Reconsidering Cannabis ‘Teaspoon’ Of Tax Revenue

Executives and policy experts are debating whether states and countries desperate for tax revenue as a result of the coronavirus will rush to legalize cannabis, or whether it will take a back seat to more pressing public-health and economic issues.

“I think the issue is when you’ve got an enormous hole to fill — and every state will have just a colossal budget deficit — then filling it with a teaspoon of cannabis tax revenue doesn’t really feel like the most productive thing you can do,” said Roy Bingham, chief executive officer of pot data firm BDS Analytics.

However, “every state’s going to need every single dollar they can get,” said Matt Hawkins, founder and managing partner of private equity firm Entourage Effect Capital LLC. “As a result, once we get on the other side of this, you’re going to start seeing a little bit more willingness to discuss, if not pure federal legalization, then quasi-legalization.”

Boris Jordan, executive chairman of Curaleaf Holdings Inc., said he sees “an extreme parallel” between the current crisis and the lifting of Prohibition during the Great Depression.

“Prohibition was lifted and alcohol sales were taxed because the federal government and the local governments needed the revenue,” Jordan said. “We expect over the next 12 to 18 months that significant changes in regulation will bring cannabis into the mainstream in the U.S. as an industry.”

For now, the industry is running up against the same constraints it’s always faced because of its federal illegality. While most states with legal recreational cannabis have declared it an essential service, allowing dispensaries to remain open, companies haven’t been able to access the federal relief loans available to other small businesses during the Covid-19 crisis.

This prompted two Democrats to introduce the Emergency Cannabis Small Business Health and Safety Act in the House on Thursday. But it’s unlikely that will make it through the Republican-controlled Senate, and Height Capital Markets analyst Edwin Groshans said there’s less than 25% odds that any cannabis legislation will be enacted into law this year.

At the state level, New Jersey, Mississippi and South Dakota have already committed to including legalization votes on the November ballot and Arizona is likely to follow suit. However, other states including New York have put legalization efforts on hold because of the pandemic.

“These governors are getting a lot of positive attention given the way they’re handling the crisis but I think that they face very difficult times once they come out of this,” Jordan said. “The financial aspects, the economic aspects are going to hit them very hard and I think they’re going to move very quickly to see where they can generate revenue.”