6/5/2012 9:30 PM ET|
Legal pot could save US billions
Is there gold to be reaped in the green of marijuana and its legalization?
That's the question increasingly being batted around statehouses nationwide as governments stagger under budget crises and marijuana use becomes more tolerated, if not accepted.
The answer? Yes -- with an asterisk, or maybe three.
Marijuana has been called the largest cash crop in the United States. It's certainly the most popular illegal drug, the center of an estimated $15 billion to $30 billion "industry" in the U.S. Whether you like it or not, weed is everywhere: Four in 10 Americans say they've tried it, and 17 million say they've used it in the past month. That's about 5.5% of the nation's population (and some researchers speculate that an additional 3 million-plus use it but don't cop to that in surveys).
What's more, attitudes on pot are changing. A record, ahem, high of 50% of Americans now favor the drug's legalization, polling company Gallup says. Sixteen states and the District of Columbia now have laws allowing marijuana use for some medical purposes, and Connecticut may soon join them.
California has been in the vanguard, though. And there's arguably one reason why the debate has gone mainstream in the Golden State, and thus elsewhere: Legalization could spell money for state coffers during hard times.
Does all this ring a bell? It should.
"It's exactly the same -- precisely -- why the country had turned against Prohibition long earlier," says Daniel Okrent, the author of "Last Call: The Rise and Fall of Prohibition." (Prohibition, the 1919 constitutional amendment banning alcohol, lasted 14 years, until the bottom of the Great Depression.)
Though Prohibition may have begun as a moral issue, it ended as a business decision. When the stock market crashed in 1929 and ushered in the Depression, "income tax collection over the next four years fell as much as 30%," Okrent says. "And capital gains taxes disappeared entirely. The government had no money to operate on."
Pressure built to legalize beer and hard booze once again, in order to tax them.
The 21st Amendment was ratified in 1933, repealing the ban on booze. The first year after Prohibition was repealed, alcohol taxes made up a whopping 9% of federal revenue, Okrent says. Prohibition's end "was very much a tax issue," he says. "It's very similar to where we are today" with marijuana.
What the numbers say
So how much money could marijuana raise, if the nation legalized, regulated and taxed it?
It's not a simple question with a precise answer, because there's no precedent. Nowhere in the world can you legally produce, sell and use cannabis like any other product. Even in the Netherlands, famous for its "coffee shops" that are allowed to sell pot, it's actually illegal to supply the shops with marijuana, a contradiction the Dutch have never sorted out.
That said, Jeffrey Miron has tried to crunch the numbers. In a 2010 study, Miron, a senior lecturer in economics at Harvard and a senior fellow at the libertarian Cato Institute, said legalizing marijuana nationwide would save about $8.7 billion a year in law-enforcement costs.
What are those costs? About 750,000 people are arrested nationwide for marijuana possession annually. Those arrests -- and expenses related to them -- could vanish. Ditto for jail time. So could the time spent on most court cases involving marijuana, Miron says.
"Marijuana comprises 60% of (drug) cartel income," adds Stephen Downing, a retired Los Angeles deputy chief of police and a board member of Law Enforcement Against Prohibition, a group of current and former criminal-justice professionals critical of the war on drugs. "So if it's regulated and controlled, there's going to be a severe cut in criminal income and, hopefully, a reduction in marijuana-related violence."
That would mean less police work, Downing says. And it doesn't end there.
"There are serious costs associated with being arrested, to the individual and their families," says Beau Kilmer, a co-director of Rand's Drug Policy Research Center and a co-author of an upcoming book, "Marijuana Legalization: What Everyone Needs to Know." A marijuana conviction can make it more difficult to get public housing, student aid and possibly a job, Kilmer says. Those costs -- very real, if harder to quantify -- would also vanish.
Show me the money: Taxing pot
Chopping costs is only part of the equation, though. Harvard's Miron also estimates that state, local and federal governments could collect about $8.7 billion annually in revenue if marijuana was "taxed at rates comparable to those on alcohol and tobacco." (Miron's study, "The Budgetary Impact of Ending Drug Prohibition," was co-authored by Katherine Waldock.)
After Miron's first estimate appeared a few years before, the Marijuana Policy Project, an advocacy group, pointed out that just one year's savings could pay the $7.3 billion tab for all port security measures required by the Maritime Transportation Security Act of 2002 at 3,150 port facilities around the nation. More than 300 economists, including several Nobel laureates, signed a letter to then-President George W. Bush calling for an open debate about ending marijuana prohibition in favor of a legalized, regulated market.
A combined $17.4 billion a year in revenue and savings from enforcement sounds like a lot. But it's actually fairly modest, once it's split among 50 states and the federal government, says Miron, who cautions that his figures are "ballpark estimates." "It's hardly a solution to the world's fiscal woes," he says.
