Legalizing marijuana in Vermont could mean millions in tax revenue for the state, study says

Vermont could reap hundreds of millions of dollars in tax revenue if it were to legalize marijuana, but only if other nearby states don't also jump on the bandwagon, according to a study released Friday.

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The study comes as states across the country increasingly explore the potential budget boost from taxing an underground industry, even while the nascent legal pot business in Colorado and Washington experiences some growing pains.

In Vermont, the Rand Corporation found that revenues from marijuana consumers could, in theory, generate between $20 million and $75 million a year for the state.

The larger figure could be reached through what the report calls "marijuana tourism and illicit exports." It also found that nearly 40 times as many current marijuana consumers live within 200 miles of Vermont than live in the state.

The preface to the report, which does not make a recommendation about whether the state should legalize marijuana, says it is meant to "inform the debate." While it was prepared for Vermont, the report says its conclusions could be useful to other states considering marijuana legalization.

Such high revenues, however, are by no means assured.

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"If the federal government intervened to stop such cross-border traffic or if another state in the Northeast decided to legalize marijuana and set lower tax rates, these potential revenues might not materialize," the report said.

"Indeed, because legal marijuana can flow across borders in either direction, Vermont's prospects of deriving considerable tax revenue even from its own residents would become much less promising if one of its immediate neighbors were to legalize with low taxes," it said. "It is not clear that Vermont has any long-run comparative advantage in hosting the industry."

Vermont currently allows the use of medical marijuana and the possession of small amounts of marijuana has been decriminalized. Gov. Peter Shumlin has said he believes the state will follow Washington and Colorado in legalizing it, but he wants to see how it plays out in other states before easing Vermont laws.

The price of marijuana in Washington has plunged since the sky-high prices when post shops opened six months ago, and now growers complain the state is not properly regulating supply.

Regulators in Colorado have capped production to deter weed from spilling into nearby states, but that has meant more demand than supply. And health officials were criticized for an ad campaign to deter teen use that placed human-sized rat cages in downtown Denver.

Last spring the Vermont Legislature passed a law requiring Shumlin's administration to produce a report about the consequences of legalizing marijuana. The House Ways and Means Committee was scheduled to hear to testimony Friday on the taxation and regulation of marijuana after the report's release.

No proposals to legalize marijuana have been introduced in the Legislature.

The report provided few hard answers.

It said that many questions can't be answered in advance, such as whether easing marijuana laws would increase abuse and how to keep it from minors and out of other states.

"There is no recipe for marijuana legalization, nor are there working models of established fully legal marijuana markets," the report said in its closing remarks section. "It must be expected that any initial set of choices will need to be reconsidered in the light of experience, new knowledge, and changing conditions, including federal policy and the policies in neighboring states."