- It’s being heralded by Democrat gubernatorial candidate J.B. Pritzker as a potentially giant revenue maker for Illinois, but recreational marijuana has produced “limited” tax revenues in two states that have legalized it — with little of that money flowing to the state or city’s general fund.
Those are among the findings in a new report from Moody’s Investors Service.
The Moody’s report focused largely on Colorado and Washington, which legalized recreational marijuana early and have the most established industries. The report found while revenues grew rapidly, they only make up a relatively small share of state general fund revenues and “therefore provide only modest budget relief.”
But the credit agency notes revenues generated by legalization “are a marginal credit positive” for the nine states, plus the District of Columbia, that have legalized recreational marijuana.
That should provide some solace to proponents of legalization in Illinois, who have argued it would be an important extra revenue tool in a state that’s seen its fair share of financial disarray.
But Colorado’s gross revenues from recreational and medical marijuana sales in fiscal 2017 totaled only 2 percent of total general fund revenues. Washington’s revenue for the two-year period beginning in 2015 equaled only 1.2 percent of general fund revenues, the report found.
Moody’s also notes that in Colorado, almost half of revenue generated from marijuana went to the Marijuana Tax Cash Fund where it was used for marijuana-related programs such as enforcement, regulation, prevention and substance abuse programs. Only about 5 percent was directed to the general fund, representing only 0.1 percent of state general fund revenues.
The report also notes that while growth in state and local government marijuana revenue has been strong in the early years, “the growth is likely to slow.”
“Markets in the states that legalized early are already showing signs of stabilizing,” Moody’s said. “Also, as more states legalize recreational marijuana, states will face increased competition from their neighbors.”
Pritzker has vowed he’d sign legislation to legalize marijuana should he win the governor’s seat. Pritzker has emphasized the benefits to minorities of pot legalization on both economic and criminal justice reform grounds. He also said he would review and commute the sentences of people incarcerated for marijuana offenses.
Asked about the Moody’s study, Pritzker’s campaign touted the benefits legalizing marijuana would bring to reforming criminal justice.
“Legalizing marijuana will not just bring tax revenue to the state, but it will help reform a broken criminal justice system that has disproportionately harmed communities of color for far too long,” campaign spokeswoman Galia Slayen said. “JB knows we can legalize marijuana in a safe way that will benefit communities across Illinois and he is ready to do that as governor.”
The billionaire entrepreneur and philanthropist has said he believes legalization could bring in between $350 million and $700 million in revenue, a figure anti-marijuana groups have disputed.
Healthy & Productive Illinois, a “marijuana policy group,” has argued against legalization saying it would cost the state $670.5 million a year to legalize pot, outweighing annual estimated tax revenue projections of about $566 million. But critics of that study say the numbers reflect its economic impact, and not a budgetary impact.
Republican Gov. Bruce Rauner is not on board with legalization. Last year he said it would be a “mistake” to legalize it. And in the past, he’s said he wants more studies on the “ramifications” in states that have legalized the drug.