Why more U.S. states could legalize marijuana

It's now conceivable that marijuana could be legalized throughout more of the U.S., so we sought answers about who would profit from the end of its prohibition
Written by David Worthington, Contributor

Marijuana advocates scored major victories at the polls in the U.S. November election. Voters approved ballot measures in Colorado and Washington that bucked federal law to legalize the drug's recreational use. The victories could be short lived as the federal government ponders its response, but there has been a notable change in public sentiment. It's now conceivable that marijuana could be legalized throughout more of the country, so we sought answers about who would profit from the end of its prohibition from William Martin, director of the Drug Policy Program at Rice University's Baker Institute to learn more. Dr. Martin's research focuses on ways to reduce the harms associated with both drug abuse and drug policy. Here's what he had to say.

SmartPlanet: Is there momentum toward lifting the federal ban on marijuana, and who would profit from it?

Dr. William Martin: At this point, there is little expectation that Congress will lift the national prohibition of marijuana production, distribution, and use anytime soon. National change, when it comes, will follow in the wake of change at the state and local level.

At these lower levels, the financial benefits of legalization will fall into three major categories: profit, taxes, and savings related to law enforcement.

The market for marijuana is already large and will almost certainly grow substantially, though I suspect an initial surge will be followed by a drop-off after current non-users satisfy their curiosity.

Large profits await savvy and successful growers, sellers, and entrepreneurs in associated enterprises such as fertilizer and grow-light vendors; pipe, bong, and vaporizer manufacturers and dealers; banks and other financial-service providers; not to mention munchie-selling convenience stores and all-night diners. In addition, a once-thriving hemp industry could again produce high-quality cloth, paper, nutritious oil, and biodiesel fuel. Obviously, all of these businesses will need employees, providing another boost to the economy.

SP: Is a vice tax likely?

WM: I expect the taxes will be similar to those for alcohol and tobacco, about as high as the traffic will bear. But as noted before, there's a ceiling. Set it too high and folks will either go back to the black market or grow their own.

SP: How much tax revenues would pot bring into these cash strapped state governments?

WM: Taxes on the marijuana industry are hard to calculate, given that setting them too high could lead people back to the black market, but it seems likely that most buyers would prefer to deal with legal vendors or grow their own, as the new Colorado law will permit, rather than purchase pot traceable to murderous drug cartels. In a 2005 report, endorsed by hundreds of his fellow economists, Harvard professor Jeffrey Miron calculated that legalizing marijuana would bring in at least $6.7 billion in tax revenue, assuming it is taxed like alcohol and tobacco. Washington State plans to slap a substantial tax on pot at several stages in the passage from farm to retail customer and to sell the drug only at state-run stores, which should maximize tax revenue. The Colorado Center on Law and Policy foresees an annual tax harvest of c. $43 million on sales through alcohol and tobacco outlets. Such figures seem quite plausible. A Mendecino (CA) County program that levies a permit fee on each plant grown for medical marijuana brought in $600,000 for the Sheriff's department in 2011. Richard Lee, founder of "Oaksterdam University," a pioneering medical marijuana conglomerate in Oakland, CA, has estimated that he pays $300,000 in annual state sales taxes and "about double that" in taxes to the federal government. According to some reports [TIME; HuffPost 12/11/2012], marijuana sales account for $14 billion a year in California, more than grapes.

Perhaps the greatest gain, in money saved and lives not ruined, will be reduction in law enforcement costs--court time not spent, jails and prisons not built or filled, fewer public defenders and court-appointed attorneys and probation officers and prison guards needed. Miron's estimate of plausible savings is $13 billion annually for the nation. Beyond these costs are the loss of taxes paid and families supported by people who could be working but are either incarcerated or shut out of the job market by a criminal record based on use of a drug demonstrably less dangerous than alcohol.

SP: How likely is it that tobacco or liquor companies could become growers?

WM: It will certainly occur to them, but the states now control legal production and could continue to if they wish. Only licensed growers provide product for medical dispensaries in California, at least in some locations such as Mendocino. Years ago I heard--perhaps an urban legend--that R.J. Reynolds and Philip Morris had already trademarked some brand names. Fear of having big companies come in and spoil a good local business led some medical marijuana growers in California to vote against legalization in 2010. Because Washington intends to restrict sales to state-owned stores, they should be able to control who grows as well. I also like the Washington plan, at least until we see how things shake out, because they will be able to control advertising if they want to. Once liquor and tobacco stores are able to sell it, it will be difficult under the First Amendment to restrict their advertising their wares. As a practical matter, it should be easier to sell legalization to voters with great prospects for controlling both production, sale, and advertising. Realistically, however, states in need of more tax revenue might push commercialization, just as some push their lotteries, which amount to a tax on people with little understanding of statistical probability.

SP: Would you imagine distribution being controlled through pharmacies or with ID checks at stores such as tobacco?

WM: All those have been suggested. As noted, WA is going with state stores, CO on a liquor and tobacco model. Other states could choose other models. The following is a paragraph from an article I wrote for Texas Monthly in 2009. It describes a plan I find appealing, at least in the beginning stages of legalization.

Mark Kleiman, a professor at the UCLA School of Public Affairs, has proposed a legalization scheme that would permit responsible adult users to obtain more than enough to satisfy their needs, but with built-in safeguards against glamorization or abuse of cannabis. Under Kleiman's Optimal Marijuana Control Regime plan, legal cannabis sales would be restricted to "state stores" similar to those that arose after alcohol prohibition and still exist in some places today. Adults could easily obtain an individual license bearing the same number as their driver's license or other state-issued ID. They could purchase a generous amount of marijuana at reasonable intervals, but a record of their purchases would be kept by a central registry, just as purchases of narcotics such as Vicodin or Percocet are currently monitored, to curtail abuse. Users convicted of marijuana-related offenses, such as driving under its influence or selling to minors, would face loss of their cannabis license. Kleiman acknowledges that he has found few enthusiasts for his proposal, but "compared to prohibition," he notes, "it represents a considerable liberalization, while creating much less serious threats than virtually unrestricted commerce."

Gone are the days of "Reefer Madness" and other propaganda films

(Image credit: sanfranciscosentinel.com)

This post was originally published on Smartplanet.com

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