Robert A. Mikos, Professor of Law at Vanderbilt Law School wrote a legal paper called “State Taxation of Marijuana Distribution and Other Federal Crimes.”  Here is the abstract:

“The financial crisis has breathed new life into proposals to reform marijuana law. Commentators suggest that legalizing and taxing marijuana could generate substantial revenues for beleaguered state governments – as much as $1.4 billion for California alone. This Article, however, suggests that commentators have grossly underestimated the difficulty of collecting a tax on a drug that remains illegal under federal law. The federal ban on marijuana will impair state tax collections for two reasons. First, by giving marijuana distributors powerful incentives to stay small and operate underground, the federal ban will make it difficult for states to monitor marijuana distribution and, consequently, to detect and deter tax evasion. In theory, states could bolster deterrence by increasing sanctions for tax evasion, but doing so seems politically infeasible and may not even work. Second, even if states could find a way to monitor marijuana distribution effectively (for example, by licensing distributors) such monitoring could backfire. Any information the states gather on marijuana distribution could be seized by federal authorities and used to impose federal sanctions on distributors, giving them added incentive to evade state tax authorities. For both reasons, a marijuana tax may not be the budget panacea proponents claim it would be. To be sure, there are reasonable arguments favoring legalization; rescuing states from dire fiscal straits, however, is not one of them.