Legal Weed in the Free State
Legal Weed in the Free State
A glance at the economics of legalized cannabis use in Maryland
This post is specifically about legalized adult-use cannabis in Maryland, our home state, but the info on costs/benefits is probably relevant to most states.
Marylanders passed a constitutional amendment that legalizes adult-use recreational cannabis1, but—and this is important–it doesn’t take effect until July first, so hold off on lighting up in celebration (unless you have a medical cannabis license, in which case, enjoy!).
So on July first, you’ll be able to possess, smoke (or otherwise consume), and grow cannabis, but you probably won’t be able to buy it at a dispensary for a long time. How long? No idea. Maine took about 4 years to get from legalization to its first dispensary opening. Arizona took about 3 months (by letting medical dispensaries begin adult-use sales). According to this NJ Monitor article, the average lag is about 16 months, which would put Maryland’s first recreational dispensary opening in January 2025.
It took about three years (2014-2017) for Maryland to get from legalizing medical cannabis to opening the first dispensary, but I’m guessing (or maybe just hoping) there will be less of a lag this time around. The fact that we already have regulations in place for medical growers, processors, and dispensers (and those have established in-state operations) should help, and we might not see as much pushback as some other states that had lengthy delays.
But it’s hard to overstate how contentious and controversial the process of awarding cannabis-related licenses is. Seriously, the last seat in the last lifeboat off the Titanic was probably easier to get than a license to grow, process, or dispense in Maryland (or most other states).
If I had to guess, the first adult-use dispensary in Maryland will open in 2025, but we won’t know for sure until our legislators hash out the details.
Importantly, Maryland’s policy automatically expunges any prior convictions for cannabis possession, provided it was the only charge in the case, and anyone incarcerated for possession will be able to petition for resentencing. This is good, and Marylanders should feel good about it.
Some Notes on Maryland’s Medical Cannabis Industry
At the start of November 2022, 160,781 Marylanders had access to medical marijuana, or roughly 1 in 25 residents over the age of 21, according to the Maryland Medical Cannabis Commission. Those patients spent more than $38 million at dispensaries in October, and the average (not median) patient spends about $250-$300 each month, or around $3,300 per year. Either the state’s patients are buying product for non-patients, or I severely misunderstand how much cannabis a normal person can consume in a month.
Sales are also falling. The MMCC only has data for 2021 and 2022, but sales peaked in March 2021 at $48.1 million and have fallen pretty steadily since then. I don’t know why; my best guess is that March 2021 was when pandemic restrictions began to fade out, and if you’re stuck at home, getting high is a pretty good way to pass the time.
For some reason, the most medical cannabis (by dollar value) was sold in March each of the past two years. I have no idea why that is.
By weight, the most flower (i.e., the form of cannabis you smoke) is sold in April. I have a very good idea why that is.
Finally, edibles (gummies, brownies, etc.) are gaining market share. In December 2021, edibles were 4.2% of all dispensary sales. In October 2022, 9.5%. This makes sense, especially for medicinal purposes. Edibles have exact doses, and if you could either smoke or swallow any other medicine, well, a doctor wouldn’t prescribe a bong rip of penicillin twice a day for a week.
Economic Impacts
Maryland’s Department of Legislative Service’s Fiscal and Policy Note projects that implementing this cannabis legalization policy will have a net cost of $59 million in FY 2023, $8 million in FY 2024, and $9 million in both FY 2025 and FY 2026. These costs are related to special funds, like a Cannabis Business Assistance fund ($40m) and a Cannabis Public Health fund ($5m), as well as costs associated with expunging cannabis-related convictions. Importantly, the Fiscal and Policy Note doesn’t take into account augmented revenues from adult-use sales because, as mentioned above, that framework doesn’t exist yet.
I think implementation costs will seem pretty insignificant once dispensaries are up and running. According to the Urban Institute, per capita excise taxes from adult-use cannabis ranged from $13 in Maine to $67 in Washington in FY 2022. In Maryland, that would mean somewhere in the range of $80-$415 million in tax revenues each year based on our current population.
Will There Be Huge Tourism Impacts?
