Massachusetts legalized marijuana in 2016, making Massachusetts one of 8 states (and D.C.) to do so. Massachusetts is now going through the rulemaking and implementation phases of the legalization process. Part of Massachusetts’ legalization model involves creating a taxed and regulated cannabis industry. Sales are expected to begin in the middle of next year, and a lot of people are wondering how much tax revenue Massachusetts’ adult-use cannabis industry will generate.
Earlier this year New Frontier Data estimated that legal marijuana sales would generate $655 million in tax revenue in America in 2017. With a report coming out this week by Arcview Market Research stating that the cannabis industry surpassed original sales expectations for 2017, the $655 million tax revenue figure could prove to be lower than what actually is generated by the end of the year. Regardless, 2018 is going to be a big, big year for marijuana tax revenue, due in large part to Massachusetts launching adult-use sales. Estimates are now out for Massachusetts’ first year, via Boston Globe:
Taxes on recreational marijuana sales could net the state between $44 million and $82 million in the next fiscal year, according to a new analysis by the Massachusetts Department of Revenue.
The wide range of the projection, unveiled Wednesday by revenue commissioner Christopher Harding in testimony before state legislators, reflects significant uncertainty on the part of government forecasters about how quickly the pot market will develop.
I think that the tax revenue estimates will be low for two reasons. First, every initial state estimate I have seen for projected adult-use marijuana tax revenues have been exceeded. It’s not that the people making the estimations are out of touch, so much as it’s really hard to make predictions for tax revenue generation figures for an industry that has never existed before. All economists can do is make their best guesses based on the limited available information. Every time I see the initial projects get exceeded it makes me smile, and I hope that’s the case for Massachusetts too.
The second reason why I think the estimated figures will be exceeded is that Massachusetts’ market is going to be unlike anything we have seen so far out of the adult-use cannabis industry. California gets a lot of buzz when it comes to 2018’s sales rollout, and for good reason. California is where the legal cannabis industry began, and it is home to the largest population. California is also the number one tourist destination in America.
However, Massachusetts is going to be the only legal adult-use industry on the entire East Coast when legal sales begin in 2018 (unless Maine pulls off a miracle, and even then, their market will not have a huge impact on Massachusetts in my opinion). Whereas California is bordered by Oregon and Nevada that allow adult-use sales, and the Western United States has other states that allow adult-use sales, Massachusetts is going to be all by itself on the East Coast.
Boston’s market is going to be MASSIVE as a result. I don’t know that it will ever be as massive as Los Angeles’ market, but it’s going to be huge regardless. Huge enough that it will dwarf any estimates that I have seen thus far. How much revenue will Massachusetts generate from its adult-use marijuana industry in the first year is impossible to say right now. But I do think that it’s safe to say that the $44-82 million estimate is a bit conservative. Only time will tell!