Consider Oakland's reefer experience. The Bay Area city, like many cities nationwide, has been struggling. "We've had to cut down on things," says David McPherson, Oakland's chief administrator for revenue. Roads aren't getting repaved as often. Municipal computers aren't getting replaced. City worker unions not long ago had to contribute $40 million to $50 million in givebacks in furloughs and other sacrifices.
But medical marijuana has been one bright spot. Over eight years, the city's tax on marijuana -- today it's $50 on every $1,000 sold -- has brought in "just shy of $3.4 million" over eight years, says McPherson.
"Our general fund revenue is about $420 million, so when you look at the big picture, it's not a lot," he says. But that money each year "keeps a library open a little longer; it picks up trash in a park." In other words, in this day and age, every little bit helps.
And there are indirect benefits, too, McPherson says: "The industry is also employing accountants, security guards, lawyers, renting buildings -- and we have a tax rate on commercial landlords, so there's the benefits of that." Not long ago, the Oakland City Council agreed to double the number of dispensaries it licenses, to eight.
(In 2010, the council decided against a plan to create several large marijuana-growing operations in the city -- but not until state and federal authorities warned that the private ventures would run afoul of California and U.S. laws.)
Some proponents imagine legalization creating a host of spinoff companies and associated businesses that would also boost the economy. In a 2009 study, Dale Gieringer, the director of advocacy group California NORML, who has studied the impacts of legalization, wrote: "A legal market would generate additional benefits in the form of tourism and spinoff industries, such as coffee shops, paraphernalia and industrial hemp. A comparable example would be California's wine industry, which generates $51.8 billion in economic activity, according to the Wine Institute."
Some states might encourage marijuana tourism. "You could have pot resorts, bed and breakfasts," Gieringer said in an interview. Call them wake 'n' bakes.
But Miron is dubious that legalization would create a huge surge of jobs and businesses. After all, "the people who work in the pot economy currently have jobs," he says -- they're just not aboveboard. As for Amsterdam-like coffee shops? Miron doubts that thousands would flourish across the land. Or if they do, "it's just going to replace Starbucks."
The sticky question of costs
What about the costs of a nation on the toke?
Recent studies by Rand contend that legalization in California would do two things:
- Make pot incredibly cheap to make (literally pennies for a joint).
- Increase demand substantially, possibly dramatically. Taxes would help determine prices and demand.
So what does this mean for possible costs to ourselves and to society?
Few reliable estimates exists on the societal costs of pot, says Joel Hay, a professor of pharmaceutical economics and policy in the University of Southern California's School of Pharmacy. Still, Hay is convinced that legalization would be a public-health disaster.
"It is more dangerous than either alcohol or tobacco (and in some ways combines the worst of both) and for those legal drugs the societal costs are more than 10 times the taxes raised," Hay wrote in an email. "And if government tried to raise the taxes enough to cover the societal costs that would further encourage narcotrafficking."
Miron rejected Hay's remarks, saying he "would disagree vigorously" about the societal costs of marijuana and the claim that it's more dangerous than alcohol or tobacco. "There is absolutely zero convincing evidence of that," he says.
Would more people smoking send more people into treatment, costing taxpayers and insurers money? It's hard to know. According to a 2010 Rand study of California, "it's unclear whether legalizing marijuana may increase or decrease drug treatment costs" in the state.
Why unclear? More than half of the 32,000 admissions for treatment of marijuana abuse in California in 2009 resulted from criminal-justice referrals, which would drop if legalization were approved, the researchers said. On the other hand, an increase in marijuana use could cause a spike in those who voluntarily seek treatment for marijuana abuse, the researchers said.
Somewhat ironically, it might all come down to booze again. "The overall consequences of marijuana legalization are largely going to depend on how marijuana legalization influences alcohol consumption and patterns of alcohol use," says Kilmer, of Rand's Drug Policy Research Center. "The bottom line is that the evidence is very mixed whether alcohol and marijuana are substitutes or complements" -- that is, whether people tend to use marijuana instead of alcohol or with alcohol, he says.
That's a key point, Kilmer says. "If folks move away from getting drunk and are more likely to get stoned . . . then overall traffic fatalities could go down," because drivers under the influence of alcohol are more likely to crash than those using pot, he says.
That's a huge financial plus for individuals and for society. On the other hand, drinking and smoking pot are a particularly lethal combination when a person gets behind the wheel, Kilmer says.
"Even a small increase in heavy drinking could outweigh any benefits of legalization," he wrote in a recent op-ed piece in The Wall Street Journal. "The scientific literature on this is inconclusive."
In any event, if you're looking for a financial savior, even supporters of legalization agree you shouldn't hold your breath (much less inhale). Any benefits would take time.
"Legalizing marijuana is not something that can generate revenues today or tomorrow or even in a year," says NORML's Gieringer. "It really is something that requires changing federal law and, in the end, probably requires changing international treaties. Fixing all of that stuff is a long, drawn-out process."
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