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Pa. report: Legalizing marijuana could generate $580 million in state tax revenues

Auditor General Eugene DePasquale proposes levying a 35 percent tax on recreational marijuana sold in state-sanctioned retail stores. Marijuana advocates, however, warn that DePasquale may be overreaching because he assumes the state will capture all of the underground market.

File photo.
File photo.Read moreRANDALL BENTON

Legalizing marijuana for adult recreational use in Pennsylvania could generate more than $580 million in tax revenue for the state, said Auditor General Eugene DePasquale in a report issued Thursday morning.

"Pennsylvania's budget challenges are now a consistent factor in all state policy decisions," said DePasquale, a Democrat. "Taxing marijuana offers a rare glimmer of fiscal hope, providing a way to refocus the state budget process away from filling its own gaps."

Next year, the state could face a shortfall of close to $1 billion, he said in an interview.

"If the Republicans maintain control of the Assembly, there's not going to be a broad-base tax increase, and we're looking at serious need for funding for the schools and child care," he said. "Even without the money, this is a saner way to handle a very controversial topic. With the revenue, it makes it a no-brainer."

DePasquale proposes a 35 percent tax on any recreational marijuana that would be sold in state-sanctioned retail stores.

Pennsylvania's medical marijuana program launched in February and serves about 28,000 eligible patients. But neither Gov. Wolf, a Democrat, nor the legislature appear ready to support adult recreational use.

Nine states and Washington, D.C., have legalized marijuana for adult use though the federal government still considers it to be a Schedule 1 substance on par with heroin and LSD.

DePasquale's report assumes that nearly 800,000 Pennsylvanians consume cannabis every month and spend a little more than $2,000 a year on it. Based on those numbers, the underground marijuana economy generates about $1.6 billion each year.

DePasquale said Philadelphia, as a tourist destination, could reap an additional $6.9 million if it imposed a 2 percent local tax on legal marijuana sales.

"It's recurring revenue," DePasquale said. "That's the key part to this."

Marijuana advocates, however, warn that DePasquale may be overreaching.

"Those estimates assume that Pennsylvania would be able to capture the entire underground market overnight," said Chris Goldstein, a cannabis advocate who has taught a course on marijuana and journalism at Temple University and written for "No state that has legalized marijuana has been able to get all its consumers to participate in the regulated market."

Goldstein said that's because state-regulated marijuana is often exorbitantly priced when compared with illegal supplies.

In Colorado last year, legal marijuana generated $247 million in taxes, licenses, and fees. Pennsylvania's population is twice that of Colorado's.

DePasquale's numbers pale in comparison to revenue estimates prepared last year for State Sen. Daylin Leach (D., Montgomery). Leach, who has introduced several cannabis legalization bills in Harrisburg, believes that adult-use marijuana could pour $1.5 billion in taxes into state coffers after four years.

"It's a very substantial amount of money for the state," Leach said. "And that doesn't take into account the money saved by not having to arrest, prosecute, and incarcerate people for those crimes."

DePasquale acknowledged that legalization was unlikely this year.

"If it were on the ballot, [legalization] would certainly pass," DePasquale said. "But we don't have a ballot referendum in Pennsylvania. If the current political winds continue, however, there's a good chance the legislature could take it up in the next legislative session.

"It's time for the politicians to catch up to the public on this."