[THE VIEW]US State Marijuana Legalization and Taxation

Medical Benefits as a Pain Reliever and Economic Viability
Legalization Debated in 11 U.S. States This Year

In the United States, marijuana was first legalized in Washington and Colorado in 2012, with production, distribution, and sales beginning in 2014. Although marijuana is still classified as a prohibited substance under federal law, it has already been recognized as a legal recreational product in 24 states. But why did these states legalize marijuana? And what changes has this brought to the market?

The motivations for legalization can be categorized into two main reasons: safety and economic factors. According to experts, marijuana has medical effects as a pain reliever. Since the late 1990s, starting with California, marijuana began to be used for medical purposes. Compared to other popular recreational products like alcohol or tobacco, marijuana is considered less addictive and has fewer abuse problems, leading to the conclusion that its negative social impact is also lower.

Economic reasons also played a role. Legalizing marijuana as a recreational product allows states to impose taxes on its production, distribution, and sales, creating a new source of tax revenue for state governments. Each state made predictions about how much additional tax revenue could be collected before legalizing marijuana, which served as a basis for support. For example, Washington state predicted it could collect about $400 million (approximately 600 billion KRW) annually in tax revenue. Colorado also anticipated substantial tax income. These states often enacted laws to ensure that the tax revenue would be used exclusively for public education, healthcare, and overall social welfare, preventing misuse of the funds.

However, the actual tax revenue collected after legalization was only about half of the predicted amount. Additionally, unforeseen external effects emerged. Specifically, tax revenue from alcohol and tobacco decreased. Studies show that consumers view recreational products as substitutes, prompting the alcohol and tobacco industries to lower prices to maintain competitiveness. Despite the price reductions, consumption of alcohol and tobacco declined, resulting in reduced tax revenue from these existing recreational products. In Washington state, this decrease was significant, amounting to about half of the marijuana tax revenue. In conclusion, while the total tax revenue increased, the growth was only about one-quarter of the initial projections.

It is also noteworthy that annual tax revenue has gradually decreased over time. As the marijuana market stabilized, it transformed into a more competitive market, causing prices to steadily fall. Although tax laws vary slightly by state, most impose an excise tax (a percentage of total sales) on marijuana. Therefore, as prices drop, total sales decrease, leading to a natural reduction in tax revenue.

Nevertheless, despite collecting less tax revenue than expected, marijuana taxes remain an important source of income for state governments. In states like Washington and Colorado, where the market has stabilized, marijuana taxes account for about 1-2% of total tax revenue. Moreover, since marijuana legalization reduces consumption of alcohol and tobacco, which cause more social problems, legalizing marijuana is not a bad choice from the state's perspective.

Marijuana legalization is expected to continue across the United States. This year alone, 11 states are discussing legalization. According to surveys, 90% of Americans already support marijuana legalization. Although opposition voices persist, their arguments are gradually weakening. Opponents claim that marijuana is not completely harmless and that it leads people to use more severe prohibited drugs.

While this argument seems plausible, it is difficult to conclude that marijuana is more harmful than alcohol or tobacco. The claim that marijuana use leads to more severe prohibited drugs has not yet been proven by research. When marijuana was illegal, consumers had to contact illegal dealers, increasing the risk of exposure to other prohibited drugs. However, with legalization, there is no need to interact with illegal drug distributors, which may actually reduce exposure to prohibited drugs.

Seo Boyoung, Professor at Indiana State University, USA