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Colorado, Washington Go Pro-Marijuana, Set Up Pot Fight with Feds

Updated: December 2, 2020|Bill Fay|Tax

The war on drugs suffered a frontline defeat on Tuesday as two states, Colorado and Washington, became the first ones to legalize marijuana use.

In as a stunning rejection of the status quo, voters in both states opted to legalize and regulate the sale and recreational use of pot for adults over 21.

Notwithstanding the results at the polls, however, is the fact that cannabis is still illegal under federal law, portending a likely clash between the states and the federal government — via the U.S. Department of Justice — somewhere up the road. That means that the battle lines in this fight will necessarily be redrawn and redeployed if and when the matter ultimately winds up in front of the Supreme Court.

Putting aside the philosophical, moral and legal ramifications that this Election Day result will engender, it is worth examining the economic arguments that supporters of the pro-pot measures in each state made to their undecided constituents – arguments that did much to ensure the electoral success of these two groundbreaking repudiations of decades of drug prohibition policies.

War on Drugs a Waste of Money

First, the war on drugs was – and is – a colossal waste of money. More than $1 trillion dollars was spent over the past 40 years in a futile attempt to eradicate the use and ingestion of certain banned substances that are considered by many to be less harmful to the country’s health and safety than cigarettes and alcohol, both of which are legal.

And in fact, over those many years, little headway was made in stemming – much less eliminating – behavior practiced by tens of millions of otherwise law-abiding citizens.

War on Drugs Created Inequities in Penal System

Second, the war on drugs took many prisoners. Some 850,000 people across the country were arrested in 2010 alone for marijuana law violations.

These aren’t wealthy drug kingpins. More often they are young and poor members of a racial minority group. They are non-violent, first-time offenders whose arrest, prosecution and incarceration severely strains the budgets of cash-strapped states and municipalities.

But perhaps equally important to the voters who decided to make history, was not just the amount of money that can be saved by marijuana legalization but the amounts that can be made when the laws in each state are fully implemented. States need money, and drugs can raise money.

Washington’s marijuana law, I-502, which was passed by a 10-point margin, calls for a 25 percent tax rate imposed on the sale of marijuana at three stages of its commercial journey:

When the grower sells it to the processor.

When the processor sells it to the retailer.

And when the retailer sells it to the consumer.

Legalizing Pot Raises Cash

It’s estimated that $2 billion in tax revenue can be raised over the next five years, with the money going straight into state coffers in Olympia, Washington. That’s a pretty attractive incentive for voters who have witnessed a several-year decline in basic government services.

Colorado’s Amendment 64 won by 8 points. The Colorado Center on Law and Policy estimates that eliminating the underground marijuana market and taxing the weed could generate more than $120 million a year in new revenue and savings within the first five years.

In addition, the new law directs the Colorado legislature to regulate the cultivation of industrial hemp, a non-psychoactive form of cannabis, which, in the frenzy of the war on drugs, was banished into the same illegal limbo as its cousin. No matter that industrial hemp was a versatile, hardy and environmentally friendly cash crop whose fibers were used for making textiles, clothing, rope and paper, among other products.

Industrial hemp is cultivated widely in Canada, China, Europe and South America, but its production is banned in the United States. And because the market for U.S. industrial hemp products is estimated at $400 million annually, Amendment 64 gives Colorado an opportunity to cultivate an easy to grow harvest without having to face any domestic competition.

So while pro-pot supporters in Washington and Colorado are no doubt lighting up jubilantly, other state governments are going to be examining the balance sheets of these two trailblazers. They want to know if marijuana is not just for fun anymore but also for profit.

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth Debt.org into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].