A cost-benefit analysis of the impact of a proposed cannabis legalization measure in Ohio has determined that legalization would generate a net economic benefit of $260 million per year. Ohio voters go to the polls next week to decide on Issue 2, which would legalize marijuana for adults 21 and over and set the stage for a regulated cannabis industry.
In a study released last week, Columbus-based Scioto Analysis attempted to quantify the net economic impact of Issue 2 if it prevails at the polls. To complete the analysis, researchers used studies from Colorado and Washington, two states with mature regulated cannabis markets, in conjunction with economic and census data and crime statistics to estimate the costs and benefits of legalization. Taken together, the data showed an estimated net economic benefit of $260 million per year.
One of the biggest economic impacts would come from the approximately $190 million in additional tax revenue the state would receive from cannabis taxes. The study notes that this figure, however, does not represent the total social benefits recognized from legalization.
“Tax revenue on its own is not a social benefit, but rather a transfer from taxpayers to the public sector that is then used to pay for goods and services purchased by the government,” it says. “Thus, benefits are only generated when goods and services purchased by governments have positive spillovers.”
Researchers explained that the economic benefit is even greater than the taxes raised, however, because of the way the money is spent. Of the tax revenue raised by Issue 2, 36% is directed to the Cannabis Social Equity and Jobs Fund and 25% is reserved for the Substance Abuse Addiction Fund. Using data from other states with similar funds, the report estimated that the Ohio equity and jobs fund would create $5.76 in benefits for every dollar spent and the substance abuse fund would create $9.19 per dollar.
“The key reason benefits are likely to outweigh costs when it comes to marijuana legalization is how the tax dollars raised are going to be used,” policy analyst Michael Hartnett, said about the study. “The programs outlined in the ballot initiative have historically been very efficient ways to use public dollars, and will likely generate a lot of value for Ohioans.”
Legalization Would Create Thousands of Jobs
The analysis also factored in the new jobs that would be created by the regulated cannabis industry once legalization takes effect.
“Our models predict that Ohio will add roughly 3,300 new jobs in the first year after legalization,” the report notes, as cited by the Ohio Capital Journal. “Assuming these jobs are full time and pay matches the average wage across the state of Ohio, this will amount to about $190 million in wage benefits for workers across the state. Since these jobs are likely to include part-time work and may be lower than the average wage across the state, this may represent an upper bound on the value of employment generated by legalization.”
The state would also have the added economic benefit of fewer arrests for cannabis-related offenses and the resulting court and incarceration costs needed with prohibition.
“One study on arrest rates in Washington found that marijuana arrests fell by 87% for adults aged 21+ and by 46% for adults aged 18-21 after legalization of the sale and purchase of cannabis for recreational purposes,” the study said. “This confirms that for the population that would be allowed to legally use cannabis recreationally, arrests almost completely disappear, but the effect is smaller for the population where it would still be illegal to use cannabis.”
“Using data from the FBI’s Uniform Crime Report on the number of cannabis-related arrests in Ohio, we estimate that there would be about 4,400 fewer arrests per year if recreational cannabis were legalized,” the study continued. “Adding up the cost of those arrests, and assuming that 6% of those people would have been convicted of felonies, this amounts to over $38 million in savings for Ohio.”
The study subtracted the negative economic impacts of legalization to arrive at its estimate of net benefits. One of the greatest costs incurred is a loss of productivity in some industries that was documented in other states after legalization.
“One study from 2017 found that across four industries (mining; construction; arts, entertainment, and recreation; and accommodations and food Service) average productivity per worker fell by just over 1% in states that legalized recreational cannabis,” the report said. “Monetized, this equates to roughly $900 of lost productivity per worker for Ohio.”
Using federal employment data, the report said, “we estimate that legalizing recreational cannabis will cost workers across the state about $760 million in lost productivity in the first year of legalization.”
The study also identified negative implications on public safety caused by legalization including an increase in arrests for intoxicated driving. The study estimated that legalization would lead to an additional 1,700 intoxicated-driving arrests each year in Ohio, costing about $130 million.
But overall, the report estimated that legalization would result in a $260 million net benefit for the state.