States that legalize adult marijuana see modest economic gains following the implementation of this policy, but they also face an increase in social costs such as substance abuse disorders, chronic homelessness, and arrests. Researchers at the Kansas City branch of the Federal Reserve Bank have recently released a report that shows this.
The authors of the new paper wrote that “even though some of our estimates may be noisy, our findings suggest that economic benefits of legalization will be broadly distributed while social costs could be concentrated more among those who use marijuana heavily.”
The economists identified a number of signs that the economy had improved after the legalization of cannabis, including a 3 percent increase in the average state income and a 6 per cent rise in housing costs. They also noted a 2 per cent bump in the population. Social costs increased by 17 percent for substance abuse disorders, 35 percent for chronic homelessness, and 13 percent for arrests in states that legalized cannabis.
Authors noted that states that legalized cannabis earlier “experienced similar costs socially but greater economic gains, implying that there is a potential advantage for first-movers” over those that implemented cannabis reform later.
The Fed paper, citing a report from the industry, says that between 2017 and 2022 the number of direct jobs in the marijuana sector has increased from less than 125,000 up to more than 425.000. The Fed paper notes that “while this still represents less than 0.3 per cent of the total U.S. workforce,” “the industry has contributed more than four percent to total employment growth from 2017 to 2022.”
The report states that the new revenue generated by legal marijuana is often offset with decreases in revenue from other sources.
It says that “tax collections directly related to marijuana sales have increased,” but “tax collections from alcohol and cigarettes sales have declined after legalization.” We do not see a significant impact on the overall tax revenue or sales tax revenues.
According to data released by the state earlier this month, Illinois’ total tax revenue for fiscal year 2023 is $420.9 millions, higher than alcohol sales, but lower than $435.1 from cannabis sales during fiscal 2022.
Researchers at the Federal Reserve Bank found that a 3 percent increase in state income per person was “driven by increases in proprietors’ income”. The Federal Reserve Bank researchers found that housing prices and population growth were also more pronounced in states where cannabis is legal for adult use.
Kansas City Fed found that self-reported marijuana use increased by 28 per cent post-legalization. This was accompanied by an increase in substance abuse disorders. Chronic homelessness increased by 35 percent. This is “consistent” with the frequent anecdotes of residents and policymakers from states that have legalized marijuana, but this finding was “just beyond statistical significance.”
The report states that “even though overall crime rates have not changed significantly, arrests of violent and property crimes increased,” suggesting an increase in law-enforcement activity.
The authors also point out that “the increase in arrests occurred without any significant increases in crime, possibly due to increased funding for public safety coming from marijuana tax revenues.”
The three-person group warns that this report “doesn’t provide a cost-benefits analysis of recreational marijuana legalization,” stating that such an analysis “would need to investigate a larger set of possible benefits and social costs which are currently unobservable or non-measurable and take into consideration potential behavioral responses to the legalization, such as moral hazards and adverse selection.”
The report states that the estimated size of the economic benefit from legalization could “be used to estimate the amount of funding which could be set aside for programs that would offset the costs.”
The report continues, “Widely dispersed benefits and more concentrated costs show that policymakers need to be careful in denying the existence of possible costs of recreational legalization.” “States that have recently legalized or are considering recreational use may expect a more muted benefit relative to first-movers (Colorado and Washington) but will still be faced with the higher social costs associated with increased marijuana consumption.”
Authors speculate that states that legalized marijuana earlier may have seen greater economic benefits. This could be because it was less novel, or there was less of a perceived benefit or demand shock due to’marijuana tourist’ than the first states to legalize recreational use.
The Federal Reserve Bank of Kansas City published the paper “Economic benefits and social costs of legalizing recreational marijuana” in late September. It was written and authored by Jason P. Brown and Elior Cohen.
In a separate report published by the same branch a year earlier, it was found that legalizing marijuana had an “important” economic impact on states, creating jobs, increasing tax revenue, and increasing real estate value. The report also noted that the federal prohibition of marijuana has created “challenges” for states, particularly in terms of accessing traditional banking systems.
The Kansas City Fed will also release a report in early 2020 that focuses on Colorado’s legalization. This publication concluded that cannabis markets were primed for growth as support for legalization grew.
The St. Louis division published an independent report in the same year that outlined the possible benefits and consequences associated with state-level legalization of marijuana. It noted the economic impact as well as the likelihood that people would substitute cannabis for alcohol.
Census Bureau officials published a report late last month showing that the states with legal cannabis had collected over $5.7 billion in marijuana taxes during an 18-month period. The Bureau plans to continue updating this figure quarterly. Census updated its survey private business to better capture marijuana related economic activity.
A new interactive map was also released by the agency, which shows how much of the state’s revenue is made up from marijuana tax dollars. Oregon, which has at times made $1 out of every $20 tax revenue generated by cannabis, is the state that relies most heavily on marijuana tax money. Other states, such as Michigan, Illinois and Colorado, have consistently seen marijuana revenue making up at least one percent of their income in the last two years.
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Photo by Brian Shamblen.
The post Federal Reserve Bank: States with Legal Marijuana Experience a ‘Broadly Dispersed’ Economic Boost, But also a Bump in ‘Social costs’ first appeared on Marijuana moment.
