The marijuana industry, now worth $21 billion, has grown by over 5% in the past year, outpacing the overall U.S. economy. As the industry expands, states from California to Massachusetts are stepping in to provide subsidies. Meanwhile, a group of Democratic senators is advocating for federal assistance through the Small Business Administration (SBA).
This development marks a significant shift from the past, when the U.S. government spent billions attempting to eradicate illegal cannabis operations. Despite these efforts, the underground market continued to flourish.
An indoor unlicensed cannabis facility at the Yankee Creek grow in Jackson County, Oregon, on Aug. 11, 2022 .
State governments have expressed concerns over the legal marijuana industry being dominated by well-connected entrepreneurs, marginalizing minorities who were disproportionately affected by cannabis-related prosecutions. In response, various states have established funds to support minority marijuana marketers. New York, for instance, created a $200 million fund for this purpose, while Michigan allocated $1 million in grants for social equity funding. New Jersey contributed $12 million to its Cannabis Equity Grant Program, with Democratic Gov. Phil Murphy stating, "The Cannabis Equity Grant Program allows us to simultaneously expand the pool of cannabis businesses in our state while also focusing on those communities most impacted by the unethical War on Drugs." Colorado launched a similar program, and Washington state provides grants to pot convicts to help them start businesses.
However, heavy regulation and taxation have hindered the market in some states. California, for example, provided a $100 million bailout in 2021 to assist marijuana companies burdened by regulatory challenges, which had driven users back to illegal dealers. In 2023, California's pot retailers received an additional $20 million boost.
In Illinois, the marijuana industry struggled under initial regulatory burdens, prompting the state government to distribute $20 million in loans. Massachusetts paid $27 million in grants to licensed operators, though some in the industry felt this was insufficient. "The grants weren't big enough to help any business survive," said Sean Hope, owner of the Cambridge-based pot business Yamba, in an interview with CommonWealth Beacon.
Maryland's approach combined grants and regulatory support. The state provided millions in grants to medical marijuana firms to navigate the legal red tape required for selling recreational marijuana and later allocated an additional $40 million.
New Mexico took a different route, making marijuana businesses eligible for standard economic development aid. This concept has gained traction among a coalition of senators led by Ron Wyden and Jeff Merkley, both Oregon Democrats. They have proposed legislation to enable marijuana entrepreneurs to receive SBA aid. "SBA's current policy excludes from its loan and entrepreneurial development programs all small businesses with 'direct' or 'indirect' products or services that aid the use, growth, enhancement, or other development of cannabis," the senators wrote. "Consequently, small businesses in states with some form of legal cannabis must choose between remaining eligible for SBA financing and support and participating in or doing business with a rapidly-growing and legal industry."
National Taxpayers Union President Pete Sepp suggests a different approach to supporting the marijuana industry. "Why not remove federal roadblocks to growth rather than cooking up more subsidies," he told The Center Square. Sepp advocates for allowing marijuana businesses to deduct their expenses like other businesses, referring to the federal tax code section 280E, which currently results in higher federal taxes for marijuana businesses.
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