Would Legal Weed Really Bring In Half A Billion Dollars A Year? Doing The Math On Marijuana Taxes

Dec 19, 2019

Like most people, Brett Stanford likes to unwind after work. Often he smokes cannabis, sometimes while watching the PBS period-drama “Downton Abbey.”

“You have a glass of wine every day, I smoke a joint every day,” said Stanford, “one is no better than the other.”

About once a week, Stanford buys an eighth of an ounce of marijuana, which costs roughly $40. But he said if recreational marijuana use were legal, he would stop buying from the black market and instead go to a dispensary, even if prices were a little higher.

Proponents of legalizing weed make the benefits seem straightforward: make an illicit product legal so that Pennsylvania can take a cut of this already vibrant market.

But it’s never that simple.

State Rep. Jake Wheatley of Allegheny County has twice introduced legislation to legalize marijuana. He cites a 2018 report from the Pennsylvania State auditor general which estimates that tax revenue from marijuana sales could reach $581 million annually. That's about 1.7 percent of the state's total 2019-2020 budget of $34 billion.

Wheatley said this additional money could fund affordable housing and education, or help alleviate student debt.

“Also, we wanted to give counties and municipalities the ability to raise some local revenues to be able to support either law enforcement, or children and youth activities,” said Wheatley.

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Wheatley’s bill and the auditor’s report both propose taxing marijuana sales at 19 percent, on top of the regular state sales tax. Both allow for local governments to add an additional tax: 2 percent in the auditor’s report, three percent in Wheatley’s bill. Both also tax marijuana producers at 10 percent, though Wheatley’s bill waives this levy if the marijuana is grown in Pennsylvania.

Statistician and vice tax researcher Liberty Vittert of Washington University in Saint Louis said the Pennsylvania state auditor’s report should be taken with a pinch of salt.

“It’s an enormous [amount] of what we would call ‘back-of-the-envelope calculations,’” she said. “Relatively educated guessing, but really guessing.”

To land on this more than half-billion-dollar figure, the report used survey information to estimate how many adult Pennsylvanians smoke marijuana. Then it compared the survey number to the amount of tax revenue that’s generated annually in Colorado and Washington: the two states that have had legal recreational markets the longest.

“So, this was not ... some sort of deep statistical modeling, or even really any statistical modeling,” said Vittert. “It’s just taking these very, very rough approximations.”

Auditor General Euguene DePasquale declined an interview request, but his report does say it will take several years for Pennsylvania's marijuana market to mature, meaning it will be a while before the state is raking in $581 million in annual tax revenue. It also notes that people might continue purchasing marijuana from the black market if taxes are too high.

In California, the illicit market is rejuvenating itself, according to Mendocino County Sheriff Tom Allman.

While medical marijuana has been legal in California since 1996, recreational use wasn’t permitted until 2016. Proponents of legalization in that state touted the potential tax benefits, but revenue has continued to fall short of state estimates.

Some legal producers say excessive regulations greatly increase the expense of cannabis production, which in turn affects consumers. And when paired with high taxes, many consumers have continued to buy less expensive weed from the black market, as opposed to legal venders.

Allman said that’s likely what’s happening in Mendocino County, which has more criminal cannabis activity than his department can keep up with.

"We only eradicate about 10 percent of the illicit marijuana that we know about,” he said.

This story is part of our series The State of Cannabis, which explores changes in attitudes and regulations around marijuana in Pennsylvania.

Colorado, Washington and Oregon are also struggling to contain the illegal cannabis market. A good portion of marijuana that’s produced in western states isn’t consumed locally, but sent east to states like Pennsylvania, where recreational use is illegal. 

State Rep. Jake Wheatley’s legalization bill includes a provision that allows people to grow their own cannabis, which he said will help decrease black market activity.

“Supply and demand is what drives the illegal market, so the demand goes down, eventually the illegal market goes away,” he said.

Allowing home growers would cut into tax revenue, though Wheatley says he doubts that would be significant. But even if there isn’t a financial benefit to the state, Wheatley argues recreational marijuana should be legal.

Data from 2016, compiled by the ACLU of Pennsylvania, shows that black Allegheny County residents are nearly seven times more likely to be arrested for marijuana possession than white residents. In neighboring Westmoreland County, it’s more than nine times as likely.

"For me, it's really a righting of the wrong," he said.

Data show black Pennsylvanians pay a far higher price for marijuana use through fines, legal fees and incarceration. For Wheatley, this miscarriage of justice is the cost that matters most when it comes to
marijuana legalization.

Find more stories in our series, The State of Cannabis.