One of the major arguments made in favor of marijuana legalization is that it will bring economic transformation to the community. The states that have so far legalized cannabis seem to give credence to this expectation. However, could marijuana legalization have another side that legislators and advocates don’t pay ample attention to?
It is a given that tax dollars start flowing into state coffers when cannabis is legalized. This is because every sale made attracts state and local taxes that are remitted to the relevant entities. Cannabis criminalization just creates business for the criminal world without bringing any benefits to the state or local community.
Secondly, contractors and real estate agents earn even before legal sales begin. This is because these professionals get to work setting up the places from which the legal sale of cannabis will take place.
Thirdly, law enforcement personnel and other resources are diverted to address other pressing law enforcement priorities instead of being saddled with chasing down petty criminals for possessing marijuana.
Furthermore, tourism also booms when marijuana legalization takes place. Just think about the thousands or millions of people who will visit Planet 13 in Las Vegas each year! Jobs are also created once retail sales begin, and those jobs generate more taxes and other benefits. In fact, research has it that every dollar that goes to legal weed generates at least $2.4 in economic activity.
But, there is another side that needs to be considered as well.
Marijuana companies seem to be engaged in a race to the bottom when one considers the rate at which cannabis prices are dropping. As the recent MJBizCon in Las Vegas showed, innovative ways to grow cannabis are being introduced and those techniques will bring the cost of cannabis even lower.
Lower prices affect the taxes collected by states where cannabis is legal. The drop in tax collections can get so serious that some states (Colorado, for example) are raising the rates in order to shore up tax revenues from the industry.
Another unwanted outcome of the dropping marijuana prices is that cannabis companies are tittering on the brink of bankruptcy due to reduced profitability. This threatens the jobs and taxes anticipated from the industry in the long run.
California is pioneering the way forward by changing from taxing marijuana based on the price at which it has been sold to taxing it based on the weight of the product. It is hoped that this new approach will allow cannabis companies to retain more revenue and stay afloat.
However, a better prospect for the industry would be the legalization of cannabis at the federal level. How would this help the industry? It would remove the current forced fragmentation where each company has to set up infrastructure for the entire value chain in each state where it operates.
Marijuana would cross state lines, so the players are likely to consolidate their operations and lower operational costs in order to lock in more profits. Additionally, access to international markets would also help to bolster revenues and protect the local economy.
All in all, the few shortcomings seen above pale in comparison to the massive benefits observed after legalization. Cannabis companies like Global Payout, Inc. (OTC: GOHE) and Golden Developing Solutions, Inc. (OTC: DVLP) are certainly optimistic about the future of the industry, and that is why they are continuing to invest massively in their operations.
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