Marijuana legalization could bring state $460M, study finds

Opposed say benefits erased by costs

Recreational marijuana products are displayed at the Good Leaf Dispensary on the reservation that Mohawks call Akwesasne in St. Regis, N.Y., in this March 14, 2022 file photo. (AP/Seth Wenig)
Recreational marijuana products are displayed at the Good Leaf Dispensary on the reservation that Mohawks call Akwesasne in St. Regis, N.Y., in this March 14, 2022 file photo. (AP/Seth Wenig)

Marijuana legalization could bring $460 million to the state's budget, according to a new study, but opponents said new revenue doesn't overcome increased costs.

Voters will get a chance in November to weigh in on a constitutional amendment that if approved would legalize recreational cannabis in Arkansas. Sales of marijuana would be limited to those 21 or older.

The Arkansas Economic Development Institute, which studied the economics of legalizing recreational cannabis, said new revenues from legal marijuana would total $460 million over five years. Legalization would bring $210 million to the state's general revenue funds, create around 6,400 new jobs and increase Arkansas' gross domestic product by $2.36 billion over five years, according to the study.

"[We're] very direct in our aim [of] bringing forth an expanded responsible and well-regulated industry that supports law enforcement, cancer research, job creation and most importantly economic development," said Eddie Armstrong, chair of Responsible Growth Arkansas, a pro-marijuana legalization group.

To come to the study's conclusion, economists used data from the state's medical cannabis industry and used a model from Regional Economic Modeling Inc. to simulate what effect legal recreational marijuana would have on the state's economy. Researchers also used data from other states such as Colorado, California and Washington that have legalized recreational marijuana.

Michael Pakko, chief economist and state economic forecaster at the Arkansas Economic Development Institute, said he adjusted the model he used to account for the difference in Arkansas' population and income. Carlos Silva, also an economist at AEDI, co-wrote the study.

Pakko said making projections for how large the marijuana industry is in Arkansas was difficult given the drug is illegal.

"One of the challenging things about this whole topic is we're looking at a brand new industry, but one if you think about it already exists. It just exists in the underground black market economy, unmeasured and untaxed," Pakko said.

Luke Niforatos, executive vice president of Smart Approaches to Marijuana, a group opposed to legalized cannabis, said voters shouldn't believe "pie in the sky" numbers.

"Obviously they are going to promise the world because they want people to legalize it," Niforatos said.

Niforatos said while states receive new revenues from taxes on marijuana, the costs of legalization outweigh any financial benefit. Niforatos said legalization means a new regulatory regime to oversee cannabis, increased car accidents from impaired drivers and hospital visits from adults and children who accidentally ingest the drug.

"We should never have a discussion of revenues without a discussion of costs," Niforatos said. "Before any decision is made, voters should have an idea of what the cost is to the state."

One benefit and cost is the effect legalization would have on cancer research in Arkansas. A portion of revenues from sales of medical cannabis goes toward funding cancer research. While recreational marijuana also could bring in funding for cancer research, whether the overall dollars for it increase or decrease is unclear.

Responsible Growth Arkansas estimates the amendment would bring in $30 million for cancer research, but that could be offset by decreased revenues from medical cannabis sales.

Armstrong said whether cancer research funding for the University of Arkansas for Medical Sciences would increase or decrease if recreational marijuana is legalized is "speculative."

"The big benefit for cancer research and for UAMS is the fact they could extract potential revenues from general revenue," Armstrong said. "And that will be left up to our legislative leaders and our government officials."

If approved, the amendment would allow the state to issue cultivation and dispensary licenses for adult-use cannabis to businesses that already have similar licenses for medical marijuana. If approved, the state could issue an additional 40 licenses to other businesses through a lottery.

Medicinal marijuana became legal in Arkansas after voters approved an amendment to the state's constitution in 2016.

Researchers from the study estimate the state's sales tax would bring in $160 million over five years. County and municipal governments also will receive sales tax revenues from recreational marijuana totaling $92.6 million.

If passed, the amendment would allow for a 10% supplemental sales tax on recreational marijuana that would bring in about $303.6 million, according to Responsible Growth Arkansas.

Some of those sales will come from visitors to Arkansas who will either travel from neighboring states to purchase cannabis products or tourists from farther away who may become marijuana customers during their vacation to the Natural State.

Pakko said his modeling shows marijuana tourism could benefit Arkansas' economy.

"As the only state in the South with legal adult-use cannabis, we might expect a boost to the tourism industry, adding value via money spent on cannabis, in addition to typical tourist spending," according to an executive summary of the report.

Niforatos, who lives in Colorado, which legalized recreational cannabis in 2012, said marijuana tourism can be an annoyance for some locals.

"We are all sick of pot tourism in Colorado," Niforatos said. "It's not the desirable type of tourism you want to have in Arkansas."

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