Legal state marijuana sales could overtake illegal trade by year four

Virginia’s commercial marijuana market could yield between $30 million to $60 million in tax revenue in the first year, according to a new report by the state’s legislative watchdog agency.

The Joint Legislative Audit & Review Commission released a report this month that explores how the commonwealth could legalize marijuana. The agency, however, did not give its take on legalization. Shortly after the report was released Gov. Ralph Northam announced that “it’s time to legalize marijuana in Virginia.”

The state’s tax revenue could grow to between $150 million to more than $300 million by the fifth year of sales, according to JLARC. The revenue depends on the tax and demand of marijuana products.

Most states with commercial marijuana markets tax the product between 20%-30% percent of the retail sales value, JLARC said. Colorado, one of the most mature and successful U.S. marijuana markets, currently has a tax rate close to 30%, showing that while the tax may be high, the market could still be successful, said Justin Brown, senior associate director at JLARC.

“But in reality, there’s no magic rate that you have to use, and I think that’s one thing that the other states’ experience shows,” Brown said.

Virginia decriminalized marijuana possession earlier this year. The substance is still not legal, but possessing up to an ounce results in a $25 civil penalty and no jail time. In the past, possessing up to half an ounce could lead to a $500 fine and 30 days in jail.

If the Old Dominion makes marijuana legal, it will follow in the footsteps of 15 states.

The legal marijuana market should overtake the illegal market in marijuana sales by the fourth year of legalization, JLARC said. The legal market could likely have two-thirds of sales by the fifth year of legalization. JLARC looked at the reported use rates compared to the use rates of other states to determine this figure, Brown said.

“In the first year the minority of sales will be through the legal commercial market,” Brown said. “But then over time, particularly if supply and demand works out, you’ll capture at least the majority of the full market through the legal market.”

JLARC said that if the General Assembly legalizes marijuana, the total sales tax would come out to around 25%-30%. This figure also came from the analysis of other states and how they taxed marijuana.

The industry also could create over several years between 11,000 to more than 18,000 jobs, JLARC said. Most positions would pay below Virginia’s median wage.

The revenue would cover the cost of establishing a market by year three, according to JLARC.

Northam said in a press release last week that his administration is working with lawmakers to finalize related legislation in preparation for the upcoming Virginia General Assembly session, which starts Jan. 13.

By Sam Fowler
Capital News Service

Capital News Service is a program of Virginia Commonwealth University’s Robertson School of Media and Culture. Students in the program provide state government coverage for a variety of media outlets in Virginia.