The History of Cannabis in the US: The Impact of Legalization

This is part 5 of a 5 part series exploring the history of cannabis in the U.S.

In just a little over a century, the history of cannabis in the United States has swung wildly, from a common prescription drug to a total ban and back again. 

Today cannabis has yet to be legalized at the federal level, but as of 2023, 38 states have allowed the medicinal use of cannabis products, while 24 states have legalized it for recreational purposes.¹ 

There has been an ongoing debate surrounding the impact of the legalization of cannabis. Reform advocates claim that legalization reduces crime, and raises tax revenue while helping alleviate many qualifying conditions and improving quality of life. On the other hand, those who oppose full legalization raise concerns about drug dependency, possible rise in crime, and potential negative impact among the youth. 

Despite this enduring discussion, concrete evidence supporting either stance remains elusive. The report, “The Effect of State Marijuana Legalizations: 2021,” concluded that there is still limited post-legalization data to rule out that cannabis legalization causes small changes in cannabis use or other outcomes.² The data so far, however, provides little support for the strong claims about legalization made by either opponents or supporters; the notable exception is tax revenue, which has far exceeded expectations. 

The increase in state tax revenues isn’t surprising because cannabis sales have surged since legalization. According to the Marijuana Policy Project, 2022 saw a combined $15.16 billion in tax revenue from recreational cannabis sales alone. This report also showed a yearly steady increase in state tax revenue since 2014, when adult-use cannabis was legalized for the first time.³ 

While there has been a noticeable increase in cannabis consumption and state tax revenue, studies have so far failed to show a corresponding increase in crime rates. “A Blunt Look at the Impacts Marijuana Has on Violent Crime” report indicates that the legalization of cannabis, both recreational and medical, does not increase violent crime rates. In contrast, cannabis legalization could lead to a decline in violent crimes such as homicide, robbery, and aggravated assault.⁴ 

In this concluding piece, we examine the impact of legalization on society, particularly its effect on bringing much-needed tax revenue to states without a corresponding increase in crime from cannabis users. We also cover the economic and social impacts of cannabis legalization, such as underage use, cannabis tourism, immigration, and how states have taken steps to mitigate past issues with racial bias in cannabis convictions.

From Prohibition to 2022

California pioneered the legalization of medicinal cannabis in the United States. However, the state took the opposite stance in the early 20th century, when it became the first US state to pass a cannabis prohibition law in 1913. After California, 30 additional states outlawed cannabis from 1915 to 1937.⁵ 

By 1937, the Marihuana Tax Act of 1937 was passed, which outlawed cannabis on the federal  level and criminalized its possession and sale. It also imposed taxes on anyone involved in the cannabis industry, from growers to distributors and users, severely restricting it both for medicinal and recreational use.⁶ 

Fast forward to 1970; the Controlled Substances Act included cannabis in the Schedule 1 category, the most restrictive category for drugs that the government considers to have no medical benefits and a high potential for abuse. 

However, the same decade also saw movements toward legalization through activism and ballot initiatives. With this, some states started turning towards a more progressive approach to cannabis prohibition. Between 1973 and 1978, states like Oregon, Alaska, California, Colorado, Maine, Minnesota, Ohio, Mississippi, New York, North Carolina, and Nevada started decriminalizing cannabis possession.⁷ However, the Reagan administration’s War on Drugs in the 1980’s rolled back most of these efforts.

It wasn’t until the mid-1990s that the social perception of medical cannabis once again changed. Scientific evidence increasingly highlighted the medicinal benefits of cannabis, like pain relief and anxiety relief, albeit with strict patient criteria to be met. This favorable climate paved the way for activist organizations like the National Organization for the Reform of Marijuana Laws (NORML) to advocate for cannabis legalization at both federal and state levels. By 1996, approximately 33 states had joined this movement. 

In 1996, California took the lead once more with Proposition 215, also known as the Compassionate Use Act. This initiative blew up from a grassroots movement dedicated to promoting the medical use of cannabis. Proposition 215 gave patients the freedom to use and cultivate cannabis for medicinal purposes without the fear of prosecution under state law. 

Since that time, the public's demand for government action continued until it finally yielded significant results in 2012. This pivotal year saw Colorado and Washington legalize the recreational use and sale of cannabis in the United States. This prompted other states to follow suit, and by 2022, an additional 21 states had embraced the recreational use of cannabis. 

