Adult Use Cannabis: Savior of State Budgets?
The economic impact of COVID-19 presents an opportunity for further legalization of adult use cannabis. We’ve mapped out where this opportunity may be largest.
The full economic impact of the coronavirus lockdown will likely take years to assess, but there is already no doubt the costs will be high and the consequences painful for the foreseeable future. The toll on state budgets will be particularly acute given increased spending on coronavirus-related measures coupled with substantial depletion in tax revenue.
While all states will almost certainly suffer some degree of economic hardship, the impact is likely to be much more severe in those states already operating close to the fiscal brink.
Recently, MultiState put together an analysis identifying the states most likely to encounter serious budget issues as a result of the pandemic and accompanying response. That analysis categorized states at risk of short-term financial crunches into three tiers:
- Tier 1: Kentucky and Pennsylvania. These states were found to be at the highest degree of risk due to the lack of a sufficient rainy day fund, high unemployment rates, and still lacking a finalized budget for the 2020–21 fiscal year.
- Tier 2: Arkansas, Hawaii, Illinois, Louisiana, New Jersey, and New York.
- Tier 3: Massachusetts, Michigan, Montana, Rhode Island, Vermont, and Wisconsin.
As we have discussed previously, we believe one of the emerging trends in the second half of 2020 and beyond will be an increased openness by state governments to regulatory change, particularly where such change leads to increased tax revenue.
For states with particular exposure to financial shortfalls but currently illiberal cannabis laws, the cannabis industry will likely find itself in a much more favorable position to push for change than even during Q1 of this year.
To aid in determining where to focus lobbying and related policy efforts in the state-level cannabis space, we have prepared the map below to identify those states with likely near-term exposure to financial crises as well as restrictions on adult use of cannabis. We expect these to be among the states where the “legalization = revenue” argument will resonate loudest in the coming 6–12 months.
We also note that in addition to adult use restrictions, even medical cannabis remains illegal in Wisconsin, and Kentucky permits CBD oil only for medical purposes.
Certainly many factors will ultimately impact the future of cannabis (and budget issues) in these states, but we hope the above is a useful resource in planning forward-looking strategy and prioritization for those in the cannabis space. Runway Strategies is available to assist both in formulating multi-jurisdictional strategy as well as external engagement.
