Introduction and Study Overview
In November of 2012 Washington citizens passed Initiative-502 legalizing, but greatly controlling, the marijuana sector within the state. Legal possession for individuals over the age of 21 went into effect in December of 2012. Additional legislation setting up and regulating the market, producers, processors, and retailers, went into effect by the end of 2013. Licenses began being issued in July of 2014 and tax collection methods were set at a single 37% retail rate in 2015. This is when most data collection on the cannabis market began.
This study aims to establish a baseline understanding of the role of cannabis in Washington State’s economy and to determine a baseline expectation of the fiscal role it will play moving forward. A second, but equally important objective is to determine how legalization of homegrown cannabis might contribute to, or detract from, the estimated fiscal base. While medical exemptions exist for home-grown cannabis, recreational growing remains illegal under state law. The extent to which legalization of recreational home-grown cannabis will affect current market structures is a matter of debate. As such, estimates are made and a sensitivity analysis around those estimates is provided. Expected upper and lower-bound fiscal effects resulting from legalization of home-grown cannabis are then produced.
Data for the analysis came from extensive literature reviews focused on Canada, Colorado, California, and Oregon. A large review of academic literature regarding demand estimation of illicit drugs was conducted, as well as a review of the home-grown operations in Colorado and Oregon relative to their commercial operations. Data specific to Washington was obtained from the Washington State Liquor and Cannabis Board, the Cannabis Alliance, Hawthorn Gardening Co. and Scott’s Miracle-Gro, and various members of the cannabis sector including growers and retailers.
Major Study Findings:
- In 2020 the Washington cannabis sector contributed $1.85 billion to gross state product.
- The sector directly and indirectly supported nearly 18,700 full time equivalent jobs.
- Retail cannabis sales grew 21% between 2019 and 2020 and grew 605% between 2015 and 2020.
- Marijuana Excise taxes are the fastest growing component of the state’s General & Selective Sales Taxes revenues.
- State tax revenues from direct cannabis retail sales were $468.81 million in 2020, while excise revenues from liquor and alcohol sales only totaled $415.28 million and cigarette, tabaco, vapor product excise revenues only totaled $383.55 million.
- Total tax revenues in 2020 stemming from the cannabis sector, including property taxes, sales & excise taxes, and corporate and other taxes amounted to $883.38 million.
- 2020 per capita sales were highest in Asotin County at $564.52 and lowest in Franklin and Garfield Counties where no cannabis retail licenses have been issued.
- Washington has had the lower growth rates in retail cannabis sales than both Colorado and Oregon, since 2017.
- 2021 excise tax revenues are expected to be $538.78 million resulting in total tax collection of $1.02 billion
- 2021 excise taxes could range from a low of $520.04 million to a high of $585.63 million, were recreational home production legalized.