Cannabis: the new green that's filling state coffers

This month, Colorado will deposit its one billionth dollar of tax revenue from cannabis— generated from an assortment of licenses, taxes, and fees. Seven years ago Colorado started a trend, voting to allow recreational cannabis use. Today one in five Americans live in a state with recreational cannabis and 47 states allow medical or recreational use. Similarly, a generation ago states allowed another previously prohibited business to exist: gambling. But the cannabis and gambling industries face very different banking laws, creating a new reefer madness.

In 1973 only three states allowed lotteries, by 1992, 33 states did and now, 44 states do.  State lottery revenue rose from $770 million in 1977 to $9 billion in 1992. Massachusetts raised $1 billion in public revenue from their lottery last year. Further expansion by states into casinos has grown from 2 to 24 states. This explosion filled state governments with cash, without having to raise taxes.

By and large this influx of cash did not present fundamental banking problems. Lottery revenue grew so quickly and became so predictable that states are able to issue bonds against future lottery revenue. Access to financial markets was made easier; banks worked directly with state governments and private companies in the lottery and gambling industries. The world of cannabis banking is different.

Author

Aaron Klein
Fellow - Economic Studies
Policy Director - Center on Regulation and MarketsAaronDKleinOnly one in thirty banks or credit unions report serving any cannabis businesses and estimates are that up to two-thirds of cannabis businesses remain unbanked. Banks and credit unions have struggled to engage with this new industry, concerned with federal regulations and regulators—particularly regarding anti-money laundering rules that consider cannabis highly suspicious.  The result is trucks filled with cash showing up in in Denver and other state and local capitals around the country, that require physical sorting, storing, and depositing of cash and attract violent crime.
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