Effects Of Recreational Marijuana Legalization On The Economy

Marijuana legalization has become a popular topic of debate in recent years. In 2014, Colorado and Washington became the first states to legalize recreational marijuana. Now, over a decade later, 24 states have legalized recreational marijuana. There are a wide range of arguments both for and against legalization. In addition to referencing positive social effects, many proponents point to strong economic impacts. Examining how legalization impacts the economy is fundamental to understanding the overall effects of recreational marijuana legalization. States that legalize recreational cannabis experience significant increases in tax revenue, positive changes in the labor market, and higher housing values. The additional tax revenue that states

Even when tax revenues go to programs unrelated to drug use, it is important for that money to come in steadily. Many states currently impose excise taxes based on the retail or wholesale prices of marijuana. Unfortunately, these types of taxes are flawed because the revenue they generate depends on values that are constantly changing. A sudden drop in average cannabis prices would cause a sudden drop in funding for any programs that rely on those tax dollars. Another common type of marijuana tax is based on the weight or quantity of cannabis in an exchange. While this tax design doesn’t share the volatility issue with price-based taxes, it is also flawed. Quantity-based taxes incentivize producers to increase the potency of their cannabis to lower the tax they pay per THC content. This practice could lead to negative external effects stemming from the increased consumption of more dangerous marijuana products. The third form of marijuana tax is based on potency, and it is the most effective at preventing external costs. Potency-based taxes do not generate unstable revenue like price-based taxes, and they do not give producers any reason to increase the potency of their

Not only does legalization increase labor demand, it also increases the labor supply. Abouk et al. (2021) have found that recreational marijuana laws cause a 20% decline in workers' compensation claims. Employees may claim workers’ compensation if they get injured or become ill because of their job. In their study, the authors attribute a reduction in non-traumatic workplace injuries to the availability of marijuana as a pain-management therapy. They compare their results with a previous study related to medical marijuana laws and workers’ compensation, and have observed a more significant decline in workers’ compensation claims after recreational marijuana legalization. The differing effects between medical and recreational marijuana are most likely due to the improved accessibility of recreational laws. More people have access to marijuana for pain management when it is fully legal, because they are able to purchase it over-the-counter without the hassle of acquiring a prescription. The legalization of recreational marijuana is also associated with greater property