Unleash the Pot-heads: Economics of Marijuana

Why the US is Legalizing Marijuana All Over the Place

This is a picture I snapped of some native-growing marijuana, which I found while living in Russia a while back.  

It grows plentifully over there in the wild, and yet I never met anyone who smoked it. It was so surreal. One time, I was helping someone clean up their yard, and I had to chop down a whole field of it. The lady who lived there didn't even know what it was.

I bring this up, because you’ve seen all the news, the parties in the street, and pictures of morons out smoking doobies on the street in Oregon, DC, and Alaska in celebration of the de-criminalization of Shaggy’s favorite mellow-down Scooby-snack additive… MARIJUANA.

This whole situation only underscores the fact that most people of this once-great nation are just as clueless about the legislative process as I have observed they are about money, economics, and investments. Of course, if all people of this country better understood economics, the production and possession of pot would have been federally decriminalized decades ago. Alas, the drug remains on the list of federally-controlled substances.

The first article I read after the passing of this legislation in Oregon was put out by a reporter who interviewed “Robert,” a man so clueless about the nature of our political process, that he said he “smoked a bowl” in a public park the minute he heard the news. Apparently, Robert thought the decriminalization of marijuana occurred over night. I’m glad for his sake that he wasn’t caught, because the legislation for decriminalization in the state of Oregon don’t go into effect until 2015, and even then, possession is limited, and is a far cry from what Colorado currently has in effect. 

Things are similar for DC and Alaska.

Why the trend for decriminalization? It’s really quite easy.

States are chasing after the money (why else would I write about this?)

How so?

Limit Money Spent by Law Enforcement

First, states want to limit spending around the criminalization of said “weed.” For one, the U.S. annually spends around $1 billion keeping people in prison just for marijuana possession-related crimes. Nearly ten times that, or $7.5 to $10 billion, is spent prosecuting for these crimes.

Think about all the money that could be saved by releasing these non-violent offenders from prison! It's no small chunk of change for states.

Moreover, law enforcement wastes what seems to be an inordinate amount of time arresting and dealing with people for marijuana-related offenses. Nearly 88% of the 800,000+ pot-related arrests annually are for possession only. As there appear to be much bigger worries on the minds of law enforcement than the possession of a relatively marginally-detrimental substance (compared to, say, cocaine, or methamphetamines), agencies are beginning to warm up to decriminalization as a way to focus on more serious and violent crimes.

Legalization Is Not leading to Increased Use or Abuse

The second reason we are seeing the rapid decriminalization of “Mary Jane” are some data points indicating that legalization of the substance in many states has not led to increased abuse. One study from 2000 found that states liberalizing the use of marijuana experienced no substantive increase in the choice or frequency of users adopting its consumption. In fact, states tightening up restrictions and prosecution for bud, or those maintaining the strictest criminal penalties for its use, experienced the largest proportional increase in its use.

Sounds a lot like Prohibition to me.

Criminalization of Marijuana Does Not Deter Use

The third biggest reason for the rise of legal weed stems from lack of data indicating that criminalization actually deters its use.

Despite consistent crackdown by law enforcement, marijuana use has remained high, with no indication of changes in law enforcement levels or tactics.

On a more anecdotal note, while in high school, I consistently observed the possession of marijuana in its raw form, as well as toke-ready, even among my own circles of friends, and on school grounds. This indicated that these users simply think that their actions easily go undetected by authorities, so fear of arrest is usually low. Even when caught and convicted of pot-related offenses, the data shows no post-conviction decrease in use among abusers, nor a relationship between the actual or perceived severity of the sentence and subsequent use.

No—criminalization does not seem to be the main reason for refraining from use. Most who don’t use marijuana make that decision for health or moral reasons. And legalization will not change this, I think.

What’s that P-word again? Oh yes, Prohibition.

So, let’s sum up. The government can obviously save billions by not prosecuting the recreational use of marijuana. What about the flip-side? Is there money to be made here?

Of course.

Legalization Will Lead to Tax Revenues

This blog is about money after all—and how to bring it in. And as I said, this is what states are salivating at with decriminalization. Not only can states see the dollar signs around saved law enforcement costs… they see the benefits of increased revenue around the sale, regulation and taxation of pot.

It’s hard to estimate how much revenue could be expected if pot were legalized in all fifty states, given that most sales are currently conducted on the “black market.” But, we can surmise the sources of this revenue.

If the market or marijuana followed the same suit as regulations around the sale of other controlled substances, such as alcohol, we could expect to see states garnering significant revenue in the form of fees stores would pay to obtain licensure to sell.

Substantial revenues would come for states in the form of excise taxes and sales tax on product sold, such as currently exists in Colorado, where taxes of 15% and 10% exist, respectively. For 2015, Washington expects to raise nearly $500 million in revenues from weed taxation alone. I'm not entirely sure how believable that is, but anyways...

Also, there are additional pot-related products which would become more plentifully available upon legalization in your state, brought to you by the explosion of a new industry, known, of course, as “Big Marijuana”, the red-headed stepchild of Big Pharma and Big Oil.

Of course... once we see the advent of Big Marijuana, we'll likely also see the legalization of imports from foreign countries, current the biggest sources of marijuana here, which will result in domestic supply gluts, driving down prices in the US... and along with declining prices we will also observe the decreasing marginal utility of the biggest reason for legalization...MONEY MONEY MONEY. But who's counting, right?

So, if legalized pot could have such a great effect of local economies, why not legalize outright?

Well, there are always the health and moral considerations… and the fact that people have little faith in economic laws, especially those around supply and demand. Especially over-conservative republicans who will certainly make legalized pot the Boogeyman of their state around election time.

As for health concerns around legalization… I personally have just a few.

Pot's Still Bad For You, Despite It Being Legal (Duh?)

Marijuana contains 50-70% more cancer-causing substances than tobacco smoke. Some studies indicate that one joint causes as much damage to the lungs as five regular cigarettes.

International studies have linked heavy marijuana use to brain abnormalities in fetuses. In fact, other research on the long-term effects of weed indicated changes in the brain similar to those caused by long-term abuse of other major drugs.

If you’re planning to have kids, do some research here. Apparently, marijuana exposure changes and deforms the structure of sperm cells... no small worry. Even small amounts of marijuana can cause sterility in men.

Also, the smoke kind of reeks.  I’ve been around it. That’s just a personal observation of mine.

And, most people can agree that there is evidence indicating pot is somewhat addicting, and addictions are not always considered “savvy,” especially among the conservative, and family-oriented crowds. But neither are tobacco and alcohol addictions, but those are legal aren’t?

Want my opinion? Here it is.

Federal Decriminalization is Inevitable

Legalized marijuana is inevitable. Just get it over with. We might as well watch the experiments going on in Washington and Colorado right now, and make smart choices about shaping this industry, in order to keep it under control.

No matter whether it becomes legal in the state where I live, my opinion won’t change, and what I teach my own kids about substance abuse will stay the same.

Legalized marijuana will be a tax on the dumb, just like cigarettes and alcohol already are. Pure and simple, a waste of time, a diversion from reality for people who are uncreative. Should stupidity be taxed? Absolutely.

For any rational human being, and any self-respecting Villager like you, legalized marijuana will be a wealth-sucker. A life-waster. A freedom-crusher.

That’s just my opinion. Take it or leave it. Let me know how you feel about this in the comments below.

Live long and invest (but not in marijuana),

Jeremiah