Economies of Legalizing Marijuana Essay

Marijuana legalization in the United States remains a subject of discussion for both lawmakers and the drug users. Those who criticize the legalization are of the opinion that prohibition of marijuana helps in reducing the drug trafficking and consumption hence reducing crimes related to marijuana effects as well as improving the productivity of the people. However, those who advocate for marijuana legalization believe that if legalized, effects of marijuana on trafficking and consumption will be reduced together with the problems associated with cannabis itself.

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Several state governments have resulted in the legalization of marijuana starting with Colorado State which led the move in 2012. Up to now, more than 20 states and the District of Columbia and Guam have legalized recreational and medicinal marijuana with some citing the health benefits and 17 others including the District of Columbia abolishing jail time in case one is caught in possession of a small quantity of cannabis. Most of the states that have legalized marijuana have cited economic improvements since they imposed taxation on the drug. Colorado and Washington are some of the States that have recorded plausible economic growth courtesy of marijuana legalization in both states also noting a decrease in crime rates since the legalization.

This paper presents a literature review of scholarly articles on the economic impacts of marijuana legalization. The literature presented in these article journals support that legalization of marijuana is of great economic impact to the specific states and the local governments. However, economic impacts assessment of marijuana legalization remains a big challenge because although some states have legalized it, the federal laws are still against production, possession, and trading of marijuana. It, therefore, becomes very difficult to find reliable data from the federal government since it does not collect such data.

There are several studies that have tried to analyze the economic benefits of legalizing marijuana in the United States of America. A study by Richard Philips (2015) on the revenue implications of marijuana legalization on state and local governments cited that when marijuana is legalized, it is removed from the black market thus giving local government an opportunity to develop tax bases for cannabis just like any other product or services (Phillips, 2015). Phillips (2015) posits that different states have different exercise tax on marijuana due to the challenge in developing an ideal exercise tax that will be imposed on the product to offset its social costs without becoming heavy on it to result in black markets and tax evasion. States like Alaska and Oregon use per unit taxation where marijuana is taxed per unit basis. This type of exercise tax is good especially when marijuana prices go down since it ensures there is a stable amount of revenue raised unlike value-based taxation which is greatly affected by a drop in marijuana prices (Phillips, 2015)Although there are no precise estimates on the amount of revenue that marijuana taxes can generate, Phillips (2015) estimated that if the existing sales tax and the 15% exercise tax are applied well, each state has a capacity of collecting about $3.1 billion per annum in state tax revenue. Additionally, Phillip's estimation was boosted through a study by Congressional Research Service which stated that if an exercise duty of $50 per ounce is applied at the state level for marijuana, every state could raise about $6.8 billion in tax per annum. Evidently, this range of tax between $3.1billion and $6.8 billion from cannabis tax is at the same level with the annual $6.5 billion that state raises on alcohol taxes every year (Lowry, 2014).

In Colorado, non-medical marijuana sales are subjected to three taxations at state and local government level. Unprocessed marijuana is imposed on a 15% exercise tax, 10% exercise tax for retail marijuana and 2.9% states' general sales tax. In the period of 9 months (January 2014 to September 2014) Colorado collected over $37 million from both retail license, sales tax and exercise tax on non-medical/ recreational marijuana (Lowry, 2014). Additionally, the state of Colorado collected $13.7 million sales taxes and license fees from medical marijuana in the same year. Lowry and Gravelle (2014) used the above data from the state of Colorado to estimate the total sales tax that could be realized by legalizing and taxing marijuana in all the 50 states of America. They estimated a national wide minimum of $15.9 billion and a maximum of $17.0 billion sales tax only on recreational marijuana assuming that the prevailing market circumstances in Colorado cut across all the states.

The Marijuana Impact Model that was developed by the Marijuana Policy Group (MPG) works to integrate the legal marijuana market in the overall economy of Colorado State. The model found out that in 2015, over 18,000 full-time job opportunities were created by marijuana activities only (MPG, 2016). The PMG (2016) report stated that marijuana industry in Colorado creates more state output and employment in every dollar spent compared to 90% of the other Colorado industries (MPG, 2016). The demand for the legal cannabis is projected to grow by over 11.2 % per annum by 2020 due to shift away from marijuana demand from the black market (MPG, 2016). In 2015, the amount of tax collected from marijuana in Colorado was thrice the alcohol tax and 14% larger than the casino revenue. The cannabis revenue is projected to exceed cigarette revenues by 2020 because the cigarette sales are declining while the marijuana sales are rising due to shifting in demand from cigarette to marijuana by adults consumers (MPG, 2016).

