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High Economy: Impacts of Marijuana Legalization on the US Economy

By Charles Zha


Following the November election, four new states– New Jersey, South Dakota, Montana, and Arizona– joined Colorado and Washington and nine others as states that legalized recreational and medical cannabis. Additionally, Mississippi legalized the medical use of marijuana. Despite being a controversial social phenomenon and having many ambiguous health applications, the cannabis industry is undeniably an emerging, lucrative field. Beyond providing a convenient drug for stressed-out college students, legalizing cannabis will bring significant tax revenue to states, generate thousands of jobs, and help eliminate the economic and racial disparity between different communities. The cannabis industry is poised to be an invaluable contributor to the US and global economy.


Marjiuana is a psychoactive drug that is used globally for medical and recreational purposes. According to Galloup, 15% of adults in the US said they smoked marjiuana, with over 94 million people admitting using it at least once. Short term effects include altered senses, imparied movement, and hallucination. marijuana also has potential long term effects, such as addiction, irregular brain development in young users, declining mental capability and schizophrenia. Prior to the November ballot, 11 states in the US had fully legalized marijuana. While it remained illegal under the federal law due to the 1970 Controlled Substance Act, many states had exempted citizens from the bill, mainly for medical and industrial purposes, but for recreational purposes as well. Such a large industry remains untapped in the US. This article will focus primarily on the social and economic effect of legalizing recreational cannabis.

Economic Benefits

Increased Tax revenue

Like all goods, the cannabis industry can bring considerable tax revenues. Since its legalization in 2016, the state of California is able to collect a 15% state tax excise on retail cannabis sales. Additionally, cultivators pay  $9.65 per ounce for flowers, $2.89 per ounce of trim and $1.35 per ounce of fresh cannabis plant. According to the California Department of Tax and Fee Administration, the cannabis industry brings $411.3 million in excise tax, $98.9 million in cultivation tax, and $335.1 million in sales tax, totaling to $845.3 million in tax revenue for the third quarter of 2019.

In Proposition 64, the allocation of these revenues are clearly outlined: they are first to pay for cannabis regulatory agencies and administrative costs, ranging from 20-70 million. 60% of the excess goes to youth education and earlier prevention, including public education programs on cannabis and responsible usage. 20 percent goes to environmental protection, and another 20 percent goes to local and state government law enforcement. Additionally, the legislative analyst office (LAO) records that $2 million will go to UC San Diego’s Center of Medical Cannabis Research annually to further study the effect of cannabis. 

Other examples include the state of Colorado, which spent 40 million of its tax revenue from cannabis on public schools construction and an additional 27.8 million to fund public education. Washington state used its 314.8 million to fund Medicaid, a program that helped provide health insurance for low-income Washington residents. The cannabis industry can generate extra fortune that can fund better infrastructure like school and health care that not only improves citizen’s lives, but also contributes to a positive cycle of economic growth.

Incomes and Jobs 

According to a RCG Economics study, the legalization of recreational marijuana creates 6,208 new full-time jobs in retail and production of marijuana and generates a total labor income of $260,732,000. In addition to direct jobs in retail, the industry has countless indirectly induced jobs, including marketing, data analysts, lawyers, health professionals etc. Leafty, a cannabis information hub, states that the industry can generate 211,000 jobs in America. This number surpassed that of coal mining (52,000) and textile manufacturing (112,000) in just years after marijuana’s legalization. 

The economic benefits of increased job opportunities is exponential because it helps contribute to a positive cycle of economic growth. As more traditional manufacturing and producing jobs are replaced by machinery, cannabis is not quite fully automated. Indeed, the Bureau of Labor Statistics projects an 110% increase of jobs in the cannabis industry over the next decade. Cannabis remains a substance that needs to be further researched;as a result, researchers and data analysis are needed to understand the product better. Business owners also need lawyers to help them navigate new regulations in states that recently legalized marjiuana, as well as to act as lobbyists to pressure the other states to decriminalize marijuana.

Reduce crime/ Social Stigma

In 2019, 545,602 people were arrested for cannabis related crimes. 92% were for possession. The number was higher than all arrests for violent crimes. Doing so is simply a waste of taxpayers money. In British Columbia, Canada, between 2003 and 2013 44,522 people were tried, charged, or detained for cannabis related to cannabis. The Liberal Party at BC is projecting to save 5 million CAD yearly by legalizing marjuana. Legalizing marjiuana can reduce arrest based on possession and redirects these findings into other places like education or healthcare. 

Cannabis-related crimes are, in many cases, an excuse to target black and brown communities. Despite a similar rate of usage, black people are 3.6 times more likely to be arrested for marjauna possession compared to white people. Such racial profiling further deepens the economic disparities between communities. The criminal history of an individual makes it harder for them to find a job, and communities that are targeted become less safe, which worsens their situation and increases the crime rate. 

Legalizing marijuana will allow records of drug conviction to be repealed and cleared. According to the American Bar Association (ABA), there are more than 40,000 federal and state regulations that impose a life long record on criminal convictions. These records, which predominantly target towards African-American and Latino communities, significantly impair people’s ability to find employment. Freeing them from an unnecessary shackle can mitigate this and make communities safer.


Legalizing marijuana has social impacts that translate to economic growth. As cannabis becomes a more accepted substance, its usage becomes less taboo.  People are more likely to seek help for abuse and dependence because they no longer need to fear the discrimination that is generally associated with them today. Furthermore, people can buy cannabis from regulated, legal cannabis dispensaries, which offer safer cannabis with THC below 3% to minimize harm and addiction. As a result, marijuana is less socially destructive and does not interfere with their ability to work. Less money is spent on convicting unnecessary crimes, but instead on public goods like education and other infrastructure to promote economic growth. With clear regulation and careful scrutiny, the cannabis industry can be a powerful field that can offer both economic and social benefits to the US. □

Work Cited

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