Legal recreational marijuana could bring $41 million in tax revenue to Pennsylvania in its first year, fiscal report finds

Legal recreational marijuana in Pennsylvania could net up to $41 million in tax revenue in its first full year of sales if implemented as proposed in Gov. Josh Shapiro’s budget plan, a newly released analysis found.

And as Pennsylvania’s recreational marijuana market gets up and running, that figure could increase to an estimated $271 million by fiscal year 2028-29, according to the state’s Independent Fiscal Office. The group last week released an analysis of Shapiro’s budget, which calls for a 20% wholesale tax on recreational marijuana.

Shapiro’s estimates were more conservative, with a projected $14.8 million in tax revenue coming from recreational cannabis in the first year. That figure was projected to grow to about $250 million once the market is “up and running,” the governor’s office said in a February statement.

The fiscal office’s estimates were higher because analysts assumed that revenues would ramp up more quickly in the initial years after legalization, a representative said.

But, the analysis indicated, that estimate likely would have been higher had Pennsylvania legalized recreational marijuana earlier. All of the commonwealth’s neighboring states — save for West Virginia — have legalized marijuana for adult use, while Pennsylvania currently only allows medical marijuana, which requires certification from a doctor to utilize.

“Because nearly all border states already tax recreational cannabis, the estimate is not increased for cross border sales that may have occurred in other states that were first to tax recreational marijuana in a region,” the office wrote.

New Jersey, for example, began adult-use marijuana sales in 2022. Cannabis leaders in the state expect it will surpass $1 billion in marijuana sales this year.

The fiscal office found that legal recreational marijuana “should have minimal impact” on Pennsylvania’s medical cannabis market, because medical marijuana is exempt from sales tax and has a much lower, 5% excise tax.

Shapiro’s budget proposes a number of uses for tax revenue from legal cannabis, including a $5 million investment in restorative justice initiatives, $2 million to state police for legal enforcement, and $500,000 for program administrative costs. Remaining revenue would go into the state’s general fund.

Legalizing recreational marijuana in Pennsylvania has long seemed unlikely. Legalization has been a Democratic priority, but Republicans control the state Senate and have historically opposed the move. But after Shapiro unveiled his proposed budget in February, Republican leaders acknowledged how much revenue the state could be missing by keeping adult-use cannabis illegal, and suggested they may be willing to consider the proposal as the state’s spending is projected to exceed revenue in the next fiscal year.

“We also need to understand where the governor is coming from,” Senate Majority Leader Joe Pittman (R., Indiana) told The Inquirer after Shapiro’s budget address.

Bills from the state House and Senate offer different views of what a legal market could look like in Pennsylvania. The House bill proposes state-run cannabis shops established by the Pennsylvania Liquor Control Board, while the Senate bill uses the state’s existing medical marijuana market as the starting point for recreational sales, Spotlight PA reports.