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Study finds recreational marijuana could add billions to Arkansas economy

Daniel Breen
Michael Pakko, chief economist at the Arkansas Economic Development Institute, displays a copy of a report analyzing the potential financial impact of legalizing recreational sales and use of marijuana in the state.

Legalizing recreational marijuana in Arkansas could add hundreds of millions of dollars to the state’s economy over the next few years. That’s according to a study by the Arkansas Economic Development Institute, which examined the impact legalizing adult use of cannabis would have both on state revenue and the overall economy.

One model used in the study projects annual recreational marijuana sales averaging as high as $681.7 million, with total sales (including medicinal cannabis) approaching $984 million by 2027. State and local tax revenue could rise by $460 million over the same period.

Michael Pakko, the institute’s chief economist, said recreational sales would build upon the state’s existing medicinal cannabis industry, which currently averages about $250 million of product sold annually. But, he says the overall economic impact would be much larger.

“That includes both the indirect effects that are based on the business buying from suppliers, paying employees… and then the induced effects where the employees who are now earning income spend money in the rest of the markets," Pakko said. "So it has a ripple effect throughout the economy.”

Pakko made his remarks in a news conference Wednesday held by Responsible Growth Arkansas, the group proposing an amendment to the state constitution which would legalize recreational cannabis sales and use.

The study examined other states with existing medical marijuana programs which legalized recreational use, adjusting for factors like population and average income. Pakko says legalization would lead to a likely rise in demand for cannabis, both from existing users and from people visiting from out-of-state.

Arkansas Economic Development Institute
Responsible Growth Arkansas
Graphs display the estimated economic impact from various sources of new demand spurred by Arkansas potentially legalizing recreational marijuana.

“Assuming that the adult cannabis use amendment passes, we would see more than a doubling of total demand by 2023 even though… it wouldn’t take effect until March of 2023, but then rise rapidly close to a $1 billion industry by the end of our study period in 2027,” Pakko said.

According to the analysis, demand for recreational cannabis would come from four sources: existing medical marijuana patients, new consumers, tourists and existing illicit sales of the drug. Pakko says out-of-state visitors seeking to purchase cannabis in Arkansas could account for as much as 30% of overall sales, and could have a much larger impact on the state’s economy than those choosing to no longer buy the drug illegally.

“That’s going to have no direct economic impact because, after all, black markets are part of the economy too. So we’re just diverting economic activity from the unmeasured, underground economy to the above-board, taxed economy,” Pakko said. “It will have significant fiscal impact because all that demand is now subject to taxation whereas it wasn’t before.”

The study estimates as much as 50% of out-of-state sales would come from people traveling to Arkansas solely for the purpose of buying marijuana, with the remainder coming from tourists either already vacationing in the state or choosing to visit because of the new cannabis industry.

The study estimates an increase of $2.36 billion to the state’s gross domestic product over the next five years and as many as 6,400 new jobs. When accounting for sales diverting from illegal markets, those estimates fall to about 5,200 new jobs and $1.89 billion added to the GDP over the same time period. The state could also see $210 million in new general revenue funds, with new taxes on the drug dedicating over $45 million to law enforcement and $30 million to cancer research at the University of Arkansas for Medical Sciences.

Voters will decide whether to legalize recreational marijuana in Arkansas in November.

Daniel Breen is a Little Rock-based reporter, anchor and producer for KUAR.