This article was first published by Investopedia on 10 September 2024.

As of 2024, 37 states and Washington, D.C. have moved to legalize marijuana, whether for medical use, recreational use, or both. These legal changes have created economic changes as the burgeoning industry of legal cannabis companies grows.

This industry includes businesses that research and develop cannabis-based medical products, those that are working to distribute and grow marijuana, and many others. The rise of cannabis-related businesses has also created a new source of government revenue, as these companies and their sales are subject to tax like any other business.

Key Takeaways

• In the past decade, a cultural shift in the United States has led to a push to legalize marijuana for medicinal and recreational.

• One motivation for legalization is the economic benefits of increased tax revenues, job growth, and investment opportunities.

• As of 2024, 24 states, three territories, and the District of Columbia allow recreational use; 37 states, three territories, and the District of Columbia allow medical marijuana use.

• The 15,000  medical marijuana dispensaries in the United States create an average of 6.2 jobs each.

• Legalizing marijuana use would lower the estimated US$3.6 billion spent on federal marijuana law enforcement per year.

Federal Stance on Legalization

At the federal level, there is a push toward more progressive laws regarding marijuana use, though there is currently no federal legalization. In October 2022, President Biden pardoned all prior federal offenses of simple possession of marijuana and asked the Department of Justice to review the current classification of marijuana as a Schedule I controlled substance. These efforts could pave the way to nationwide decriminalization.

As of 2024, however, legalization decisions rested primarily within the jurisdiction of individual states. Individual state laws include:

• Fully legal for recreational and medicinal use

• Legal only for medicinal only

• Only CBD oil containing THC legal for medicinal use

• Fully illegal

In states where marijuana used is fully or partially legal, the new cannabis industry can impact the local economy in a variety of ways.

Impact on Tax Revenue

One of the most immediate effects of marijuana legalization is its effect of tax revenue. In 2023, total cannabis-related tax revenue collected by all states topped $4.18 billion.

California brought in the most sales tax revenue from cannabis among states where recreational use is legal, drawing in $1.1 billion. Washington and Colorado are the two states where marijuana has been legalized for recreational use the longest. From 2014 through 2023, Washington collected $4.1 billion in tax revenue from adult use.4 In the same period, 

Colorado began collecting marijuana tax revenue in 2014. Through March 2024, its total-to-date collections have surpassed $2.4 billion.

Jobs and Consumer Spending

States that vote in favor of medical marijuana generally see the growth of marijuana nurseries and dispensaries, which produce and sell cannabis for medical purposes. Like other local businesses, nurseries and dispensaries create jobs. Workers are needed to farm, process, distribute, and sell marijuana-based products.

In the case of states like California and Nevada where such infrastructure already exists, the economic impact has become more quantifiable as the sector has matured.

As of February 2024, there were nearly 15,000 cannabis dispensaries (businesses that sell cannabis products) in the United States.6 According to industry statistics from IBIS World, the average medical marijuana dispensary has 6.2 employees. This means those 15,000 dispensaries create an estimated of 93,000 jobs across the United States.

With more than 3,500 dispensaries, California has the most. However, at 36 dispensaries for every 100,000 residents, Oklahoma has the greatest number of dispensaries per capita.

Employment opportunities are also created in secondary industries that are related to legal cannabis, though not directly involved in its production and distribution. These include businesses that interact with or provide contracting services to small businesses, such as:

• Software developers

• Construction companies

• Accountants

• Office supply companies

• Banks and lenders

A 2023 report from a cannabis industry newsletter found that consumers spent roughly $30 billion on legal marijuana products in 2022. This was higher than spending on chocolate, chicken eggs, or craft beer. Much of this impact, the report noted, is felt locally, as many dispensaries are small businesses that impact their local economies, including by creating jobs and increasing consumer spending. The report predicted that by 2026, the total economic impact of the cannabis industry in the United States would be worth nearly $150 billion.

Investment Opportunities

Legal marijuana can benefit economies on a local and a national scale. As a rapidly-expanding industry, it also provides investment opportunities to an even broader population.

However, while marijuana remains illegal on the federal level, it is difficult for investors to capitalize on the growth of the industry. There are few marijuana-related companies trading on public stock exchanges, and while investors do have the option of working with over-the-counter exchanges, many of the most successful businesses in the early legal cannabis space have been based in Canada or other countries.

Should marijuana become legal on the national level, marijuana companies would be free to list their stocks on all U.S. exchanges, thereby enhancing liquidity and opening up access to many more investors. The cannabis space would likely appeal to investors interested in new and fast-growing industries.

As of 2024, the largest marijuana exchange-traded fund (ETF) was AdvisorShares Pure US Cannabis ETF (MSOS) with over $1 billion of assets under management.

Money Saved on Enforcement Costs

Currently, the American Civil Liberties Union estimates that federal marijuana enforcement costs close to $3.6 billion per year. This includes the costs of arrest, trials, incarceration, appeals, and more.

The more states that legalize cannabis, the lower the cost of enforcement would likely be; if marijuana were to be legalized on a national level, these costs would likely drop considerably. If marijuana were removed from the list of controlled substances, far fewer court cases involving the substance would go to trial, resulting in fewer incarcerations and, in turn, more money saved.

Like legal alcohol, legal marijuana could still be used illegally, for example by those who are underage or by those operating motor vehicles while impaired. Prosecution of crimes involving marijuana use could still incur local, state, or federal costs, even in areas where marijuana use is legal.

How Many States Have Legalized Marijuana?

As of 2024, 37 states and the District of Columbia have legalized the medical use of marijuana, with 24 of those allowing recreational use as well. Additional states allow medical use of THC-containing CBD oil.

How Much Money Are States Collecting in Marijuana Tax Revenue?

In 2023, the states that legalized marijuana for personal consumption generated $4.2 billion in annual tax revenue.3 This revenue does not include city revenue or proceeds distributed to smaller municipalities.

What Is the Economic Impact of Legalizing Marijuana?

States that legalize marijuana have recognized various economic benefits. There are direct tax proceeds generated for the state. States employ thousands of employees to oversee the production, distribution, and management of the sector. Businesses in the cannabis industry create jobs and increase consumer spending in their local economies. The costs associated with enforcing drug laws also go down if recreational and/or medical marijuana use is decriminalized.

The Bottom Line

There is ample pushback against the idea of legalizing marijuana across the country. Critics cite the potential for confusion among law enforcement officers aiming to keep up with shifting regulations, concerns about increased homelessness or youth use of the substance, the potential for decreased property values, and much more.

All of these reasons combine to decrease the likelihood that marijuana will become legal at a national level any time soon. However, as more and more states move to individually decriminalize cannabis use in various ways, and as the economic benefits of a legal marijuana industry take effect, there are also many compelling reasons to consider nationwide legalization.

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