Light Up: The Economics of Marijuana

Last week's election was historic for all sort of reasons: gay rights (and human decency) prevailed in Maine, Maryland, Minnesota and Washington; Romney's loss suggested that super PACs could not, in fact, buy the presidency; and President Obama will get the crucial chance to implement the Affordable Care Act.

We've also seen a landmark in the drug war front. In the wake of the legalization by Washington and Colorado of marijuana, the economics of cannabis sales have finally gone from the purely theoretical to stark reality. It is a long time coming. Now, it is entirely possible that the federal government will block the measures or make life prohibitively difficult for dispensaries, but it's still worth considering what the effects of legalization might be:

Tourism: Marijuana tourism doesn't seem so strange -- or fringe -- when you consider some of the other types. Colorado in particular, which is already quite friendly to smokers, should easily adapt to an influx of visitors. According to the AP, there's some fear that legalization could deter business travelers, but at this point it's unfounded.

Taxes: In the case of Colorado's Amendment 64, the tax implications are hazy. As Reason notes, depending on the whim of voters, sales to retailers could be taxed as much as 15%. Washington's tax is far higher. Per Reason: "25 percent at each of three levels (grower to processor, processor to retailer, and retailer to customer). As a result, prices paid by consumers will be double what they would be without taxes."

This isn't an bad as it sounds. At least according to one study, the retail price of legal marijuana would be a fraction of its black market counterpart, so it's nearly impossible that the taxes, no matter how high, will be deeply felt.

Economic Activity: By one estimate, legalization could generate $500 million per annum for Washington alone. It's not as absurd as it sounds. In California, for example, marijuana brings in $14 billion a year in sales, which, as Time observed, "dwarf[s] the state's second largest agricultural commodity — milk and cream — which brings in $7.3 billion a year."

There also are important non-revenue economic benefits; ways in which the states benefit because of money not spent. Budgets would no longer need to pay out for prohibition enforcement, related incarceration costs, and prohibition-related taxes.

Legalization may also be prudent on humanitarian grounds. Mexican drug cartels are unlikely to reap any rewards from Washington and Colorado's actions. The extent to which they might feel a squeeze varies, but according to a Mexican Competitiveness Institute study,  "drug trafficking revenues would fall 20 to 30 percent, and the Sinaloa cartel, which would be the most affected, would lose up to 50 percent." (The Post points out that RAND is less sanguine, assuming a revenue loss of 2 to 4% in the case of California.)

In any case, we shall soon find out how pie-in-the-sky legalized marijuana really is. Let's hope Attorney General Holder decides the Department of Justice's time can be better spent on other matters.

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