Pennsylvania Could Generate More Than $2 Billion In Marijuana Tax Revenue After Five Years If It Enacts Legalization, Report Finds

Pennsylvania stands to generate up to $2.1 billion in marijuana tax revenue within five years if it enacts adult-use legalization, according to a new analysis.

As lawmakers work to reach a deal on a cannabis reform bill after a House-passed measure to legalize with state-run stores was rejected in a Senate committee, the report from the Marijuana Policy Project (MPP) underscores what many supporters have been arguing: Pennsylvania is missing out on a sizable windfall of tax revenue by maintaining the status quo of prohibition.

The analysis looked at cannabis tax revenue data from Arizona, Maryland and Michigan and adjusted it to account for Pennsylvania’s population. Assuming a 16 percent tax rate on marijuana, it found that Pennsylvania could generate between $105-$197 million in the first year of legal sales alone.

The three states that were used for comparison established their markets in different years, with Michigan having the most data after five years of sales. In its fifth year, the state saw $1.6 billion in cannabis tax dollars. Given its larger population, the comparative analysis found that Pennsylvania could bring in $2.1 billion in that period of time.

“As Pennsylvania navigates a period of fiscal uncertainty, the Commonwealth is losing out on hundreds of millions of dollars in annual tax revenue that is instead flowing into the coffers of its neighboring states,” Karen O’Keefe, director of state policies at MPP, said. “Lawmakers should seize the opportunity to bolster the budget and grow the economy, while expanding freedom and implementing public health regulations.”

The analysis notes that 54 percent of Americans “live in states where cannabis is legal for adults, including five of Pennsylvania’s six neighboring states.”

MPP separately released a report on Thursday that showed states with adult-use cannabis markets nationwide have collected nearly $25 billion in cannabis tax revenue since sales first launched in Colorado and Washington State in 2014.

Whether Pennsylvania legislators will advance legalization this session remains to be seen following the defeat of the House bill. But two Democratic lawmakers—Sen. Sharif Street (D) and Rep. Rick Krajewski (D)—recently said they’re aiming to reach a compromise and pass reform legislation before a budget deadline in July.

Also, last week Sen. Marty Flynn (D) announced his intent to file a new bill to legalize marijuana in the state, calling on colleagues to join him on the measure.

While the legislation Krajewski sponsored alongside Rep. Dan Frankel (D) was rejected in committee following its expedited passage through the House along party lines, Street said he’s “cautiously optimistic we’re going to be able to revive the bill and amend it and move forward with a work product that allows us to get a bill on the governor’s desk and realize revenue.”

That said, Sen. Dan Laughlin (R), who has sponsored legalization legislation with Street, recently seemed to suggest that lawmakers should pump the brakes on the push to enact the policy change amid resistance to reform within his caucus and instead pass a bill to create a new regulatory body that can begin overseeing medical cannabis and hemp while preparing to eventually handle the adult-use market as well.

“I remain committed to crafting a cannabis bill that can pass the Senate and be signed into law to benefit all Pennsylvanians,” Laughlin said. “That starts with honest dialogue from everyone involved, including House leadership and the governor, to develop a realistic approach–not political theater.”

Meanwhile, the governor of Pennsylvania is criticizing the GOP-controlled Senate for “ignoring” the will of voters after killing the House-passed bill to legalize marijuana.

Gov. Josh Shapiro (D) said that the bill’s rejection does a disservice to the bipartisan majority of voters in the commonwealth who support legalization, as well as the state itself that’s losing out on potential tax revenue to neighboring states that have enacted the policy change.

“Look, clearly people want it,” Shapiro, who included legalization in his budget request for the third time this year, said. “Poll after poll shows that.”

Following the Senate committee vote, lawmakers from both chambers who support legalization have been trading criticisms about each other’s roles in the stalled push to end prohibition.

Prior to the Senate panel’s vote, Pennsylvania’s Republican attorney general said that while he doesn’t currently support the House-passed marijuana legalization bill, he’s open to changing his mind about the policy change after continuing to review the details.

For what it’s worth, a recent poll found that Pennsylvania voters say they favor a model where cannabis is sold by licensed private businesses, rather than through a system of state-run stores.

The governor has repeatedly called for adult-use marijuana legalization. However, he hasn’t endorsed the specific idea of having a state-controlled model.

Rep. Abby Major (R)—who is sponsoring another forthcoming legalization bill that envisions a traditional private sales model alongside Rep. Emily Kinkead (D)—said during the House floor debate on HB 1200 that she stands opposed to the competing bill, emphasizing that she disagrees with the state-run stores proposal.