On April 1st, 2022, the House of Representatives passed a groundbreaking cannabis decriminalization bill, setting the stage for further progress. Senate Majority Leader Chuck Schumer also made a significant stride by introducing the Cannabis Administration and Opportunity Act, a crucial step towards the federal decriminalization of cannabis. 

On October 7, 2022, President Joe Biden made a historic announcement by expressing his intention to pardon all individuals convicted of the federal crime of simple cannabis possession while simultaneously urging governors to contemplate similar actions for convictions under state laws.⁸

As the movement to legalize cannabis grows among the American public, we take a look at what impact it has brought so far for legalized states, starting with the biggest one: tax revenue.

Cannabis Legalization: Impact on Tax Revenue

One of the largest impacts of legalized cannabis has been on state tax revenue. For legalized states, cannabis sales have provided a dramatic boost to state coffers. 

According to the Marijuana Policy Project's 2023 report, tax revenue from legal, adult-use cannabis sales has surpassed $15.1 billion since 2014, when the first adult-use cannabis sales first started. The only exception was in 2022 when the revenue slightly decreased — from $3.86 billion in 2021 to $3.77 billion in 2022. This was attributed to the impact of COVID-19, as many individuals redirected their spending to consumer packaged goods as a consequence of the pandemic lockdown. 

In fact, several states have exceeded their pre-legalization revenue forecasts, even though the initial months of sales experienced slow growth as dispensaries were still being established. 

Washington State, for instance, doubled its original revenue projection, while Oregon reported monthly revenues of $10 million, far surpassing the initial estimate of $2 million to $3 million for the entire calendar year.² 

Here are the 2022 state-by-state totals since 2014, according to the Marijuana Policy Project’s report. 

• Alaska: $28,649,408
• Arizona: $223,863,799
• California: $1,074,560,287
• Colorado: $305,034,034
• Illinois: $562,119,019
• Maine: $25,329,534
• Massachusetts: $250,710,415
• Michigan: $326,049,074
• Montana: $41,989,466
• Nevada: $196,952,338
• New Jersey: $20,139,655
• New Mexico: $36,684,235
• Rhode Island: $579,439
• Oregon: $150,316,424
• Washington: $529,443,420
• Vermont: $2,363,000

Yearly revenue totals include: 

• 2014: $68,503,980
• 2015: $264,211,871
• 2016: $530,521,110
• 2017: $736,534,982
• 2018: $1,308,693,928
• 2019: $1,749,459,667
• 2020: $2,814,837,199
• 2021: $3,866,974,690
• 2022: $3,774,783,548 

The cumulative total to date stands at an impressive $15,114,520,975.

How Cannabis-Legalized States Obtain Tax from Cannabis Sales

Since cannabis is yet to be legalized on a federal level, each state decides the rate and form of taxation. The two most common forms of taxation used by states are excise tax and sales tax. 

Excise taxes are applied at a specific rate per unit of cannabis sold, such as per ounce or gram. These are usually shouldered by cannabis producers, while the state tax applies standard sales taxes to cannabis purchases. The sale tax rates mostly depend on the state and locality. 

Some states in the United States and their form of taxation and rates. 

• Alaska—$50 per ounce, or proportionate part thereof
• Arizona—16% excise tax
• California—15% excise
• Colorado—15% retail cannabis tax; 2.9% state sales tax
• Connecticut—$0.00625 per milligram of total THC for flower products; $0.0275 per milligram of total THC for edibles; $0.009 per milligram of total THC for all other products
• Delaware—15% excise tax
• Illinois—10% excise tax on cannabis with THC levels at or below 35%, 25% excise tax on cannabis with THC levels above 35%, and 20% excise tax on cannabis-infused products
• Maine—10% sales tax; excise tax depending on product weight
• Maryland—9% sales and use tax
• Massachusetts—6.25% state sales tax; 10.75% state excise tax; up to 3% local option for cities and towns
• Michigan—10% excise tax and 6% sale tax
• Missouri—6% retail tax
• Montana—20% excise tax
• Nevada—15% excise on the first wholesale sale, sales tax, and 10% retail excise tax
• New Jersey—6.625% sales tax, plus a social equity excise fee of 0.33%
• New Mexico—12% excise tax until July 1, 2025, which then increases by one percentage point per year, maxing out at 18% on July 1, 2030
• New York—13% retail tax
• Oregon—17% retail sales tax, 3% additional local tax
• Rhode Island—10% state excise tax, 3% local excise tax
• Vermont—14% excise tax
• Virginia—21% excise tax
• Washington—37% excise tax

Data Source: USA FACTS²⁵

What States Do with the Tax Revenue Generated from Cannabis Sales

The utilization of tax revenue generated from cannabis sales varies significantly from state to state, reflecting diverse priorities and objectives. 

