Marijuana Legalization Would Bring 100s of Millions to NJ in Tax Revenue, Says New Report by NJ Policy Groups

May 24, 2016

NJ Policy Perspective & NJ United for Marijuana Reform analysis projects $300 million in annual sales tax revenue to come with legalization for adults

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New Jersey would bring in hundreds of millions of dollars in new revenue by legalizing marijuana, a new report (PDF) released by New Jersey Policy Perspective and New Jersey United for Marijuana Reform has found. Legalization, taxation, and regulation of marijuana for use by adults aged 21 and older would ultimately add an estimated $300 million in sales tax to state coffers rather than divert consumers to the illegal market, the two policy-focused groups said at a Trenton press conference.

"The lessons from around the country are loud and clear: marijuana legalization makes fiscal sense, and it makes practical sense," said New Jersey Policy Perspective Policy Analyst Brandon McKoy, a co-author of the report. "Expanding economic opportunities and addressing our persistent budget deficit aren't the only reasons to legalize and regulate marijuana, but they are extremely persuasive ones."

The report estimates that New Jersey would bring in at least $300 million annually if marijuana legalization were fully implemented, using graduated tax increases over a three-year period, going from 5 percent, to 15 percent, to the final rate of 25 percent. The first-of-its-kind report in New Jersey relies on conservative estimates, predicting the tax revenue only from marijuana sales. The report's projections are based on the experiences of other states, current information on marijuana users in New Jersey and the surrounding area, current pricing, and the tax structure of other states as they relate to New Jersey's interests.

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Including a small percentage of New Yorkers and Pennsylvanians from counties neighboring New Jersey who are expected to participate in the legal, regulated market, the state could take in approximately $305.4 million once the sales tax is fully scaled to 25 percent, the report said. The report estimates that approximately 343,100 New Jerseyans would participate in a legal marketplace, spending $1.2 billion each year. Currently, New Jerseyans spend more than $850 million on marijuana each year. The calculation of tax revenue was based on a price of $350 per ounce, similar to the current estimated price of $343 per ounce in New Jersey.

Legalization would bring other economic benefits not covered in the report, such as job creation, growth in business, research and development, and boosts in property, agricultural, business, and income taxes. In addition, it would increase public safety, protect young people, save resources, advance racial justice, bolster public health, and reduce the strain on the police, corrections, and the criminal justice system, the report argues. New Jersey arrests more people for marijuana possession each year than for any other crime. A June 2015 Rutgers-Eagleton poll found that 58 percent of New Jerseyans support legalizing, taxing and regulating marijuana for use by adults aged 21 and older.

"Facing yet another budget shortfall, New Jersey is again confronted with the untenable choice of either further draconian cuts or massive tax increases in order to balance the state budget," said New Jersey United for Marijuana Steering Committee member Bill Caruso, Of Counsel at Archer & Grenier and former Executive Director of the New Jersey Assembly. "But, we have the ability to generate hundreds of millions of dollars in new revenue and create tremendous economic opportunities in our state by capitalizing on New Jersey's geographic location and our world-class education and health care infrastructure. It's time for New Jersey to get off the sidelines and into the game to join success stories like Colorado and Washington State. For every day that passes without safe and responsible legalization, taxation, and regulation of marijuana in our state, we are leaving money on the table."

To set up a legal, regulated market and increase public health, the report recommends:

  • Introducing graduated tax increases in the first three years
  • Building flexibility into the tax rate to account for the challenges of transitioning from an illegal, unregulated market to a legal, regulated one
  • Creating a board or committee focused on calculating the right tax rate for New Jersey, preventing use by individuals under 21, undercutting the prices of the illegal market, and maximizing revenue for the state
  • Using tax revenue for critical state needs, such as expansion of drug-treatment, drug-abuse prevention, and justice reinvestment

"New Jersey can't afford to wait – it's time to legalize, tax, and regulate marijuana," said Ari Rosmarin, a co-author and the Public Policy Director of the American Civil Liberties Union of New Jersey, which sits on the steering committee of New Jersey United for Marijuana Reform. "With just one vote, the Legislature can raise hundreds of millions of dollars annually, help end a civil rights injustice, and make sure that no more New Jerseyans see their lives ruined for something every president in the last 24 years has done. It's time for common sense, and that means ending prohibition again."

Four states and Washington, D.C., have fully legalized marijuana for adult use, and Nevada voters will consider a ballot measure in November to legalize marijuana. Twenty-four states, plus Washington, D.C., and Guam, have instituted medical marijuana programs, and 17 states have decriminalized marijuana possession but not legalized it. States that have legalized marijuana have seen revenues outpace initial estimates. Colorado is on pace to bring in $140 million in tax revenue from marijuana this year, according to the Tax Foundation. According to the Oregon Employment Department, the state has added 2,165 new jobs since its legal marijuana program launched in October 2015, and the sector is expected to see significant additional growth in the coming months.

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