Reefer Revenue

Reefer Madness

The latest incarnation of “reefer madness” is the idea that the legalization of marijuana is the solution budget woes. I’m amazed how often students suggest legalizing marijuana as their answer on assignments about balancing the budget. So, I was intrigued when I saw that the folks over at “Nerd Wallet” had put together some analysis of potential state revenue from legalized marijuana (“Cannabis Cash: How Much Money Could Your State Make From Marijuana Legalization?“).

Nerd Wallet’s estimate assumes at 15% surtax on marijuana similar to the tax in Colorado on top of the Texas’ existing sales tax rate (they use 8.15%). Of course, it’s hard to estimate the size of a market for a product that is currently illegal. I’ll just have to take their word on their estimates of how many people under 25 are/will be using marijuana. In then end, they are very proud of their nation-wide estimate of $3.1 billion per year. I’ll leave others to point out how that compares to the federal deficit.

I’m focused on Texas. Nerd Wallet’s estimate for Texas is $166 million. They take pride in pointing out how their figures compare to the budgets of small state agencies. A more realistic way of looking at this is to consider how this compares to the Texas budget overall. The bottom line is that revenue from marijuana sales would total just under .3% of the Texas state budget. That does not take into account administrative costs of the state takes up the task of deciding who gets to sell marijuana and the costs of any regulation of the product itself.

It’s worth noting that this year Texas is expected to bring in just over one billion dollars from the alcohol beverage tax alone. There are lots of other sources of revenue that could produce as much money as a tax on marijuana. You’re not going to win over many conservative Texans unless you make a bigger dent in the bottom line.

There are lots of other reasons to consider decriminalization of marijuana. However, the idea the legalization of marijuana is some kind of budget balancing miracle is a bigger hallucination than the drug itself would ever induce.

Nerd Wallet Map

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