Full adult use legalization of cannabis could offer one fat cushion to the government's coffers.
Under full federal legalization, cannabis could potentially create $105.6 billion in federal tax revenue and 1 million new jobs by 2025, according to a report from cannabis industry data and analytics expert New Frontier Data on Tuesday, March 13.
"Under the new business tax rate of 21%, the Trump tax cuts will come as welcome relief to cannabis business owners who already face tax hurdles because of 280E," New Frontier wrote. Section 280E of the Internal Revenue Service's code prevents state-legal marijuana companies from deducting what would typically be considered everyday business expenses from their total income. The rule means that cannabis businesses face effective tax rates of as high as 70%.
"Lower tax rates may provide cannabis business owners greater capacity to grow and create more jobs," New Frontier said.
If full legalization occurred in all 50 states today, there would be an excess of 654,000 jobs, analysts found. That figure would increase to 1 million jobs by 2025.
"Full legalization would result in more legal businesses entering the market, more consumers participating in the legal market, and more employees on official payrolls, resulting in $3.3 billion in payroll taxes," New Frontier found. "By 2025, payroll deductions would increase to $5.3 billion."
If the sales tax at the federal level was implemented at 15%, total tax revenue in the eight years through 2025 would "theoretically" be $46 billion, New Frontier estimated. "This amount of revenue would be entirely new revenue to the U.S. Treasury, as there are currently no federal sales or excise taxes."
"By combining the business tax revenues, the payroll withholdings based on the theoretical employment required to support the industry, and the 15% retail sales tax, one can calculate the total federal tax revenue potential of legalization: The combined total is estimated to be $105.6 billion."
The difference between current patchwork state-legal structure and a theoretical federal-legal structure represents a federal tax revenue increase of $61.6 billion, New Frontier concluded.