The Blubber

States that legalize marijuana for adults see moderate economic gains after the policy change is implement but also experience an increase in social costs including substance use disorders, chronic homelessness and arrests, per the Fed.

States that legalize marijuana for adults see moderate economic gains after the policy change is implement but also experience an increase in social costs including substance use disorders, chronic homelessness and arrests. That’s the upshot of a new report recently published by researchers at the Kansas City arm of the Federal Reserve Bank.

“Although some of our estimates are noisy,” authors wrote in the new paper, “our findings suggest that the economic benefits of legalization are broadly distributed, while the social costs may be more concentrated among individuals who use marijuana heavily.”

Among the signs of economic improvement after cannabis legalization that were identified by the economists were a 3 percent increase in average state income, a 6 percent rise in housing prices and a 2 percent bump in population. In terms of social costs, however, substance use disorders climbed by 17 percent, chronic homelessness rose by 35 percent and arrests went up 13 percent in legal states.

States that legalized earlier, authors noted, “experienced similar social costs but larger economic gains, implying a potential first-mover advantage” over states that jumped on the bandwagon by implementing cannabis reform later.

Between 2017 and 2022, the number of jobs directly in the marijuana industry has grown from less than 125,000 to more than 425,000, the Fed paper says, citing an industry report. “While this still makes up less than 0.3 percent of total U.S. employment,” it notes, “the industry did make up more than 4 percent of total employment growth between 2017 and 2022.”

In terms of state revenue from legal marijuana, the report says, new money from legal cannabis is often offset by decreases in other revenue sources.

“Tax collections related directly to marijuana sales increased,” it says, “but tax collections from alcohol and tobacco sales declined following legalization. On net, we do not find a significant effect on overall tax revenues or general sales tax revenues.”

In Illinois, for example, total tax revenue in fiscal year 2023 was $420.9 million, according to state data released earlier this month—more than alcohol, but lower than the $435.1 million from cannabis sales in fiscal 2022.