Looking at Economics and Why Marijuana Legalization Needs to Go Beyond Colorado

The state of Colorado is looking to legalize marijuana this November with Amendment 64. Although you have your proponents and opponents, what polling shows is that a majority of citizens support it (Public Policy Polling, Rasmussen), and there is a good chance that the ballot initiative will pass. If this bill passes, it will collide with federal law that classified marijuana as a Schedule I Controlled Substance, which is the DEA's classification stating that marijuana is amongst the most dangerous of drugs. If Colorado does indeed legalize marijuana, it will most probably lead to a debate regarding the federal legalization (or at least decriminalization) of marijuana in which I can make an educational guess that the Supreme Court will be ruling on whether marijuana legalization is ultimately a matter of state versus federal government. As of date, the legal status on a worldwide level is that most countries have made marijuana illegal, whereas some countries have decriminalized marijuana.

I want to take a look at the issue of marijuana legalization with a two-part blog series. This blog entry, Part I, will deal with the interconnected implications on the justice system and the economics. The second blog will deal with the health issues and other social costs (e.g., freedom, how it effects households and jobs, crime levels).

Gateway Theory: The argument made with the Gateway Theory is that marijuana is a stepping stone towards hard drugs. That could very well be, or the phenomenon can be explained without the Gateway Theory. One reason I find the Gateway Theory unconvincing is because when I look at government data for drug usage (See Tables G1-G8), the amount of people who try marijuana is way larger than those who try harder drugs, which would have to assume that 100% of the individuals who have tried harder drugs have tried marijuana first. Another reason I have a problem with the Gateway Theory is that it is just as plausible, and I would argue more plausible, that the reason why the stepping stone exists in the first place is because marijuana has been forced to the underground markets.  For individuals who want to purchase marijuana, they cannot go to a white market (a.k.a. legal market). They have to go to the black market. The distributors in the black market are drug dealers. Illicitness of their business set aside, drug dealers are just like any other businessmen: they want to sell as much of their product to you as possible. Due to the increased availability (read: easier to get pot than booze) and its perception as a "soft drug," people start off with marijuana. More interactions with a drug dealer gives the drug dealer more opportunities to sell the hard stuff. For those individuals that are more susceptible or are just looking for something stronger, they have already inserted themselves in the black market, making it all the easier to try the harder drugs. In this alternative way of thinking about the "gateway" concept, the gateway is not marijuana, but the black market. If marijuana were removed from the black market, I would make an educated guess that the "gateway effect" would disappear over time.

Basic Economics of Marijuana Legalization: What I would like to do now is look at some of the economic implications of marijuana legalization, much like the Colorado Center on Law and Policy (CCLP) has done with their cost-benefit analysis on Amendment 64. It should go without saying that legalizing marijuana would take marijuana out of the black market and bring it into legal markets. This self-evident statement is important because it matters for the economy. First, the revenue created by the legal production and selling of marijuana would count towards the GDP and help boost the economy. If this revenue is in the legal market, that means that we are depriving that revenue from the underground market, which delivers a coup to criminals. Since marijuana would be taxed much like tobacco, there is  also the benefit of creating tax revenue for the government. As Matthew Yglesias brings up, there are still costs of regulating substances. However, as both he and I point out, legalization is by far a more efficient way of going about marijuana.

Legalization would also impact law enforcement. The number one drug-related reason for arrests is marijuana possession, and marijuana-related drug violations consists of the 52.1% of the 1,638,846 annual drug abuse violations. After doing the math, that would amount to law enforcement not having to deal with about 854,000 arrests a year. Since rough economic times have caused law enforcement to cut back financially, it would be a much better use of government revenue to go after the hardened criminals instead of arresting individuals for mere marijuana possession. Also, think of how much less the burden on the justice system would be if marijuana were legal. To read more on the budgetary implications, here is the report from Dr. Jeffrey Miron, which was endorsed by 500+ economists, including Milton Friedman.

I will stop here for now and save the remaining factors to be considered for my next blog entry on the topic.



5-17-2016 Addendum: It looks like that tax revenues for Washington and Colorado are exceeding expectations. According to a recent Tax Foundation study, legalizing on the federal level would bring in $28B in revenues each year. Combine that effect with not having to enforce the inane law, and imagine how much society would benefit.

1-22-2017 Addendum: Here is the most rigorous report on the effects of marijuana from the National Academies, which entails 10,000 scientific abstracts.