While Democrats control the House and governor’s office, they will still need to reach a deal with the GOP-controlled Senate to effectuate change. And in addition to the conflicting perspectives among pro-legalization legislators, another potential barrier to reform is exactly that political dynamic.

Senate Majority Leader Joe Pittman (R) said that while he sees a “path forward” for enacting regulations for separate gaming-related reform, “I’m not seeing consensus between the four caucuses and the governor collectively that [marijuana legalization] should be a priority.”

Regardless of which direction Pennsylvania lawmakers do—or don’t—go on marijuana legalization this session, a survey released in April shows a majority of adults in the state support the reform—and opposition to the policy change has fallen by nearly 50 percent over the last decade.

Kinkead has made the case in another recent interview that legalizing cannabis in Pennsylvania will help the state mitigate public health and safety concerns associated with the illicit market, including the fact that unregulated products can be laced with fentanyl.

The lawmaker previously introduced a separate bipartisan marijuana legalization bill, alongside 15 other cosponsors, last September. It did not advance, however.

Meanwhile, Laughlin recently called for the creation of a state “legacy” fund, using tax revenue from adult-use marijuana sales and gaming to make long-term investments in the Commonwealth’s economy.

The senator argued that, beyond using any resulting tax revenue to fund day-to-day projects and public services, the state should earmark a portion of those tax dollars for a fund to “provide a sustainable source of prosperity that lasts for generations.”

Another GOP Pennsylvania senator, Sen. Gene Yaw (R), is backing the push to legalize marijuana in the commonwealth, pointing out that, historically, prohibition “has not turned out well,” noting the country’s experience with alcohol criminalization.

Pennsylvania House Speaker Joanna McClinton (D) recently said that Democrats are ready to pass a marijuana legalization bill this session, but that the party “will need Republican support” to get the job done—adding that it will be a “heavy lift.”

Polls have shown bipartisan support for legalization among voters, but the reform has consistently stalled in the legislature, owing in large part to GOP opposition. But not all Republican members are against the policy change—and one recently said she felt her party should seize the “opportunity to snatch” the issue from Democrats.

Separately in March, the Pennsylvania House approved a bill sponsored by Frankel that’s meant to strengthen safety standards and oversight of the state’s medical marijuana program as lawmakers work to advance adult-use legalization.

While Pennsylvania’s medical cannabis program was enacted nearly a decade ago, lawmakers say the measure, which now heads to the Senate, is necessary to improve testing compliance, product audits and lab inspections, among other aspects of the industry.

Meanwhile, Pennsylvania Democratic lawmakers recently introduced a bill that would allow farmers and other small agriculture operators to sell marijuana they cultivate to existing growers and and processors if the state moves to legalize adult-use cannabis.

Separately, an independent Pennsylvania agency is projecting more tax dollars to be generated from adult-use marijuana sales compared to what the governor’s office has estimated, although it expects significantly less overall revenue from cannabis legalization due to differing views on licensing fees.

Pennsylvania officials have also launched a new survey that invites legal marijuana businesses across the country to provide information about their operations to help the state better understand the cannabis industry as lawmakers consider enacting adult-use legalization this session.

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Also, in a video interview released in March, the governor emphasized that the state is “losing out” to others that have already enacted adult-use legalization, while maintaining a policy that’s enriched the illicit market.

“I think it’s an issue of freedom and liberty. I mean, if folks want to smoke, they should be able to do so in a safe and legal way,” he said. “We should shut down the black market—and, by the way, every state around us is doing it. Pennsylvanians are driving to those other states and paying taxes in those other states.”

The state’s agriculture secretary separately told lawmakers that he’s fully confident that his department is in a “really good” position to oversee an adult-use marijuana program if lawmakers act.

Meanwhile, in February, top Pennsylvania police and health officials told lawmakers they are prepared to implement marijuana legalization if the legislature moves forward with the reform—and that they stand ready to work together as the details of legislation to achieve it are crafted.

Amid the growing calls for marijuana legalization in Pennsylvania, a GOP state senator said prohibition has been a “disaster,” and a regulated sales model for cannabis—similar to how alcohol and tobacco are handled—could serve as an effective alternative.

A Republican Pennsylvania senator also recently defended the push to legalize and regulate marijuana, calling it “the most conservative stance” on the issue.

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Photo courtesy of Brian Shamblen.