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The Impact of Federal Legalization on the Cannabis Industry

Both Colorado and Washington voted to legalize recreational consumption of cannabis back in 2012. Several states followed in the 2016 election and several more in the recent November 2020 presidential election. In fact, there are now fifteen states in America where recreational cannabis consumption is legal and twenty states where medical consumption of cannabis is permitted. Furthermore, Canada voted to legalize the recreational consumption of cannabis on a federal level in 2018 and Mexico will follow suit. Such a move is not out of the question for the United States of America either. In fact, it seems inevitable as the political climate concerning cannabis consumption continues to evolve. This change is expected to translate into laws which will legalize and decriminalize cannabis use for adult recreational use – but what will be the impact of federal legalization on the Cannabis Industry?

Cannabis and an Evolving Political Climate

The Impact of Federal Legalization on the Cannabis Industry

We continue to witness growing political support for legalizing recreational and medical cannabis use on a federal level in the US Congress. This support has primarily come from the Democratic Party who view this issue as a social justice issue more than anything else. In fact, many folks in the Democratic Party, including the new vice president Kamala Harris, believe that many people, primarily of minority origin, have been unfairly targeted. It’s becoming more evident that communities of color continue to be irreparably damaged due to disproportionately targeting minorities for cannabis related crimes.

A Democrat who is not on board with legalization or addressing it in terms of repairing harms brought by prohibition for decades is going to have a tough time convincing any voter they’re serious about racial justice,” said Vincent M. Southerland, executive director of the Center on Race, Inequality and the Law at New York University Law School.

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This new political will to reform marijuana laws nationwide is evidenced by bills currently in Congress like the SAFE Banking Act, which would open the cannabis industry to financial services by banks and other institutional lenders. Further evidence is in the House of Representatives‘ vote on December 4th, 2020, to decriminalize cannabis consumption and expunge the records of all convicted of marijuana consumption. This vote passed 228-164 and is pending approval in the Senate.

How will federal legalization impact the cannabis industry?

There is much speculation about the impact that federal legalization of cannabis for recreational use will have on both the industry and society and opinions vary based on whether you are talking to a proponent or an opponent of legalization. Here are three substantiated impacts that legalization is going to have on the cannabis industry and society.

1. Increase in demand for recreational cannabis

Increased demand for cannabis

Legalizing recreational use of cannabis is expected to cause an immense increase in the demand for cannabis nationwide. This increase is because of all the potential consumers that have avoided cannabis because of its legal status and the stigma associated with cannabis consumption, even in places where it’s not criminal to consume cannabis recreationally.

In a study by Philippa Hawley and Monica Gobbo on the impact of legalizing access to recreational cannabis, they concluded that legalizing access to recreational cannabis can result in a 26% increase in demand for cannabis among participants. The study also showed an 8% increase (from 32% to 40%) in disclosure of the recreational motive to smoke, meaning fewer people were pretending to be consuming cannabis for medical reasons as a result of the legalization of recreational consumption.

2. Increase in tax revenue

Uncle Sam Cannabis Tax Revenue

For many States, this increase in tax revenue is the main reason they are interested in the legalization of recreational cannabis consumption. Many of the early adopters of cannabis reform have benefitted immensely from the increase in tax revenue. In 2019, Colorado collected more than USD $302 million in taxes and fees on medical and recreational marijuana. Furthermore, total sales in the state totaled over USD $1.7 billion.

Should the United States legalize recreational consumption of cannabis nationwide on a federal level, it is projected that the US could raise over USD $100 billion in total taxes by 2025.

3. Creation of new jobs

cannabis job creation

According to a New Frontier report, the legalization of recreational marijuana consumption would result in over one million new jobs created in the United States by 2025. This is because the legalization would result in the creation of new startups, dispensaries, nurseries all dealing with recreational cannabis that would all require new employees.

In Nevada, where recreational consumption of marijuana is already legal, a recent report found that the legalization created forty-four thousand continuing jobs till 2024 and over USD $1.7 billion in labor earnings.

The Impact of Federal Legalization on the Cannabis Industry

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