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Marijuana Legalization: Public Health, Safety, and Economic Factors for States to Consider

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Marijuana Legalization: Public Health, Safety, and Economic Factors for States to Consider Health Issue Brief Aparna Keshaviah, Eric Morris, Dara Lee Luca, Huihua Lu, Sarah Bardin, Colleen Staatz, and David Jones Marijuana Legalization: Public Health, Safety, and Economic Factors for States to Consider As of September 2019, 11 states and Washington, DC, have legalized retail marijuana, or marijuana for recreational or “adult” use. States have had a wide variety of experiences with legalization, based in part on whether their retail program built on an existing medical marijuana program, how well expectations about market size lined up with actual demand in the first years of legalization, and how closely the state regulates sales and cultivation. This brief discusses several factors that state and Background local governments should think about when decid- ing whether to legalize marijuana. Drawing from Many states across the country are considering credible literature and the experiences of states that whether to legalize retail marijuana. Legalization have legalized retail marijuana, we summarize con- can produce ample tax revenue, some of which siderations in four key domains where legalization states are using to fund health and social service is likely to have an effect: (1) tax revenue, (2) public programs—especially for communities dispro- health, (3) public safety, and (4) regulatory oversight. portionately affected by marijuana-related arrests Within each domain, we discuss the factors that and detention. States are also using these funds to shape the short-term fiscal impacts of legalization; further study marijuana’s benefits and harms. But the complex, long-term effects; and areas where legalization can also impose major costs, such as the more research, education, or training is needed. We expense of statewide regulation; treatment for mar- also describe an online tool developed by Math- ijuana addiction and dependence; training for the ematica to help states anticipate the short-term police on dealing with marijuana-impaired driving; budgetary impact of retail marijuana legalization, and public education about marijuana, including including estimated tax revenues and the costs of campaigns to prevent adolescent use. establishing proper oversight. From 2017 to 2018, Mathematica predicted the short- The goal of this brief and the online tool is not to sup- term economic impacts of adding a retail marijuana port or oppose marijuana legalization. Rather, our main program to the existing medical marijuana program goal is to educate states about the many economic, in Massachusetts. As part of a Marijuana Baseline public health, and safety factors tied to legalization. Health Study, led by the Massachusetts Department DECEMBER 2019 > mathematica.org 1 Health Issue Brief of Public Health, we created a model that projected the net budgetary impact of legalization over two Figure 1. Estimated two-year budget years in four key domains: (1) tax revenue, (2) public gains in Massachusetts from retail health, (3) public safety, and (4) regulatory oversight. marijuana legalization For each domain, the model included inputs and assumptions informed by credible literature;1 the experiences of states that have legalized retail sales;2 Tax revenue 75% secondary data from national, statewide, and local sources;3 and Mathematica’s analysis of data pro- vided by the Massachusetts Department of Public Public Health, including data from a survey that asked health adults in Massachusetts about marijuana use and 21.1M savings marijuana perceptions. 23 Using estimates from these data sources and sim- Public safety savings ulation methods, we projected that Massachusetts 2 would net about $281 million in the first two years Regulatory after retail sales began in 2018, with 75 percent of the fees gains coming from sales and business tax revenue 1 (Figure 1). However, because the retail market has Note: Percentages add up to more than 100 percent due to rounding. rolled out more slowly than expected, our projections may overestimate the short-term budgetary gains.4 We estimated net public health savings within the first two years, coming largely from the projected Based on our research for the Marijuana Baseline savings in Medicaid prescription drug spending Health Study in Massachusetts, we identified several (based on estimates from Bradford and Bradford factors that states should consider before legalizing 2017), and net public safety savings due to projected marijuana (Table 1), which we discuss in the remain- decreases in marijuana-related arrests, convictions, der of this brief. For more detailed information on incarcerations, and paroles or probations. our data sources, methods, and findings, see the final report from the study.5 The largest single cost that we projected for the state (amounting to $12.5 million) would come from income tax losses due to marijuana addiction and depen- Tax revenue dence among young males. This estimate is based Historically, tax revenues from marijuana sales have on research showing a 2 to 3 percent drop in hourly varied from state to state, owing to differences in earnings among young males after the legalization of legislative statutes, tax rates, regulatory oversight, and medical marijuana (Sabia and Nguyen 2016). But we consumer demographics. In most of the six states with estimated that these losses would be offset by income marijuana retail sales that began more than a year tax gains from some older adult workers, whose pro- ago, tax revenues in that first year of sales fell short of ductivity may rise if they can use marijuana to control initial projections, in part because states underesti- debilitating health problems (Nicholas and Maclean mated how much time it would take for businesses to 2016). We also estimated that the costs of regulating get licensed and begin operations. However, for most marijuana in Massachusetts within the first two of these states, revenues rose substantially over time, years would more or less equal the application fees even surpassing revenues from liquor and cigarettes and violation fines that the state would collect. in some years (Pew Charitable Trusts 2019). DECEMBER 2019 > mathematica.org 2 Health Issue Brief Table 1. Factors for states to consider in key domains Regulatory Tax revenue Public health Public safety oversight • Sales tax rate (and its • Increases in marijuana • Reductions in criminal • Rulemaking, licensure, effect on purchases addiction and justice costs for and enforcement in the retail vs. black dependence marijuana-related • Seed-to-sale product market) offenses • Substitution of tracking and quality • Demand, by type (for marijuana for • Detection of control example, medical prescription marijuana-impaired • Increasing marijuana vs. retail, regular vs. medications driving potency heavy use, resident vs. (including opioids) • Impact on vehicular tourist) • Therapeutic benefits crashes (fatal and • Impacts from other for some chronic nonfatal) industries (for conditions and • Changes in example, cultivation, symptoms neighborhood crime transportation, and • Changes in worker security) productivity • Public education campaigns and prevention of adolescent use There are several important aspects of states’ retail taxes (27.9 percent combined tax rate, excluding local marijuana programs and consumer demand that taxes), the retail market meets an estimated 60 percent may affect sales, business, and income tax revenues. of the demand, with legal homegrown marijuana Besides the factors described below, the net effect of meeting much of the remaining demand (Light et al. legalization on tax revenue may also depend on the 2014). And in Massachusetts, where the combined tax extent to which legalization will affect job growth rate is even lower (17 percent, excluding local taxes), in related sectors, including production, cultivation, it remains to be seen how much of the total demand storage, transportation, and security. will be met by the retail market. Although a higher tax rate guarantees greater revenues for states, it could Sales tax rate. Some states tax marijuana at much also lead to more spending to deal with the unintended higher rates than others do, which affects the price of consequences of black-market sales. retail marijuana and, in turn, how much demand is met by retail sales versus the black market. In Washington Existing medical marijuana programs. The extent State, which has a high marijuana tax (44 percent com- to which a state increases its tax revenue after bined sales and excise tax rate, excluding local taxes), introducing retail marijuana sales may also depend licensed sales account for only half of the total demand, on whether the state already has a medical mari- even though the retail price of marijuana has dropped juana program, particularly if the state does not tax over time and is only slightly above black-market prices. medical marijuana or if it greatly restricts its sale. The rest of the demand is met by the state’s loosely For example, Massachusetts does not tax medical regulated medical marijuana market and black-market marijuana for patients who register with the state’s sales (Darnell et al. 2019). In Colorado, which has lower program. As a result, medical marijuana is likely DECEMBER 2019 > mathematica.org 3 Health Issue Brief to cost less than retail marijuana, making it more In Massachusetts, revenue projections were much appealing for people with qualifying conditions. How- greater for areas with a denser population (Figure 2). ever, because Massachusetts strictly regulates the For less-dense
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