-The Economics of Marijuana-

Article: States Push to Get Most Out of Marijuana Taxes

Author: Dan Frosch

Date of article: April 24, 2013

Website: New York Times

Marijuana has been used for thousands of years, and hemp itself was for centuries of great importance to the United States economy. But in the early to mid-20th century, many states began to ban the drug, and soon marijuana consumption became illegal under federal law.

One important facet of California's proposition was an excise tax that proponents claimed would bring billions of tax dollars to a state in economic turmoil. From an economic perspective, it seems pretty rational -- imposing a tax on a multi-billion dollar market and cuttting spending on law enforcement will yield more money.Let's think in terms of real dollars: a 2003 study by the Office of National Drug Control Policy estimated domestic spending on cannabis prosecution to be a whopping $29 billion each year. Furthermore, a study commissioned by the United Nations in 2006 estimated the North American cannabis market to be worth upwards of $60 billion per year, more than the combined value of corn and wheat. It seems obvious that the economic benefits would be outstanding, but there are other contributing factors.


First and foremost, it is a basic rule of economics that the easier it is to obtain a product, the less the product will cost. Taking marijuana off the black market and into a legitimate marketplace will make it easier to buy and consequently cause a considerable drop in price. In fact, a study by the international think tank Research and Development Corporation concluded that Proposition 19 could potentially lead to a decrease in the price of marijuana by as much as 80%. If prices were to fall so drastically, it is unknown whether the economic tax benefits would outweigh the social costs.Secondly, the law of supply and demand tells us that as the price of a product decreases, consumption will increase. This is something that legalization opponents are quick to point out, and it is difficult to predict exactly how marijuana usage in the United States would change. 

Nevertheless, the Prohibition Era was notorious for multi-million dollar crime rings involved in the underground trade of alcohol, and the same exists today for the marijuana industry.
The American marijuana trade is a large part of the ongoing drug war with and within Mexico, Canada and other countries. Pro-legalization activists argue that by legalizing marijuana, criminal activity would literally decrease and take the "shady" aspects out of the drug trade.

We may never know exactly what America would be like should marijuana be legalized, but the debate over doing so will surely never die until it happens.