This financial allocation is comprehensively analyzed in "Marijuana Tax Revenue: A State-by-State Breakdown," published in 2023. The data underscores the importance of strategic reinvestment in key sectors.⁹ 

For instance, in California, a substantial portion of the revenue is directed towards critical areas: 60% is allocated to anti-drug programs targeting youth, 20% is channeled into environmental initiatives, and another 20% is earmarked for bolstering public safety efforts. 

In contrast, Colorado has distinct objectives for its cannabis revenue allocation strategy. There, 10% is designated for local governments, a significant 90% is funneled into the state government, with further subdivisions including 15.56% to the general fund, 12.59% to the state public school fund, and 71.85% to the cannabis tax cash fund.

What About Non-Legalized States?

In 2021, the Tax Foundation calculated a hypothetical tax revenue for non-legalized states. Their computation takes into account the population of cannabis-using residents for each state and the average excise tax figure.

STATE	POTENTIAL TAX REVENUE FROM CANNABIS
Alabama	$92,217,856
Arkansas	$59,314,764
Florida	$448,740,070
Georgia	$198,400,771
Hawaii	$28,453,985
Idaho	$33,295,445
Indiana	$157,009,061
Iowa	$50,183,462
Kansas	$42,058,743
Kentucky	$83,008,154
Louisiana	$81,616,779
Mississippi	$47,304,242
Nebraska	$35,975,930
New Hampshire	$44,163,575
North Carolina	$182,947,622
North Dakota	$13,231,599
Ohio	$220,827,478
Oklahoma	$67,680,000
Pennsylvania	$244,553,615
South Carolina	$96,680,914
South Dakota	$14,270,281
Tennessee	$132,509,552
Texas	$397,424,206
Utah	$44,428,908
West Virginia	$38,327,540
Wisconsin	$117,791,078
Wyoming	$10,054,045

With the increasing social acceptance of recreational cannabis, the potential tax revenue for these states is only set to go up.

Cannabis Legalization and Crime Rate

The impact of cannabis legalization on crime rates remains a subject of ongoing debate. Opponents argue that cannabis use might lead to an uptick in crime due to its psychopharmacological effects and the potential for illicit market activities. In contrast, proponents assert that legalization could yield significant tax revenue and enable law enforcement to focus on more serious offenses. However, conclusive evidence is still elusive. 

Meanwhile, a study published in the Journal of Drug Issues in 2020 suggests that the legalization of cannabis and the establishment of dispensaries have had little to no adverse effects on crime rates over the long term. Following Colorado's legalization in 2012, property crimes actually decreased, and in Washington, there were declines in property crime, larceny, and violent crime rates, with no change in aggravated assault incidents.¹⁰ 

Another study conducted by Jaeger in 2021 implies that cannabis legalization might have the potential to reduce violent crimes, including homicide, robbery, and aggravated assault.¹¹

It should also be highlighted that the drastic shift in cannabis legalization has made a positive impact on drug-related crime arrests on a state and federal level. With the passage of recreational cannabis laws, many states chose to overturn prior cannabis convictions to some degree. And, logically, fewer arrests associated with cannabis are taking place. 

