The Business of Cannabis: U.S. Federal Legalization Could Translate to $128.8 Billion in Taxes and 1.6 Million Jobs

By New Frontier Data

As public support for reform surges and the U.S. legal cannabis industry continues to mature, New Frontier Data has been tracking the impact which legalization has had on both jobs and taxes in each legal state across the nation. The results – and forecasts informed by them – are now available in the 2019 edition of Cannabis in the U.S. Economy: Jobs, Growth & Tax Revenue.

With 11 states allowing adult-use access to cannabis, and 33 states permitting medical access, more than 68% of the U.S. population has access to legal cannabis in some form. It is driving economic growth in many states, through agricultural development via cultivation, manufacturing development through processing or edibles production, and in the retail sector.

In anticipation of the upcoming 2020 election season, the consensus thinking is that more expansive cannabis-reform policies may become a key topic of discussion for candidates seeking to differentiate themselves, especially for those who recognize the potential impact of full federal legalization out in front of concerns about any coming recession.

“With so much speculation about economic slowdown, the potential for federally legal cannabis to create up to a million new jobs and close to $130 billion in tax revenue is likely going to be of interest to regulators and presidential candidates in 2020,” said New Frontier Data Founder and CEO Giadha Aguirre de Carcer. “Cannabis is already being considered as an investment option for forward-looking portfolio and fund managers as a possible hedge against economic downturn impacting more traditional investments.”

Taxes derived from sales, licensing fees, and business and employment taxes are a relatively new form of revenue streams for states that are unwilling or unable to increase tax revenues through other means.

Already, hundreds of thousands of people are employed through the cultivation and sale of legal cannabis, representing more jobs than in coal, textiles, or breweries. The New York Times has reported how listings for cannabis-related positions have vaulted to the top tier among the fastest-growing-job categories on sites like Indeed and ZipRecruiter. New Frontier Data found that year-over-year job growth from 2018 to 2019 generated nearly 82,000 cannabis-related jobs.

“The report examines the ‘what-if’ implications for a fully regulated market, assuming it were currently in full operation,” explained New Frontier Data’s Senior Economist Beau Whitney, the report’s lead analyst. “By comparing the differences between the theoretical market and the current one, policy makers and stakeholders can get a better sense of the potential market, and its value regarding jobs, wages, and tax revenues.”

The more consumers who transition to the legal market, the more jobs and taxes are derived from such demand. Getting existing consumers to participate in the legal market is a fundamental issue facing each state to consider in reforming their cannabis-access laws.

By New Frontier Data’s latest projections, had full federal legalization been enacted in 2018 and all 50 states today, the resulting public support, new market expansion, and strong consumer demand for legalized cannabis programs would have meant 1.46 million jobs today, while creating more than 1.63 million jobs by 2025, meanwhile generating nearly $129 billion in additional tax revenues by the same year.

The report contains analysis of federal business taxes, employment payroll taxes, federal sales taxes, potential jobs, total theoretical tax revenues, and the difference between the theoretical forecast versus the current structure. Among the included findings:

• Full legalization and more legal businesses’ participation in the market would attract more consumers in the legal market, along with more employees on official payrolls, resulting in $8.4 billion in payroll taxes. By 2025, payroll deductions would increase to $9.5 billion;
• Assuming a 15% federal sales tax, total revenues from 2018–2025 would reach $73.7 billion in entirely new revenue to the U.S. Treasury (since currently there are no federal sales or excise taxes); and
• The total combined taxes under full federal legalization from 2018-2025 would reach $175.8 billion (based on business tax revenues, payroll withholdings from the estimated employment, and 15% retail sales taxes).