
Advocates say that tax revenues aren’t the be-all and end-all of legalization.
“Every state has seen tax revenues greater than the cost of administering the programs over the first year,” said Chris Goldstein, a New Jersey-based organizer for NORML, the National Organization for the Reform of Marijuana Laws.
“Hundreds of millions added to any state’s coffers is something to be celebrated,” Goldstein said. But "it’s also about removing the hundreds of millions of dollars in costs that come with administering criminal justice prosecuting marijuana offenses.”
Harris, the state representative, said that even if tax estimates are unrealistically high, additional revenues -- however modest -- would be welcome.
“Let’s say Eugene DePasquale is 50 percent wrong,” Harris said.
“That’s still nearly $300 million. I can think of a lot of ways the Commonwealth could spend $300 million, whether it’s for funding education or repairing crumbling infrastructure."