In California, when cannabis was legalized in 2017, people previously convicted could petition for reduced or even eliminated convictions. Some felonies could be reduced to misdemeanors, some low-level misdemeanors could become basic infractions, and mere possession charges could be expunged altogether.¹²

California is not the only state to take a stab at reparative justice for those affected by cannabis regulations of the past, either. New York, New Jersey, New Mexico, Arizona, and others have made similar moves over the last few years, some even enacting automatic expungement for certain cannabis-related offenses.¹³ 

In fact, a recent study in 2022 found that arrest rates for cannabis-related crimes dropped by around 40 percent across five states that had decriminalized cannabis prior to recreational legalization. More crucially, states that had not decriminalized cannabis possession prior to becoming legal experienced an even more substantial drop in arrests: a 76 percent reduction.¹⁴

Cannabis Legalization and Underage Use

While the economic and social impact of cannabis legalization in the United States is increasingly well-documented, one aspect that remains unclear is its impact on underage use. Since comprehensive study is scarce, the topic has been a subject of intense debate among researchers. 

In 2020, Washington State, one of the pioneering states in recreational cannabis legalization, became the focus of two separate studies examining the influence of cannabis legalization on teenage cannabis consumption. 

One study encompassing more than 230 teenagers and young adults found a possible increase in cannabis use among teens following legalization.¹⁵ However, a contrasting study also conducted in Washington also emerged, indicating that teenage cannabis use had actually declined among 8th and 10th graders, with no significant changes among 12th graders.¹⁶

The mixed results extend even beyond the border. Another study, this time in fully-legalized Canada, provides an additional layer of complexity to the question of underage cannabis use. Emerging evidence from a Canadian study observed that cannabis-related hospitalizations and emergency department (ED) visits among Canadian youth may have increased following legalization. However, a different study compared data from a pre-legalization period (October 17, 2017–March 31, 2018) to a post-legalization period (October 17, 2018–March 31, 2019) in the province of Quebec. It was found that no significant evidence of an increase in cannabis-related hospitalizations among youth existed.¹⁷

Cannabis Legalization and Economic Impact 

Tax revenue generated from the cannabis industry has the potential to bolster the state's economy significantly. In 2022, the Marijuana Policy Project revealed that recreational cannabis sales alone contributed a staggering $15.16 billion in tax revenue, and this figure doesn't even include the revenue from medical cannabis sales. 

Furthermore, a comprehensive study conducted by Golzar in 2015 analyzed the fiscal implications of legalizing cannabis within the state of Florida. According to Golzar's findings, the combined effect of annual savings and increased tax revenue resulting from legalization could amount to $145.7 million in the short term and an impressive $285.5 million annually in the long term.¹⁸

But the impact doesn't stop at finances. The legalization of cannabis also offers a promising avenue for job creation. According to the 2021 Leafly Jobs Report, the cannabis industry has burgeoned to support more than 321,000 full-time jobs across the United States. This represents a remarkable increase of 77,300 jobs, translating to a growth rate of 32% compared to 2020. This underscores how the cannabis sector not only generates revenue but also fuels employment opportunities and economic growth.¹⁹

Cannabis Legalization and Immigration

While the law surrounding cannabis sale and consumption may appear more lenient in certain jurisdictions, there’s a troubled history between cannabis legalization and immigration thanks to the Controlled Substances Act (CSA). 

The CSA was enacted into law by President Richard Nixon in 1970. It classifies cannabis as a federally prohibited substance, criminalizing its possession, sale, distribution, cultivation, importation, and exportation. Under the CSA, it is a federal crime to possess, sell, give away, grow, import, or export cannabis, regardless of state law.²⁶ 

This law has profound implications for immigration applicants, particularly those seeking entry into the United States. U.S. Customs and Border Protection (CBP) officers possess the authority to inquire about cannabis usage, and admitting to any prior or current cannabis consumption can give rise to substantial problems. These issues may include immediate denial of entry, potential legal consequences, or even a prohibition from future attempts to enter the country.

So, while cannabis laws at the state level in the United States may seem permissive, the enduring authority of the federal Controlled Substances Act underscores the paramount importance of vigilance when navigating immigration processes.

Cannabis Legalization and Tourism

The legalization of recreational cannabis has led to a remarkable economic boost in the tourism industry. Businesses, such as The Pig 'N' Whistle Dispensary in Denver, Colorado, have experienced significant growth since the legislation passed. Tourists, including well-known figures like baseball stars and boxing legends, have traveled to Colorado to enjoy the relaxed atmosphere. 

Studies comparing the growth of the tourism industry in states that legalized cannabis, such as Colorado and Washington, with those that hadn't legalized it between 2011 and 2015 showed a stark difference. These states transformed into travel hotspots following legalization. 

