Why Illinois, New Jersey Governors Badly Need To Legalize Cannabis This Year

The governors of Illinois and New Jersey may not be marijuana users — but they could sure use some.

Both Illinois Gov. J.B. Pritzker and New Jersey Gov. Phil Murphy need their state legislatures to legalize cannabis this year. Otherwise, they won't be able to pay their bills. 

Both Pritzker and Murphy are relying on revenue from licenses or taxes from legal cannabis to balance state budgets this fiscal year, a gamble that makes the two states immediately among the hottest battlegrounds in the ongoing move to legalize the drug in states around the country. 

Illinois and New Jersey have both had budget difficulties in recent years. Illinois is the poster child for financial problems and operated without a spending plan for a period of time during the last administration. With tax increases being a difficult sell and massive spending obligations that include huge pension liabilities, the two states, which rank No. 49 and No. 50 in credit ratings in the U.S., are desperately looking for dollars in the couch cushions to plug budget holes. 

Enter cannabis.

Money Already Spent

Neither governor will be wading into the cannabis debate from a neutral position: the projected revenue is essentially already spent. 

Murphy’s proposed budget estimates the Garden State will collect $60 million in marijuana tax revenue for the 2020 fiscal year. 

Pritzker’s $39-billion budget relies on selling cannabis business licenses at $100,000 each to bring in $170 million that's already earmarked in the governor's proposed budget for the upcoming year.

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Pritzker has said that recreational marijuana could eventually bring in $1 billion in additional tax revenue.

“By legalizing and regulating adult-use cannabis in this legislative session, we will create jobs and bring in $170 million in licensing and other fees in fiscal year 2020,” Pritzker told lawmakers last month. “Let’s be honest, like it or not, cannabis is readily available right now. I would rather the state tax it and regulate it.”

Illinois is facing a $3.2-billion budget deficit that Pritzker, a Democrat, is trying to deal with in his first proposed spending plan since being elected in November.

New Jersey’s Murphy is picking up where he left off last year. Murphy, also a Democrat, is bringing more than money into the discussion He's said the war on drugs was racist, and that changing drug laws is a moral obligation in addition to a financial one. 

Uncertain Revenue Stream

New York Gov. Andrew Cuomo is backing legalization of cannabis and is also banking on the revenue, though New York, in better financial shape, isn't so desperate for new income to fill old budget holes.

In January, Cuomo proposed a 20-percent state tax on cannabis, a local county tax and collections of taxes throughout the production cycle. Revenue estimators in New York say cannabis could bring in about $300 million a year if it's legalized.

The income from cannabis, however, may disappoint lawmakers and governors. 

At least 10 states where marijuana is legal in some form tax its use. But it's not a major part of the state’s revenue picture in any of those, and it's difficult to project the revenue anyway, the Pew Charitable Trusts said in a look at “sin tax” revenue published last summer.

“The challenge of forecasting marijuana revenue has kept many states that have legalized it wary of making strong claims about revenue potential,” the report said. “A range of factors contribute to this challenge, the most frequently cited being that recreational marijuana markets remain in flux.”