Several U.S. states, such as Illinois and New Jersey, are facing an epic pension crisis and they hope that legalizing marijuana will avail badly needed funds to fix the crisis before it boils over.
For example, Chicago’s pension scheme alone will need a minimum of $1 billion to be injected each year into the retirement benefits scheme four years from today if the city is to meet its obligations to those who served and retired.
Consequently, Chicago Mayor Rahm Emanuel is suggesting that the taxes generated once cannabis becomes legal should be ring-fenced and sent to the pension scheme immediately.
The situation in New Jersey is no better. Debt repayment and pensions are expected to consume at least one third of the state’s budget by 2023. The legalization of recreational marijuana may help to bolster tax collections so that this risky situation is managed before it spirals out of hand.
New Jersey and Illinois still have a lot to do before cannabis can become available to the residents and bring revenue to the state coffers.
Of the two, New Jersey seems to be the closest to passing the necessary enabling legislation. Towards the end of November, committees in the state legislature passed some bills to put an end to cannabis prohibition.
One of the bills made it possible to wipe out some convictions and criminal records related to cannabis, such as those for misdemeanor possession.
However, the major sticking point that is yet to be agreed upon is the rate at which recreational marijuana will be taxed once it becomes available in the state. The Governor wants marijuana to have a 25 percent sales tax imposed on it while the proposed legislation puts it at 14 percent.
Each side is advancing its own reasons explaining why a certain tax percentage is appropriate, but a consensus hasn’t been arrived at as yet.
As already mentioned, Illinois still has ways to go before recreational cannabis is legalized. The incoming governor is in favor of legalization, but no details have been worked out as yet. Analysts suggest that it may take at least one year before adult-use cannabis becomes legal in the state.
Before that happens, however, the opposition of Republican legislators will have to be overcome. This task may be made easier by the approximately $525 million tax kitty expected from the industry each year. Setting up the right legal framework and the related infrastructure will be key to realizing that tax revenue dream or waking up to a different reality.
All in all, the problems that these two states face may not go away even if cannabis brings in the projected taxes since those revenues will be just a fraction of what is needed to keep the states solvent. All that the cannabis industry, including Therma Bright, Inc. (TSX.V: THRM) (OTC: THRBF) and TransCanna, can do is wish Illinois and New Jersey the best as they find solutions to the funding gaps that they face.
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