LOS ANGELES - California, Washington, Colorado, and other states generating revenue from marijuana taxes could suffer revenue losses from a federal decision to get tough on weed even if it is unlikely to drop their credit ratings.

That conclusion came from Fitch Ratings on Friday, a day after U.S. Attorney General Jeff Sessions rescinded Obama-era guidance that had discouraged federal prosecutors from bringing cannabis-related charges in cases where state laws legalizing recreational marijuana use had been obeyed. Adults can legally possess limited amounts of marijuana in California, Washington, Colorado, Oregon, Nevada, Alaska, Massachusetts and Maine, but the plant is still an illegal narcotic under federal law.

Attorney General Jeff Sessions' move to enforce federal marijuana laws could impact several states, Fitch Ratings said.
Attorney General Jeff Sessions' move to enforce federal marijuana laws could impact several states, Fitch Ratings said. Bloomberg

The move has the potential to reduce revenues in those states as well as add to the uncertainty in the many states where marijuana is legal as a prescription drug, wrote Fitch analyst Stephen Walsh.

As Fitch previously noted, revenues from cannabis taxes have provided a welcome supplement to state budgets, but are unlikely to have a material impact on states' overall finances given their relatively small size compared to major revenue sources, such as sales or income taxes.”

Walsh wrote. “The renewed enforcement of federal cannabis prohibition could reduce revenues in the eight legal states, but would not materially affect their credit positions,” Walsh wrote.

Colorado and Washington, the two states which legalized recreational marijuana earliest have reaped hundreds of millions of dollars in revenues since their 2012 legalization. Colorado collected $193.6 million in marijuana taxes in calendar year 2016 and more than $226 million between January and November 2017, according to the Colorado Department of Revenue. Washington collected a total of $189 million in legal marijuana income and license fees in fiscal year 2016, according to the state treasurer’s office.

While public sentiment nationally has increasingly swung towards regulated marijuana sales, Sessions has said he considers it similar to heroin. He previously said he believes it is responsible for violence.

Walsh noted that the Department of Justice may have difficulty in enforcing federal laws in states where it is legal.

“Many questions remain on the ability of the DOJ to pursue new prosecutions given the expected lack of cooperation from local law enforcement and juries, as well as potential opposition from congressional supporters of states' rights in this arena.”

Sen. Cory Gardner, R-Colo. has already stepped in as a vocal critic of Sessions’ decision.

“This reported action directly contradicts what Attorney General Sessions told me prior to his confirmation, Gardner tweeted Thursday. “With no prior notice to Congress, the Justice Department has trampled on the will of the voters in Colo. and other states. I am prepared to take all steps necessary, including holding DOJ nominees, until the Attorney General lives up to the commitment he made to me prior to his confirmation.”

A congressional restriction on federal funding for medical marijuana prosecutions, the Rohrabacher-Blumenauer amendment, has been adopted annually since 2014 but is set to expire on Jan. 19 unless extended by Congress. The amendment has received overwhelming congressional support in the past, but Walsh said its future remains unclear in the current political environment.

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Kyle Glazier

Kyle Glazier

Kyle Glazier is a reporter covering market trends, infrastructure, and the Far West region for The Bond Buyer.