As the economic damage from the coronavirus pandemic piles up, U.S. cities and states are set to face significant lost revenue given the loss of business activity.
But, as DataTrek Research’s Jessica Rabe writes in a note, “there’s a simple and effective solution for states and cities to help cover their huge budget shortfalls after the COVID-19 pandemic subsides: legalize recreational sales of marijuana.”
New York, the epicenter of COVID-19 cases in the U.S., might see a revenue drop of $4 billion to $7 billion compared to what it was expecting, according to the state comptroller. With a budget of $87.9 billion, that’s significant.
“We’ve been thinking a lot about how life will change post-virus, and one big difference will be that state and local governments are going to encounter large unexpected tax receipt shortages,” Rabe wrote. “That’s particularly true when it comes to sales and income taxes amid stressed consumer balance sheets and massive layoffs. And unlike the Federal government, states can’t print unlimited amounts of money.”
Legalization of cannabis for adults, Rabe points out, could be a really easy way to shore up tax basis without driving people out of state, as raising income tax might do. Already it has been successful at raising “hundreds of millions of dollars annually in states like Colorado,” she said. There are currently 11 states with legalized recreational cannabis and another 15 that have decriminalized the drug in one way or another.
A key push toward legalization
Though New York Gov. Andrew Cuomo hasn’t been successful in efforts to push legislation for legalization, conservative estimates have shown it can bring up to $1.3 billion in revenue per year.
“If Colorado can raise +$300 million from recreational and medical marijuana sales in a year, New York can certainly earn over $1 billion as long as the state taxes and regulates adult-use sales reasonably,” said Rabe, who noted that Colorado’s approach has yielded better results than California, which has missed revenue projections.
If New York were serious about using cannabis as a way to make up for lost revenue, it could be relatively straightforward, given the infrastructure already in place because of medical cannabis dispensaries, which opened in 2016.
As Rabe sees it, the coronavirus pandemic may give New York a key push toward legalization.
“The economic impact from this virus may be enough for some states, such as New York, to finally get enough votes to pass such legislation,” she wrote. “While we recognize legal marijuana is a controversial topic for many people, the budget shortfalls that COVID-19 will create may sway opinions about the issue.”
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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
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