According to MPG (2016) report, the marijuana market growth in Colorado is not as a result of demand but the shift from the grey and black markets to the regulated market. Colorado experienced a rapid marijuana market growth since legalization. Nevertheless, MPG expects the market to saturate by 2020 with moderate growth of 2.0% to 3.0% per year henceforth (MPG, 2016). The employment effects of marijuana legalization in Colorado is interesting and gives an insight why it is economically wise to legalize marijuana. Out of the 18005 people who secured employment via legalization of cannabis, 12591 are directly involved in either stores, cultivation or dispensaries dealing with marijuana business (MPG, 2016). Also when t marijuana employees spend their money on other sectors, they offer induced employment which equally boosts the economy.

Some scholars such as Jeffrey A. Miron have estimated the amount of money wasted through the implementation of marijuana prohibition laws, the money that he argues would be channeled to other state's economic development projects. Miron argues that both federal and state incur expenses of as much as $13 billion per year mainly from marijuana possession arrests (Katel, 2009 ). However, marijuana prohibition critics argue that legalizing the product will result to collapse in their prices stating that the associated high prices are since the product is illegal. Others posit that legalizing marijuana would be a blow to the economy since the high prices set in the black market would consequently decline on legalization (Katel, 2009 ). Nevertheless, some studies have overruled the said minimal economic impacts on marijuana legalization. A report done by Jeffrey Miran in 2005 on the "Budgetary Implications of Marijuana Prohibition" stated that the impacts of marijuana legalization on the state's budget exceed those of decriminalization. Miron bases his argument on three main reasons.One of the reason is the ability of legalization to eliminate arrests for both marijuana possession and trafficking. Secondly, the possibility of legalization to save the state from the judicial and prosecutorial expenses that are incurred when a person is arrested for possessing or consuming cannabis. Finally the fact that marijuana legalization will pave the way for the government to impose a tax on the product just like any other service or goods (Miron, 2005).

Legalization of marijuana will reduce the government's expenditure by over $7.7 billion per annum while the taxation of the product at the same rate with other goods can generate revenue of up to $2.4 billion for the government annually (Miron, 2005). Miron (2005) also states that if the same tax rates that are charged on alcohol were imposed on marijuana, the product would generate a revenue of $6.2 billion per year. Other experts such as Pat Oglesby who is a prominent tax expert and attorney claim that the economic impacts of marijuana legalization are not solely dependent on taxation. Oglesby notes that the impact of legalization depends on other factors such as the possibility of jobs emerging from farming, processing and selling marijuana as well as the impact of the legalization on alcohol consumption (Evans, 2013).

According to Evans (2013), legalization of marijuana will increase marginal productivity since few people would miss work to attend court hearings on marijuana possession. Similarly, productivity is expected to increase through legalization in cases where one of the spouses might have been arrested and jailed for illegally possessing marijuana, and through legalization, h/she returns home and helps the spouse in family responsibilities (Evans, 2013). Moreover, the burden of legal fees, asset seizures and missed work face the minority communities in the country due to marijuana prohibition. Legalization of marijuana will relieve these disadvantaged communities the economic burden, and they will channel their energy on other constructive projects (Evans, 2013).

Recent studies have portrayed how marijuana legalization can have a positive impact on the economy. According to Isa (2017), legalization of cannabis can generate over $28billion in tax revenues for the government. Also, if legalized and taxed, marijuana has a potential to grow its market from the current $45 billion to over $100 billion per annum in future. Legalization of marijuana and subsequent curbing of black markets can rise state's tax revenue by over $13 billion nationally (Nagisa Alan Isa, 2017). Isa (2017) found that the three pioneer states (Colorado, Alaska, Washington) in marijuana legalization reported a tremendous increase in employment rates in the year 2012 and 2013 immediately after the legalization of marijuana. The increase in employment rates implies growth in economic gains due to strong effects by marijuana legalization (Nagisa Alan Isa, 2017). Nevertheless, some states have legalized marijuana but still have negative trends in economic growth especially on employment. States such as Oregon, Florida and New York have been experiencing slow growth in employment rates; a trend that can be explained by other factors affecting economic growth (Nagisa Alan Isa, 2017).

Some scholars claim that if drugs are legalized and taxed, it helps in cutting the cost incurred in the war against the drugs (Becker et al., 2006). According to Becker's analysis on ways to reduce product consumption, government's crackdown on any drug leads to the increased price of the drug and reduced consumption. According to the study done in Australia on "Economics and Marijuana" by Cl...