PROVIDENCE, R.I.—Rhode Island would become the first U.S. state to legalize marijuana for recreational use under legislation that would replace criminal penalties for possession with alcohol-style regulation and taxes on America's most widely used illicit drug.

The proposal would lift the ban on possessing marijuana for anyone over the age of 21. It would still be illegal to smoke it publicly, or while driving a vehicle.

Cash-strapped Rhode Island, which legalized medical marijuana in 2006, would stand to make tens of millions of dollars off the deal.

The legislation would allow individuals to grow up to three marijuana plants, but only if they've paid $100 per plant. Wholesalers would have to pay a $50-per-ounce excise tax, retail licenses would cost $5,000 annually, and all retail marijuana sales would be subject to sales taxes.

"It would do wonders to improve our budget situation," said Rep. Edith Ajello, D-Providence, one of five lawmakers sponsoring the bill.

Retired police officers and several Rhode Island residents told lawmakers that the long-standing prohibitions on pot fail to reduce its availability. Tight government regulation and taxes, they said, would recognize that pot is here to stay -- and raise some revenue in the process.

"This will allow police to return to tracking down violent criminals," said Jack Cole, a retired narcotics detective from New Jersey and a leader of a group of retired law enforcement officers who support legalization. "Prohibition has not worked."

But many lawmakers say the state's medical marijuana law is too new to consider legalizing the drug for everyone. Rep. John Carnevale, D-Providence, said the state needs to proceed carefully. Carnevale served 22 years as a Providence police officer, including three in the narcotics division.

"People say it's no worse than alcohol," Carnevale said. "Think about the problems we already have with alcohol. Why would we add another drug? What do we do the next time there's a downturn -- do we say 'OK, how much can we make on cocaine?'"

Some lawmakers would stop short of legalization and instead relax the penalties for marijuana possession. One legislative proposal would replace criminal fines and jail time with a $150 civil fine.

The debate is the latest example of how states throughout New England and the rest of the country are re-examining marijuana and its role as medicine, recreational drug and revenue generator. More than a dozen states now make marijuana a civil violation rather than a criminal offense. California voters last fall defeated a measure to legalize marijuana.

Rhode Island is one of 15 states that have legalized marijuana for medical purposes. On Tuesday state health officials announced three authorized medical marijuana dispensaries. The dispensaries aren't even open and yet Gov. Lincoln Chafee has already suggested imposing taxes on them.

"Our war on drugs has not been successful on marijuana," Ajello said. "We are moving toward accepting it."

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