Economic Effects of the Legalization Of Marijuana



Executive Summary
Groups such as the National Organization for the Reform of Marijuana Laws (NORML) have created models that show how marijuana legalization would positively impact the U.S. economy. Additionally, groups such as the RAND Corporation have done counter research showing the inaccuracy of these numbers and how marijuana legalization would negatively impact the U.S. economy. Comparison of these numbers and a combination of pertinent ideas may show a common ground in creating a viable option to satisfy both agendas. Extensive secondary research was done by reviewing a comparison between the U.S. and countries such as the Netherlands, where marijuana has been legal for an extended period of time. Furthermore, a comparison of the crime rates of these countries pre legalization and post legalization was undertaken to find the impact legalization has on an economy.

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The results of the research are as follows: Marijuana legalization could be a way to boost U.S. income if approached in the proper manner. Many of the current models that advocate for or against marijuana legalization are contradictory of one another and seem to have skewed numbers to fit a certain agenda. To create a model that would show all possible positive and negative outcomes, a combination of both advocates and anti marijuana legalization models provided the most accurate way to determine the economic success of legalization.

Based on the reviewed data, the following conclusions were drawn: 1. Marijuana legalization can have positive economic effects if approached in the proper way, which is listed in the recommendations section of this paper. 2. Marijuana legalization may have indirect impacts that may not be able to be foreseen without application of legalization to study the impact results. 3. Current models have contradictory and inaccurate numbers to fit biased agendas and needed to be compared and combined to find the most accurate model for marijuana legalization. 4. Legalization of marijuana has the possibility to spark spin off businesses such as the hemp industry, marijuana agriculture industry, and paraphernalia industry.

Based on the conclusions, the following recommendations were made: 1. Implement laws that mandate marijuana dispensaries to follow laws similar to that of the Dutch government. 2. Repercussions for the abuse of the laws listed in the recommendations section should be met with firm consequences, including high fines and possible jail time and the removal of licensing for individual dispensaries. 3. Create a membership system similar to the Dutch governments to ensure the patrons in use of legalized marijuana are monitored and held responsible for any transactions made while limiting the use of marijuana to legal citizens of the U.S. 4. Governmental monitoring of post marijuana legalization data to ensure the effect on the economy is positive. If the effects are negative, a new model will need to be implemented to rectify the problems created by marijuana legalization.

ECONOMIC EFFECTS OF THE LEGALIZATION
OF MARIJUANA

INTRODUCTION

Background

Recent arguments made by organizations such as the National Organization for the Reform of Marijuana Laws (NORML) claim that legalization of marijuana would create revenues for the U.S. economy. However, some arguments support the current laws making marijuana illegal and claim that the legalization of this drug will affect our economy negatively. States such as California, Colorado, and Washington have legalized the drug on a state level but marijuana is still not legal for recreational use on a federal level. Purpose

The purpose of this report is to determine whether the legalization of marijuana is a practical economic stimulant and to recommend policies and laws.

FINDINGS
Economic Benefits of Legalization
Taxation- Replacing marijuana prohibition with a system of taxation and regulation similar to that used for alcohol would produce a combined savings and tax revenues of between $10 billion and $14 billion per year, according to Dr. Jeffrey Miron, M.D. a professor at Harvard University. The revenue from taxation of marijuana sales would range from $2.4 billion per year if marijuana were taxed like ordinary consumer goods to $6.2 billion per year if marijuana were taxed like alcohol or tobacco (Appendix B). Cash crop- Recently we have seen marijuana as a cash crop due to illegal sales. In California, marijuana is the biggest cash crop in the state and produces $14 billion in “black market” revenue. If legalized and taxed the same way as alcohol and cigarettes (10%), the marijuana cash crop can accrue upwards of $1.4 billion dollars and can be used on either a federal level or a state level. Legalization of marijuana would also increase jobs. Entrepreneurs would start new businesses and factories processing marijuana in to a product for sale similar to tobacco and alcohol industries. Spin off businesses: Additionally, legalization would create numerous revenue-generating spinoff industries, such as paraphernalia, and add to thriving industries such as “coffee houses”, also known as dispensaries. With a population of one million people, Amsterdam boasts 300 coffee houses/dispensaries retailing cannabis. Scaled to the U.S population, there is the potential to create up to 60,000 retailers and over 1,000,000 jobs

Economic Detriments of Legalization
Advocates Proposals- The National Organization for the Reform of Marijuana Laws (NORML) claim that legalization of marijuana in California could possibly lead to a $1.2 billion dollar increase in annual tax benefits. NORML goes on to claim that if taxes on an ounce of marijuana were raised $50 per ounce from the governments proposed prices, marijuana would create an increase in tax revenue ranging from an estimated $770 million to $900 million annually. Opposing Proposals- Dr. Roasalie Liccardo Pacula, an expert data analyst with the RAND Corporation, believes these numbers, 1.2 billion dollars in annual tax revenue, to be speculative and biased towards NORML’s agenda for marijuana legalization.

California’s current proposal and other similar offers for national legalization require a 50 percent price reduction on projected marijuana prices set by the government’s proposal once legalized. However, Dr. Pacula states that prohibition raises the cost of production by a minimum of 400 percent, which would decrease the price of marijuana compared to current models (See Appendix A). Black Market Systems- Marijuana demand would increase after legalization and at the current model prices this would cause the black market for marijuana to remain constant, if not increase. Canada recently attempted a similar tax increase on cigarettes, increasing the price by $3 a pack, and was met with a surge in black market productivity by 30 percent. The only way in which the black market could be eliminated would be to lower prices of marijuana to competitive black market prices.

