How GOP Tax Reform Could Cause More States to Legalize Cannabis

CNBC has posted a critically important piece about a potential long term benefit of GOP-driven tax reform package which is making its way to the president's desk.

In the new tax code, SALT (State And Local Tax) deductions are being eliminated. New York and New Jersey residents, for example, will see their taxes rise 7-8%.

In response:

"Some people will move to states with low income taxes like Texas or Florida... Some people will spend less money, hurting local businesses and reducing sales tax revenue. Towns and cities with high property taxes will quickly face another round of property tax revolts, driving down local revenue collection for schools and other services. And every form of municipal, county and state government will feel the pain."

In order to recoup the lost revenues while not increasing taxes again, states need new sources. The spread of legal gambling illustrates a potential new driver for cannabis:

"One state, looking for new revenue without wanting to pass unpopular tax increases, authorizes licenses for riverboat casinos or poker rooms or tracks with slot machines.The state next door sees its residents cross the border to gamble and they inevitably say to themselves, "Why are we losing all of this revenue to Indiana/ New Jersey/ Arizona?" Then they authorize their own casinos to try to recapture the revenue...

"The elimination of SALT is going to do the same thing for recreational drugs. Phil Murphy, New Jersey's governor-elect, has already pledged to pass legalization of recreational marijuana... Once cannabis becomes legal in New Jersey... New Yorkers are going to start flooding into dispensaries in Hoboken and Jersey City to buy weed without having to take any risk. Eventually, that would be enough to get New York to legalize recreational marijuana..."

"That same process will repeat itself in Illinois, Maryland, most of New England, Wisconsin, Minnesota, Delaware, and plenty of other states (eventually Pennsylvania, Virginia, even Ohio)".

Ruth Epstein, Partner at professional cannabis consultancy BGP Advisors, concurs: "This CNBC piece very effectively describes how blue states could find a way to use recreational cannabis to raise revenues to alleviate the pain caused by the curtailment of state and local tax deductions that will dramatically impact states like New York and New Jersey. It’s a great example of the Law of Unintended Consequences. Although the new tax bill is bad legislation, perhaps it will end up creating some good things, including the end of the failed prohibition policies."

As the number of legal states grows past 60% and higher, and the end of the black market valued at $50 Billion annually comes into view, can the end of Federal Cannabis Prohibition be far behind?