Probably not, at least in the long run.
While 21 states and D.C. have legalized adult-use, only 11 states have regulated recreational dispensaries (as of March 2021, anyway). Virginia, Maryland’s bitter rival, legalized adult-use marijuana but still won’t let you sell it, and their efforts to get adult-use dispensaries up and running seem to be stuck in legislative purgatory. It looks like the earliest they’ll have dispensaries is 2024 or 2025.
D.C. is in the same situation—adult-use is legalized but selling it isn’t—but they have a workaround that is beyond absurd, perfectly on brand for D.C., and somehow feels more illegal than buying illegal marijuana did. In short, you can’t sell cannabis products in D.C., but you can gift them, so you buy a $60 dollar piece of digital artwork and, what a surprise, it comes with an eighth of an ounce of marijuana as a free gift (apparently D.C is cracking down on this loophole).
If Maryland, in the most optimistic (and frankly unrealistic) of scenarios, allows their medical dispensaries to start selling to all adults on July first, or even at any point in 2023 or 2024, I think the state will see a decently large influx of out-of-state buyers. Some of those out-of-staters will get hotel rooms and make a trip out of their marijuana-tourism. Others will probably drive here, buy their weed, and drive home.
Either way, those out-of-staters would be spending at Maryland-based businesses, supporting jobs for Marylanders, and buying a product that is heavily taxed, so there are economic and fiscal impacts to be had if we beat other states to market.
I don’t really expect Maryland to have dispensaries up and running before Virginia, but who knows? Maybe our legislators will surprise us. Even if we do beat our neighbors to market, a large share of tourism-related impacts would only last until our surrounding states get it together.
Car Crashes Up, and That’s Expensive
I would have guessed that legalization didn’t lead to more car crashes due to a substitution effect with alcohol (more on that below). It looks like that guess would have been wrong.
An IIHS study found that “the combined effect of legalization and retail sales was a 5.8% increase in injury crash rates and a 4.1% increase in fatal crash rates,” and they have a handful of other studies that generally show crashes increasing following adult-use legalization. Causation here is tricky. Some states (like Oregon) saw a drop in collision rates relative to neighboring states that didn’t legalize adult-use. There’s definitely more research to be done here.
But let’s assume legalization of adult-use leads to a modest increase in car crashes and fatalities. That’s obviously horrible in its own right, but it’s also expensive. According to the U.S. DOT, car crashes cost Maryland’s economy $4.476 billion in 2018. If crash rates go up 5.8% in Maryland and costs increase proportionately, the annual cost would rise to $4.736 billion, an increase of about $260 million (or $311 million after adjusting for inflation). About 20 more Marylanders would die each year from accidents.
That’s probably a high-end estimate of the costs. I did a quick survey of the academic literature on this, and: 1) if you’re really high, you’re more likely to crash your car (pretty obvious); 2) there’s a correlation between legalization and car crashes; and 3) more research needs to be done to establish causality.
As a quick aside, this pales in comparison to how covid increased traffic fatality rates. In 2019, 10.99/100,000 Americans died in car crashes. In 2021, the rate increased to 12.89. Because of the jarring effects of the pandemic on traffic fatalities, it’ll be difficult to see how adult-use legalization affects car crashes.
Anyway, I think the likely outcome of adult-use legalization is that a few more Marylanders die in traffic fatalities and there’s a pretty sizable cost due to more car crashes.
Unclear Impact on Alcohol Consumption
I also would have guessed that retail sales of adult-use cannabis correlated with decreased alcohol consumption, but it’s not clear that’s the case. For instance, alcohol purchases fell pretty sharply in Oregon and Colorado post-legalization but increased in Washington. Other research is murky at best.
So we don’t know if legalizing cannabis will have any effect on drinking in Maryland. If it does, though, that would have huge benefits to the state, economic and otherwise. According to the CDC, 140,000 Americans die from excessive alcohol use in the U.S. each year, or about 380 each day. For context, about 45,000 are killed by firearms each year, 40,000 by car crashes, and 70,000 from opioids.
