Federal marijuana legalization and taxation could generate nearly $58 billion for the federal government over a 10-year period, rising to over $111 billion if every state legalized, according to a new analysis from Yale University’s Budget Lab.
The report, published August 17, estimates that legalizing marijuana federally for both medical and adult recreational use while imposing a tax of $0.00625 per milligram of THC would produce $57.9 billion in revenue over 10 years. If every state were also to legalize marijuana, estimated federal excise tax revenue would climb to $111.3 billion over the same period.
Under the model, the tax would be imposed based on THC content rather than the retail price of a product. The Budget Lab estimates the proposed rate would add about $1.31 in federal tax to a gram of marijuana. Using an average price of $8.59 per gram, that would amount to roughly a 15% increase in the tax-inclusive price.
Researchers modeled the tax as beginning January 1, 2027. Under the scenario in which federal legalization occurs but no additional states legalize marijuana, annual excise tax revenue is projected at $5.5 billion in 2027, rising to $6.7 billion by 2032. If all states legalize, revenue is projected to start at $10.5 billion in 2027 and reach $12.8 billion by 2032.
The Budget Lab estimates that the state-legal recreational marijuana market totaled approximately $25 billion in 2024. Without federal legalization or additional states entering the market, researchers project recreational sales could approach $40 billion annually by 2035. Medical marijuana is estimated to account for another $5 billion to $8 billion in annual sales during the period examined.
The analysis also notes that federal legalization could have tax effects extending beyond the proposed excise tax. Moving marijuana activity from the illicit market into licensed businesses could bring additional workers and business owners into the federal income and payroll tax systems. Those potential revenues were not included in the $57.9 billion estimate because researchers said there was not enough information to reliably model the transition.
Researchers emphasized that the estimates carry greater uncertainty than a typical tax projection, particularly because a substantial portion of marijuana activity remains outside the regulated market. The report cites industry estimates placing the combined legal and illicit U.S. marijuana market at approximately $100 billion, with roughly 75% remaining illicit. How much of that activity would shift into the legal market following federal legalization could have a significant impact on eventual tax collections.
More information on Yale’s analysis can be found by clicking here,
