The marijuana industry could generate up to $28 billion in tax revenues for federal, state and local governments if Uncle Sam legalized cannabis, according to a report from the nonprofit Tax Foundation.

The conservative-leaning organization estimates revenues would include $7 billion for federal coffers, $5.5 billion in business taxes, and $1.5 billion in income and payroll taxes.

However, tax revenues are later forecast to decline to $22 billion as more players jump into the industry. The larger number of business would erode profit margins, leading to a reduced tax haul, the report said.

Advertisement

The report estimates the current size of the marijuana market in the United States total $45 billion per year – or about 0.28% of gross domestic product – based on consumption of about 26 million pounds of marijuana per year.

Business owners currently in the marijuana industry require profit margins of 100% or more because of the high risk of imprisonment, confiscation of capital, and unenforceable contracts, according to the report.

The report also found that if all states legalized and taxed marijuana, states could collectively expect to raise between $5 billion and $18 billion per year.

Colorado tax collections in 2016 will surpass $140 million, more than double the roughly $70 million in annual cannabis taxes the state originally anticipated, according to a separate report from the Tax Foundation. In Washington State, marijuana sales are now averaging more than $2 million a day, and could generate up to $270 million per year.