Marijuana has only been illegal for about 1% of its entire history. Unfortunately, it comprises the last 100 years or so and the American Government, along with many others around the world, continues to resist calls to remove cannabis from the list of controlled substances under the 1970 act.
Why does the U.S. Government insist on keeping weed legal? Politicians pretend that there is a moral issue at play. This is hard to believe when successive governments allow easy access to firearms capable of firing hundreds of rounds a minute, deadly opioids, tobacco, and alcohol. As you probably know, the real reason for ensuring cannabis remains illegal is ‘dirty cash’. While predictable, it is not a straightforward situation as we explain below.
Section 280E Makes $500 Million a Year
Section 280E is a portion of the American Tax Code and was introduced in the 1980s. It was designed to close a loophole that enabled narcotics sellers to make claims related to their illegal businesses on their tax returns. Examples included travel costs and scales! Marijuana was affected by 280E because it is a Schedule I drug. As a result, marijuana businesses can’t write off business expenses, even in states where weed is legal.
As a consequence, the IRS saves an estimated $500 million a year on those tax write-offs. According to one dispensary owner in Colorado, it is frustrating to learn that weed sellers are being treated like common drug dealers. He pointed out that the industry brought over $500 million in revenue to his state; the money was used to build schools among other things. Section 280E is effectively a ‘double tax.’
Is it probable that the Federal Government makes more money than we think from 280E? According to Matt Karnes of GreenWave Advisors, the government earned $8 billion from state-legal weed businesses between 2012 and 2017.
Aren’t the Government Losing Money?
One of the most puzzling aspects of the entire circus is the fact that the government is actually losing money; at least on the surface. According to an economist named Jeffrey Miron of Harvard University, the continued prohibition on weed costs state and federal government as much as $20 billion a year. That’s anywhere between 15 and 40 times the amount saved because of Section 280E.
This figure was reached back in 2010 when Miron found that almost $9 billion would be generated from weed tax along with another $9 billion or so saved on law enforcement. There are thousands of misdemeanor marijuana possession cases pending in states where the plant is still illegal. Court proceedings cost states millions of dollars a year. In 2011, there was a marijuana-related arrest every 42 seconds and most ‘crimes’ were little more than possession of a small amount of weed.
So, there seems to be no sensible financial reason to ban weed, right? Wrong! The Government does make money, and more pertinently, individual politicians also appear to profit handsomely from their opposition to marijuana. It begins to make a lot of sense when you consider the industries that would be negatively affected by the legalization of cannabis.
You won’t be shocked to learn that two of the most fearful words in the English lexicon is involved. Pharmaceutical companies routinely pump big money into lobbying against weed. During the vote to legalize weed in Arizona, Proposition 205, Insys Therapeutics donated $500,000 to the anti-legalization cause. Insys manufactures a drug called Subsys which is up to 100 times more powerful than morphine. Legalizing weed would hurt product sales and cost the company tens of millions of dollars.
Data from research shows their fears are founded. In states where weed is legal for medicinal use, opiate overdoses have fallen by 25% compared to states where cannabis is illegal. GOOD news for Americans, BAD news for Big Pharma as it also means sales are down. Research also shows that Medicare would save almost $500 million a year if weed were legal on a federal level. Once again, it is the pharmaceutical companies that would be hit in the pocket.
Drug manufacturers always donate big in elections. In the 2012 elections, for example, they gave almost $22 million to various federal candidates and committees. The sad truth is, too many of the nation’s representatives parrot anti-marijuana rhetoric based on dubious science, half-truths and outright lies. While the Federal Government’s coffers may not be boosted by Big Pharma to any great degree, it seems as if several officials profit handsomely.
Alcohol & Tobacco
These two ‘legal’ drugs would face unwanted opposition if weed were made legal. Oddly enough, preliminary data from Colorado, where weed is legal for recreational use, showed that alcohol sales increased in the immediate aftermath of legalization. As a result, the alcohol industry in Nevada actually backed legalization while the industry in Massachusetts and Arizona fought against it.
Since 2009, the Beer, Wine, and Liquor industry have spent almost $20 million a year on lobbying efforts; the majority of which related to alcohol regulations and taxes.
Law Enforcement & Private Prisons
Police forces around the country have benefitted from federal funding in the war on drugs. Law enforcement agencies collected almost $1 billion from weed arrests between 2002 and 2012. Federal grant programs such as the Byrne grants, provide further financial assistance to the police in their drug enforcement efforts. The Byrne grants provide over $2.4 billion a year for example.
The private prison system would also suffer a huge financial hit if weed were legalized. They make their money from ensuring their jails are full. A significant percentage of their inmates are imprisoned for minor weed crimes. GEO is one of the most successful private prison groups in the United States. In its 2012 annual report, the firm announced an occupancy rate of almost 96%. GEO alone spends around $600,000 a year lobbying against the legalization of cannabis.
Final Thoughts on The Federal Government, Weed Legalization & Profit
If you made the mistake of seeing things in a ‘black and white’ manner, it would seem as if the Federal Government loses money by ensuring marijuana remains illegal. “They are looking after our best interests!” you exclaim. However, the entire situation is nuanced in the extreme. Sure, the government possibly loses up to $20 billion a year and only regains 5-10% of it due to Section 280E, but there is a lot more to the situation than meets the eye.
Marijuana legalization would impact several industries such as alcohol, tobacco, private prisons, and Big Pharma. As a result, they lobby the government to keep cannabis in its place. Lobbying has been described as the process of ‘buying government,’ and it is now part and parcel of the American political spectrum. By 2011, there were almost 13,000 Political Action Committees (PACS), and they spent $3.5 billion on lobbying that year.
The real answer to the title question is: ‘We don’t know.’ While the IRS saves some money, the Federal Government loses much more in potential weed taxation. However, the sheer amount of money ‘donated’ to political causes is impossible to calculate since some of it is not recorded. While money from legal marijuana taxation could help the country in so many ways, the money from lobbyists does not find such a worthy home.