According to this research, the perpetrator of a violent crime has been drinking in about 25% of instances. There’s a wide range of estimates, but that rate is even higher (34%-74%) for sexual assaults. I could keep going on about the disastrous impacts of alcohol, but that’s not what this post is about.
(To be clear, I’m in no way a proponent of prohibition.)
Suffice it to say that any decrease in drinking that arises from legalization of adult-use cannabis would have a ton of benefits, but it’s unclear if that will happen.
Reduced Opioid-Related Deaths
The opioid epidemic is a huge and growing problem, and to the extent adult-use legalization reduces opioid-related deaths, that’s obviously good. Good news here: there’s actually evidence that adult-use legalization reduces opioid use.
Opioid-related deaths in Colorado fell by more than 6% in the two years following cannabis legalization, and research found that the more medical and recreational dispensaries in an area, the fewer opioid-related deaths (after controlling for other demographic factors), with a particularly sharp reduction in deaths caused by synthetic opioids like fentanyl.
As of 2017, the CDC estimated that opioid-related deaths cost Maryland about $23 million per year, and opioid-related deaths in the state increased 25% from 2017 to 2020. The CDC estimated the per capita cost of the opioid-epidemic in Maryland was nearly $5,000 in 2017.
The opioid-epidemic has changed quite a bit over the past 5 years, and not for the better, so it’s unclear what kind of a reduction in opioid-use Maryland would see from cannabis legalization. Still, it looks like cannabis legalization will reduce opioid-use to some extent, and that will have huge economic, fiscal, and human benefits.
Criminal Justice Impacts
Full disclosure: I’m a little surprised at how little I could find on the economic benefits of expunging cannabis possession convictions, or really anything related to the costs, which drives home the point that incarceration is an out-of-sight, out-of-mind problem. Maybe I needed to dig deeper. Anyway, here’s what I did find:
As of 2015, Maryland spent about $1.1 billion on prisons, or $44,601 per inmate. For context, that’s more than the state government spent on natural resources and recreation, housing and community development, environment, agriculture, and business and economic development combined in FY 2015.
This study found that “for every dollar in corrections costs, incarceration generates an additional ten dollars in social costs.” The majority of those costs come from the reduction in lifetime earnings of incarcerated people. Some back-of-the-envelope modeling with these figures (and adjusting the 2015 figure for inflation) gives us annual savings on corrections spending of about $57,000 and reduced social costs of $570,000 per person who isn’t incarcerated because of legalization.
(This is extremely slapdash modeling that’s meant to be broadly illustrative. Please don’t quote me on it).
Based on the rough modeling here, if 500 fewer people are incarcerated because of legalization, that would completely countervail the economic costs of increased car crashes. Again, take that with a grain of salt (or a pinch of a concentrated THC).
The upshot: it’s unclear exactly how much Maryland’s economy will benefit from the criminal justice side of expunging cannabis-related convictions and reducing arrests, but probably a lot.
Wrapping (or Rolling) This Up
A few final thoughts:
The economic and fiscal implications here are pretty complicated, with lots of second order and poorly understood effects (it’s been almost exactly ten years since adult-use legalization kicked off in Colorado, and there’s limits to what you can learn in a decade).
There are lots of factors I didn’t touch on, like the health effects of cannabis use, some of which are positive (like potential benefits for anxiety disorders), others of which are obviously negative.
I don’t mention the utility gained (or lost) by people whose lives will be made better (or worse) by cannabis, though I’m guessing that will be a net plus for Marylanders. I’m willing to admit I could be wrong (like my guesses in this post re: car crashes and a substitution effect with alcohol).
I also don’t really touch on the direct economic impacts. The medical cannabis industry employs a lot of Marylanders, and the recreational industry will employ even more.
Destroying black markets is good and has a lot of positive externalities that I don’t really mention. Unfortunately, there’s some evidence that legalizing cannabis doesn’t really end the illegal sale of it.
This post was the result of a reader’s request. If you have other topics you want us to look at, just let us know.
Looking Ahead
Thanksgiving is tomorrow, so we’ll have Week in Review (by Anirban) out later today. That’s just for paying subscribers. If that’s not you and you want it to be, just click the button below!