Societal Cost- The Rand Corporation also conducted a survey taken from emergency rooms in 2008 confirmed that 375,000 visits were directly attributed to marijuana. Comparable goods, such as cigarettes or alcohol, substances that are legal and taxed, currently have a higher economic cost to society than the revenues gained from their consumption. Last year an annual $39.5 billion was collected in federal and state taxes, which was well below the $385 billion spent in related health care, criminal justice, and workplace related fees. Additionally, with the legalization of marijuana, employers will be forced to attain potentially expensive technology that can detect whether marijuana impairs an employee’s ability during working hours or whether the drug is only in their system. Crime Rates- Rand Corporation conducted a study which showed that 60 percent of arrestees tested positive for marijuana with 38 percent of these arrestees being charged with something other than solely a marijuana related charge. Additionally, in Los Angeles police reports show the following statistics of criminal activity surrounding cannabis dispensaries: burglary increased 200 percent, robbery of a person(s) increased 52.2 percent, aggravated assault increased 57.1 percent, and burglary of automobiles increased 130.8 percent.

U.S. Comparison to Other Countries
Dutch Legalization- Marijuana is legal in only a few countries. The most realistic data attained from countries with legalized marijuana, which the U.S. can learn from, is the Netherlands, where marijuana has been legal since 1971. From the economic perspective, the legalization of marijuana has shown to be an effective source of income for the Dutch government. In 2008, the Dutch government earned $600 million from marijuana sales tax (Smith, 2008). This was around 0.7 percent of the national GDP. Dispensary Laws: The Netherlands controls legal marijuana use with strict laws preventing underage use and controlling the atmosphere in which the drugs are consumed.

Dispensaries (coffee shops) are prosecution-free as long they follow five rules: they limit sales to 5 grams per person per day, they supply no hard narcotics [ecstasy, cocaine, heroin, etc.], they advertise no drug products, they ensure their vicinity is free from dispensary-related crime, they don’t sell to or allow persons under 18 on the premises (MacCoun, 2010). The Netherlands restricts coffee shops to specific locations, a safe distance from schools. Legalization Issues: The first issue to come to fruition is the use of marijuana by foreigners. In response to marijuana usage by foreigners, many of the dispensaries are turning to a membership system, which only allows citizens to consume products supplied by the dispensary. In response to membership systems the dispensaries have been forced to raise prices of marijuana to alleviate the cost of membership systems, which have also increased the productivity of the black market system. Black market systems have led to increasing annual drug usage rates and have been linked to providing the dispensaries with product, due to their ability to avoid government taxes or fees.

CONCLUSIONS
Marijuana legalization can have positive economic effects if approached in the proper way, which is listed in the recommendations section of this paper. Marijuana legalization may have indirect impacts that may not be able to be foreseen without the application of legalization to study the results. Due to the fact that current models have contradictory and inaccurate numbers to fit biased agendas, we needed to compare and combine research to create the most accurate model for marijuana legalization. Legalization of marijuana has the possibility to spark spin off businesses such as the marijuana agriculture industry and paraphernalia industry.

RECOMMENDATIONS
Implement laws that mandate dispensaries similar to laws of the Dutch government which are listed as follows: 1. Dispensaries are not permitted to transaction of more than 5 grams per person per day. 2. Dispensaries are not permitted to supply hard narcotics [ecstasy, cocaine, heroin, etc.]. 3. No advertisement of drugs or drug related products.

4. Dispensaries must ensure their vicinity is free from crime related directly to the dispensary. 5. Dispensaries may not sell to persons under the age of 18 or allow them on the premises. Strict repercussions for the abuse of these laws should be met with firm consequences, including high fines, possible jail time, and the removal of licensing for individual dispensaries. Implement a similar program to that of the U.S. alcohol and tobacco laws and regulations to cut the black market systems down and to make sure proper taxes and those distributing and manufacturing marijuana products meet regulations. Create a membership system similar to the Dutch government’s to ensure the consumers of legalized marijuana are legal citizens of the U.S.

REFERENCES
SAMHSA. Office of National Drug Control Policy, (2010). Marijuana legalization: A bad idea. Retrieved from website: http://www.whitehouse.gov/ondcp/ondcp-fact- Stimson, C. (2010). Legalizing marijuana: Why citizens should just say no. The Heritage Foundation, 56, 13. Retrieved from http://norml.org/aboutmarijuana/item/real-world- Economics of Cannabis Legalization. By Dale Gieringer, Ph. D. (Quick American Archives, Oakland, CA) http://www.canorml.org/background/mjeconomics.html Why is Marijuana Illegal? By Peter Guither, Drug WarRant. http://www.drugwarrant.com/articles/why-is-marijuana-illegal/ Maccoun, R. (2010). What can we learn from the Dutch cannabis coffeeshop experience?. RAND Drug Policy Research Center. Retrieved from http://www.rand.org/content/dam/rand/pubs/working_papers/2010/RAND_WR768.pdf Smith, P. (2008). Europe: Dutch marijuana tax revenues at $600 million a year, crop is country’s third largest export. StoptheDrugWar.org, Retrieved
from http://stopthedrugwar.org/chronicle/2008/may/09/europe_dutch_marijuana_tax_reven The world fact book. (2013, January 10). Retrieved from http://www.taipeitimes.com/News/worldbiz/archives/2002/11/13/0000179421 World development indicator. (2012). Retrieved from https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=sp_dyn_le00_in&idim=country:NLD&dl=en&hl=en&q=dutch life expectancy

(2013). The netherlands compared with the united states.DrugWarFacts.org, Retrieved from http://www.drugwarfacts.org/cms/netherlands_v_us (2012). Will banning marijuana sales to foreigners hurt holland’s economy?. The Week, Retrieved from http://theweek.com/article/index/227358/will-banning-marijuana-sales-to-foreigners-hurt-hollands-economy


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