How can a country control the use of a drug like marijuana amongst its citizens? “Policymakers can attempt to solve this problem in two ways,” the St. Louis Federal Reserve Bank explains in a new report on the economic aspect of cannabis reform. “First is criminal enforcement, which increases the cost of supplying drugs, reducing supply in the market and subsequently pushing up prices. Second is taxation on purchases, which reduces the quantity demanded in the market by increasing the price. In theory, both policies could achieve the same outcome of reducing drug use to a socially optimal level.”
When dissociating oneself with the moral implications of the prohibition or legalization of adult-use marijuana, efficiency remains. The question then becomes: What is the most efficient way to maximize beneficial effects for society when handling this issue?
What Does Society Want?
Before we can address the best means to attain our collective goal as a society, we need to determine what that goal is in the first place. For decades, that goal has been dictated by the belief that marijuana use poses a danger to society.
That can be linked back to political goals, the “War on Drugs,” as well as the perception that more marijuana users would inevitably lead to higher societal costs—not only calculated in dollars, but also in terms of societal peace, reduced crime, higher educational achievements and better health outcomes. To this day, 68% of people opposing marijuana reform do so because they consider marijuana use “immoral.” A more concrete observation of the consequences of drug use is also an argument in favor of that goal: The National Institute on Drug Abuse (NIDA) estimates that “abuse of tobacco, alcohol and illicit drugs is costly to our nation, exacting more than $740 billion annually in costs related to crime, lost work productivity and health care.”
For now, let’s observe whether the dominant strategy for the past few decades, criminal enforcement, actually achieved the goal of reducing marijuana use, and what it costs society to maintain prohibition.
“While public discourse surrounding the legalization of marijuana often revolves around perceptions toward recreational drug use, an economic argument supporting (or opposing) legalization can be made regardless of one’s moral standing on use,” the St. Louis Fed states.
Does Prohibition Achieve Its Goal?
Marijuana, when it is illegal and subject to criminal enforcement, comes with a lot of costs. It requires a lot of work hours from law enforcement officers, as well as an enormous amount of time and resources dedicated to it by the legal and correctional systems. This is paid for by taxpayer money.
A Harvard study estimated that $13.7 billion are spent annually in the United States to enforce the prohibition of marijuana. In 2019, in Wisconsin alone, 16,044 people were arrested for marijuana-related offenses, and one arrest costs more than $400. That’s more than $7 million spent in Wisconsin alone to arrest people for their marijuana habits. Marijuana possession is a felony in Wisconsin and can carry a prison sentence; the Wisconsin Department of Corrections estimates that one year of incarceration costs taxpayers between $32,394 and $39,724.
There are also social costs to take into account. Marijuana is America’s favorite illicit drug, and 40% of all drug arrests are for marijuana offenses. 663,000 marijuana-related arrests were made in 2018; these people now have a record which can make it harder to get a job, find housing and participate in the local economy. A study by the Center for Economic and Policy Research found that, because a felony conviction “greatly lowers ex-offenders’ prospects in the labor market,” the U.S. economy lost “between $57 and $65 billion in lost output.”
Another aspect to consider is health outcomes. Does marijuana prohibition improve the health of our citizens? While the National Institute on Drug Abuse data seems to indicate that all drug use is nefarious for our collective health, the devil is in the details. NIDA estimates that prescription opioids alone cost society $104.5 billion, while all illicit drugs combined only add up to twice that, $204 billion. It is a well-documented fact that access to medical marijuana significantly lowers the use of prescription opioids. It is also interesting to note that the overwhelming majority of the estimated societal cost of illicit drugs is due to their repression; only $11 billion out of $204 billion are linked to increased health care costs. That is far lower than the adverse health consequences noted for prescription opioids ($26 billion), alcohol ($27 billion) and tobacco ($168 billion), all of which are legal.
The cost of marijuana prohibition is in the tens of billions of dollars every year. For that price, does it effectively reduce marijuana use? No, it doesn’t. In fact, marijuana use has been constantly increasing, even before the first state legalized adult-use marijuana. In 2002, 7% of Americans aged 26 and older were marijuana users. In 2012, just before Washington and Colorado legalized recreational marijuana, that number was 8.6%. Today, 13.3% of Americans use marijuana despite prohibition.
Exploring the Legal Alternative
Legal marijuana does lead to increased use among adults, as a matter of fact—because there is no more legal risk associated with it, because it is more easily available and because it becomes more culturally acceptable. “Reported marijuana usage by adults in Colorado rose from 10.4% in 2011-12 to 18.1% by 2017-18,” the St. Louis Fed reports.
If our societal goal is still to have fewer marijuana users no matter the cost, then legal marijuana is not the way to go. However, the societal goal that we pursue has seemingly changed as the public consciousness opened itself to cannabis. In 1971, 88% of Americans opposed the legalization of cannabis, but that number fell consistently since then. In 2013, the American population was split in half on the issue. In 2019, 66% of Americans actually supported the legalization of marijuana. Should our collective goal change, then?
If we consider that the American society aims to have the most beneficial outcome for itself rather than just reducing the number of marijuana users, then the legalization of cannabis can prove to be a more flexible tool than repression. There are negative consequences to widespread marijuana use, but the regulation of legal cannabis could address that issue while obtaining a large amount of additional revenue and sparing the nation the numerous drawbacks that come with prohibition.
In a version of the U.S. where marijuana is legal and closely regulated, the substance would be mainly acquired through legal means, as illegal markets would be starved. The government would then control the taxation rate of cannabis products—which are taxed like alcohol and tobacco, with sales tax and an excise tax—with a higher tax reducing how much marijuana will be consumed by the population. Studies found that when both a legal and illegal cannabis market coexist, people virtually always choose the legal option, and “cannabis price policies that include somewhat higher consumer costs for legal cannabis relative to contraband (but not excessively higher costs) would not be expected to incentivize and expand the illegal market.”
As such, a reasonable way to attain both our stated goals—to obtain the greatest possible good for society while limiting the use of marijuana—would be a balancing act to find the highest tax rate to make legal marijuana less appealing without diverting consumers towards the black market. This has the added beneficial effect of increasing government revenue, which can then be used to improve the quality of life of citizens. The St. Louis Fed does point out other drawbacks, such as the fact poorer citizens use marijuana more often, making a higher tax rate into a regressive tax, as well as the fact that consumers would be more likely to spend a greater share of their income on marijuana instead of other goods.
“More states are legalizing marijuana for medical or recreational use, and this movement has created a patchwork of laws and policies on how the drug is treated,” the Fed deplores. In Washington, there is a 37% excise tax on marijuana; in California, it’s 15%; in Alaska, it’s $50 per ounce; in Illinois, it’s a tax that goes from 10% to 25% depending on the potency of the product plus a 7% wholesale tax. As such, it is difficult to determine how exactly taxation should be handled going forward, as the country fails to present a unified front.
“Research is still needed to understand the economic impact of recent state policy changes, and differences across states provide researchers with many real-world ‘experiments’ to study. However, with marijuana remaining illegal at the federal level, these firms face additional challenges in operating their businesses, such as lack of access to banking networks or developing interstate supply chains,” the Fed concludes. As it stands, and without rapid changes in the law to address these issues, it seems unlikely the U.S. will be able to attain its goal, regardless of what it is, in the foreseeable future.
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