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First Mover States Saw Greatest Economic Benefits of Legalising Cannabis

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A new report from the Federal Reserve Bank of Kansas City has shown states that legalised cannabis early have seen the greatest economic benefits.

The report, ‘Economic Benefits and Social Costs of Legalizing Recreational Marijuana’, analysed the effects of legalising recreational cannabis on state economic and social outcomes from 2000 to 2020.

Some of the findings included in the report include moderate economic gains along with an average state income increase of 3%.

However, it also found that house prices by 6%, along with an increase in substance use disorders, chronic homelessness, and arrests increased.

The report states: “Although some of our estimates are noisy, our findings suggest that the economic benefits of legalisation are broadly distributed, while the social costs may be more concentrated among individuals who use marijuana heavily.

“States that legalised early experienced similar social costs but larger economic gains, implying a potential first-mover advantage.”

The findings saw that tax collections from cannabis increased, but that tax collections from alcohol and tobacco sales declined following cannabis legalisation.

The authors noted that there was not a significant effect on overall tax revenues or general sales tax revenues, however, housing prices increased more in states that have legalised recreational cannabis.

In particular, first moves states such as Colorado and Washington collected larger tax revenues and saw a significant increase in GDP, population, job creation, and house prices.

“While the potential economic benefits are generally acknowledged, more research is needed to quantify these effects,” state the authors. “At the same time, legalisation may also have economic and social costs. On the social side, legalisation may lead to an increase in the number of heavy marijuana users, an increase in self-reported dependence, and knock-on effects such as rising homelessness and crime.

“These social costs could potentially lead to economic costs as well, including lower labor force participation and worker productivity.”

To read the full report please visit: https://www.kansascityfed.org/research/research-working-papers/economic-benefits-and-social-costs-of-legalizing-recreational-marijuana/

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