Cato Institute Archives - Green Market Report

William SumnerWilliam SumnerJuly 24, 2018


The United States stands to gain hundreds of billions of dollars by ending the federal war on drugs. This is according to a new report released by the Cato Institute which found that the federal government could generate billions of dollars in savings and revenue by taxing and legalizing drugs across the board.

To come to this conclusion, the report author first estimated how much local, state, and federal authorities spend annually on drug enforcement. State and local government spend approximately $29 billion on drug enforcement annually, while the federal government spends approximately $18 billion; representing a total of $47 billion.

The author then estimated the amount of potential tax revenue that could be generated if the government legalized drugs. According to the report, state and local governments would reap $19 billion while the federal government would net approximately $39 billion; which totals to $58 billion.

When combined with the savings from ending drug enforcement, the U.S. would generate approximately $106.7 billion annually. Although the political will to legalize all drugs in the U.S. is virtually non-existent, this report does have some interesting implications for cannabis legalization.

According to the report, state and local government spend approximately $6.04 billion every year on cannabis prohibition. The federal government spends a little more than half of that figure, or $3.96 billion. In total, local, state, and federal authorities spend a combined $10 billion on cannabis prohibition alone.

If the U.S. legalized cannabis, the federal government could generate an additional $8 billion, while states would take in another $4 billion. When combined with the savings from ending prohibition, cannabis legalization could save/generate the government approximately $22 billion annually.

However, there is a caveat to that figure. Further down in the Cato report, the author found that states with legalized cannabis saw little reduction in law enforcement expenditures; despite the fact that there were fewer arrests. One possible explanation put forward is that the resources dedicated to cannabis enforcement were simply shifted elsewhere.

Regardless, even when you disregard the savings in law enforcement, the government still stands to gain an additional $14 billion in tax revenue if cannabis is legalized. Lawmakers may continue to ignore public opinion or the humanitarian crisis created by the war on cannabis, but one thing they won’t ignore is money, and legalizing cannabis makes a lot of dollars and sense.


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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