In Colorado, the tourism industry saw a notable increase in hotel room rentals after legalization. The number of rented hotel rooms increased by 51,000 per month, and this number surged even further after the legislation expanded to include the retail sale of recreational cannabis, reaching an extra 120,000 hotel rooms per month. 

While both Colorado and Washington experienced positive effects, Colorado's numbers were more impressive. The six-month gap in legalization and Colorado's unique location may have contributed to its lead. Legal cannabis had a significant impact on hotel bookings, increasing monthly rates from 2.5% to 4% in Colorado and by about 1% in Washington. Once legal sales began, Colorado's booking rates jumped from 6% to 7.2%, and Washington's increased by 3.5%. 

Room prices also increased in both states, rising by 2.8% in Colorado and by 3.8% in Washington. Additionally, in terms of revenue, monthly profits increased by a substantial $23.71 million in Colorado following the legalization of sales.²⁰

Cannabis Legalization, Racism, and Social Equity 

Without question, cannabis prohibition had a detrimental impact on certain communities and ethnic groups. The War on Drugs was carried out with an undeniable racial bias, specifically for African Americans. Even though the rate of cannabis use among white and Black Americans was relatively the same, Black Americans were four times as likely to be arrested and convicted for cannabis possession.²¹

In some more progressive areas, like New York City, perceived racial bias in arrest rates have historically been even more concerning. Between 2014 and 2016, 86 percent of those arrested for cannabis were either Latino or Black.²¹ 

Rectifying the damage done by the War on Drugs to underrepresented groups in the U.S. is going to be a long process. However, overturning prior cannabis convictions may be a good start, as many of those imprisoned or carrying criminal histories associated with cannabis are people of color. 

While the newly legalized cannabis market is not perfect in terms of making up for past discrimination related to cannabis and cannabis convictions, some states have taken steps to amend past wrongs through social equity initiatives. Primarily, states are implementing social equity programs when granting licensing to prospects opening a cannabis business. These programs are designed to provide equal opportunities to people seeking business ownership or employment in the industry. Social equity programs support not just certain races but also groups like women, veterans, and people from low-income backgrounds. Individuals who gain business licensure under the social equity umbrella often gain the advantage of lower licensing fees, as well as other levels of support.

As of 2022, 15 states had standing social equity programs in place. All states have their own social equity program design and qualifications. For example, in California, some licenses are reserved for individuals who have a prior cannabis conviction. Another example is Connecticut, which sets aside 50 percent of licenses for individuals from communities in the state that have historically experienced a higher cannabis conviction rate. New York says that half of all licenses in the NY cannabis market must be reserved for social equity applicants.²²

Conclusion

With 38 states legalizing the medicinal use of cannabis products and 24 states for recreational purposes (State Medical Cannabis Laws. 21 Sept. 2023), from 1996 to 2022, the chance that more states will add to the numbers in the future is high. Early in the year, the Cannabis Business Times estimated that up to 13 new states could legalize cannabis in 2023; three of them did.²³

Another reason more states might consider making the leap is the positive impact that it has brought to the legalized states. The annual tax revenue netted by legalized states has been up since 2014, with the sole exception of 2022, when cannabis sales dipped due to the COVID-19 pandemic.

Other aspects cannabis legalization may impact include the economy, immigration, and tourism. Whether cannabis legalization affects underage use is still yet to be concluded.

Finally, the fears of increased crime rates brought about by cannabis legalization have failed to materialize, which has been the strongest argument from parties opposed to full legalization.

All these positive impacts have led to a sea change in the perception of cannabis among the American public. In 2011, a Gallup poll found that only 50 percent of respondents supported legalizing cannabis. By 2017, the figure had climbed to 64 percent, including a majority of Republicans for the first time. This is echoed by Pew Research’s latest poll in 2022, where 88 percent of respondents say that cannabis should be legal for either recreational or medical purposes.²⁴ 

The once heavily regulated, highly demonized plant is rapidly growing to be not only acceptable in the minds of the American majority but also financially, therapeutically, and socially valuable. 

