Federal Reserve Report: States With Legal Marijuana See Economic Boost But Also Increase in Social Costs


A new report by the Federal Reserve Bank of Kansas City finds that states that legalize marijuana for adults experience moderate economic gains, but also see an increase in social costs, such as substance use disorders, chronic homelessness, and arrests.

The Federal Bank Report found that average state income increased by 3 percent, housing prices increased by 6 percent, and population increased by 2 percent after legalization. However, substance use disorders increased by 17 percent, chronic homelessness increased by 35 percent, and arrests increased by 13 percent.

States that legalized earlier experienced similar social costs but larger economic gains, suggesting a potential first-mover advantage.

The report also found that self-reported marijuana usage increased by 28 percent post-legalization, and that the increase in arrests occurred without significant increases in crime, possibly due to more funding to public safety from marijuana tax revenue.

The report concludes that the economic benefits of legalization are broadly distributed, while the social costs may be more concentrated among individuals who use marijuana heavily. It also cautions that states which recently legalized recreational cannabis use or are considering it may likely expect more muted potential benefits relative to the first-mover states, but still have to deal with higher social costs of increased marijuana usage.