Advocates in Texas are pitching the idea that legalizing marijuana can help the state recover billions of lost revenue caused by COVID-19 outbreak.

States still searching for the best path forward in balancing economic and health concerns amid the continuing coronavirus outbreak also face another challenge once businesses reopen: recovering billions lost in state tax revenue, as well as millions of lost jobs.

In the long term, marijuana legalization might provide an answer. Even in historically conservative Texas, where marijuana is not legal but has been decriminalized, a movement is growing to legalize cannabis. Many believe the resulting tax revenue can help the state recover.

It’s a critical issue for many states. U.S. House Democrats recently underscored the severity of the problem by proposing a $3 trillion coronavirus relief package that includes $1 trillion for state and local governments.

That could help in the short-term. But long term, ongoing revenue is needed to replace some businesses that may never return. The legal marijuana industry may provide a solution.

A focus on tax revenue generation

Legalization efforts across the country have stalled because of the coronavirus. That’s primarily because advocacy groups cannot go door-to-door to collect the signatures they need to get marijuana measures on the ballot. In some cases, electronic ballot initiatives are gaining traction. In other cases, state legislators have put legalization bills on the back burner indefinitely.

However, both state and local leaders will pivot soon enough to the gaping holes in their budgets due to businesses shutting down for months. Filling them won’t be as easy as simply lifting stay-at-home orders. Some studies paint a grim picture of what could happen. For example, numbers from the Federal Emergency Management Agency (FEMA) report that 40 percent of businesses never reopen after a natural disaster, and another 25 percent fail within another year.

The COVID-19 outbreak differs from a hurricane, fire, or flood, of course. No one is sure exactly what will happen. But Charlie Bachtell, CEO of Cresco Labs, told CNBC that as restrictions loosen and businesses reopen: “We are going to be faced with a scenario where a lot of jobs have gone away, a lot of economic development impact has disappeared. How are we going to bring that back? I think cannabis has to be part of that discussion.”

Curaleaf Executive Chairman Boris Jordan noted that after the Great Depression, governments focused on tax revenue generation. “They lifted prohibition on alcohol and therefore started to tax it—and it became a major revenue generator for both the federal and the local governments around the country,” Jordan told CNBC. He added that cannabis “is a significant revenue generator.” 

Texas, Vermont among states considering legalization

In Texas, the second-largest state in the country behind California, state leaders anticipate that the state’s economy could lose billions because of the pandemic. The state, which does not have an income tax, is particularly hurt by businesses closing and consumers having less to spend due to unemployment.

Heather Fazio, director of Texans for Responsible Marijuana Policy, told CBS Austin that legalizing cannabis could generate as much as $1 billion a year in ongoing state revenue. 

"When our state is facing an unprecedented economic downturn, we have to look at alternatives," Fazio said. She added that while politicians may not mention this issue publicly, she knows both Democrats and Republicans are discussing the idea.

In Vermont, lawmakers made recreational marijuana legal in 2018. However, they never set up a legal marijuana sales system that would allow Vermont residents to purchase weed in their home state. Marijuana Moment first reported that lawmakers may consider the issue after dealing with the crisis. 

While House Speaker Mitzi Johnson voiced concern over the costs of starting up a regulated sales market, she also said it's something the state needs to consider once the virus threat subsides. David Silberman, an attorney and pro bono drug policy reform advocate, said the state should consider following “the Nevada model.” Nevada got cannabis sales rolling quickly through emergency regulations that had dispensaries up and running in less than a year after voters approved cannabis legalization in November 2016.

And in Kansas, Gov. Laura Kelly said that medical marijuana legalization remains on the state legislature’s agenda, despite the outbreak. In that same interview, she talked about the enormous budget shortfall the state will face.