References

1. State Medical Cannabis Laws. 21 Sept. 2023, www.ncsl.org/health/state-medical-cannabis-laws

2. Angela Dills, Sietse Goffard, Jeffrey Miron, & Erin Partiny. “The Effect of State Marijuana Legalizations: 2021 Update.” CATO Institute.2021. www.cato.org/policy-analysis/effect-state-marijuana-legalizations-2021-update

3. Marijuana Policy Project. “States Surpass $15 Billion in Tax Revenue From Legal, Adult-Use Cannabis Sales.” MPP,2022, www.mpp.org/news/press/states-surpass-$15-billion-in-tax-revenue-from-legal-adult-use-cannabis-sales

4. Rice, and Angelica. A Blunt Look at the Impacts Marijuana Has on Violent Crime. digital.lib.washington.edu/researchworks/handle/1773/44495. 2019

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11. Jaeger, Kyle. “Here Are the Full Details of the New Federal Marijuana Legalization Bill From Chuck Schumer and Senate Colleagues - Marijuana Moment.” Marijuana Moment, 14 July 2021, www.marijuanamoment.net/here-are-the-full-details-of-the-new-federal-marijuana-legalization-bill-from-chuck-schumer-and-senate-colleagues.

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14. Gunadi, Christian, and Yuyan Shi. “Association of Recreational Cannabis Legalization with Cannabis Possession Arrest Rates in the US.” JAMA Network Open, vol. 5, no. 12, 5 Dec. 2022, p. e2244922, https://doi.org/10.1001/jamanetworkopen.2022.44922.

15. Marijuana Legalization and Youth Marijuana, Alcohol, and Cigarette Use ..., www.ajpmonline.org/article/S0749-3797(20)30188-4/fulltext

16. Dilley, Julia A., et al. “Prevalence of Cannabis Use in Youths After Legalization in Washington State.” JAMA Pediatrics, vol. 192, no. 2, American Medical Association, 1 Feb. 2019, https://doi.org/10.1001/jamapediatrics.2018.4458.

17.Rubin-Kahana, Dafna Sara, et al. “The Impact of Cannabis Legalization for Recreational Purposes on Youth: A Narrative Review of the Canadian Experience.” Frontiers in Psychiatry, vol. 13, Frontiers Media, 23 Sept. 2022, https://doi.org/10.3389/fpsyt.2022.984485

18. Golzar, T. I. (2015). An Economic Analysis of Marijuana Legalization in Florida (Doctoral dissertation, Duke University Durham). Available at: https://sites.duke.edu/djepapers/files/2016/10/golzar-dje.original.pdf. Date Accessed: April 3, 2018.

19. Bruce Barcott, Beau Whitney. “The US Cannabis Industry Now Supports 321,000 Full-Time Jobs.” Leafly, 23 Feb. 2022, www.leafly.com/news/industry/cannabis-jobs-report-2021.

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21. Jones, Rick . “NACDL - from the President: Coming and Going - Racial Disparity in the Punishment and Profit of Marijuana.” NACDL - National Association of Criminal Defense Lawyers, Dec. 2017, www.nacdl.org/Article/December2017-FromthePresidentComingandGoing.

22. The Minority Cannabis Business Association. MCBA National Cannabis Equity Report 2 0 2 2. MJ Biz Daily, 2022. https://mjbizdaily.com/wp-content/uploads/2022/02/National-Cannabis-Equity-Report-1.pdf

23. Cannabis Business Times. www.cannabisbusinesstimes.com/news/states-that-may-legalize-cannabis-in-2023.

24. Green, Ted Van. “Americans Overwhelmingly Say Marijuana Should Be Legal for Medical or Recreational Use.” Pew Research Center, 22 Nov. 2022, www.pewresearch.org/short-reads/2022/11/22/americans-overwhelmingly-say-marijuana-should-be-legal-for-medical-or-recreational-use/.

25. USAFacts. “How Much Revenue Do States Make From Marijuana Taxes? - USAFacts.” USAFacts, 19 Sept. 2023, usafacts.org/articles/how-much-revenue-do-states-make-from-marijuana-taxes.

26. United States Drug Enforcement Administration. “The Controlled Substances Act.” Www.dea.gov, 25 July 2018, www.dea.gov/drug-information/csa.

The information in this article and any included images or charts are for educational purposes only. This information is neither a substitute for, nor does it replace, professional legal advice or medical advice, diagnosis, or treatment. If you have any concerns or questions about laws, regulations, or your health, you should always consult with an attorney, physician or other licensed professional.