Assessing the Economic Ramifications of Marijuana Legalization

In America today, an issue that is being rapidly pushed to the forefront of national attention is the prospect of legalizing marijuana on a recreational level. In a country as polarized as ours, it’s often difficult for the general public to find common ground in agreement on a controversial issue, although with polls reporting that nearly 60% of the public supports widespread legalization of marijuana [usatoday.com], and that number rising steadily year-after-year, it seems inevitable that we are headed for a future where marijuana is just as readily available as alcohol or tobacco. Mason Tvert, Director of Communications for the Marijuana Policy Project, claims that, “There’s more use overall because people are recognizing that marijuana use is not as harmful as they were originally led to believe.” One primary argument against marijuana legalization is the concern against its safety, and this is namely because of research indicating that the THC content in black-market marijuana is significantly higher than it was 10, much less 40 years ago. However, with legalization of marijuana on a recreational scale, THC content would be regulated to a safer, stabler level, while allowing consumers to better understand their preferences by knowing exactly how much THC they’re consuming — a luxury not widely available on the black market.

Currently in America on a National scale, marijuana is classified as a Schedule 1 drug by the Food & Drug Administration. The FDA’s criteria for a Schedule 1 drug is that the drug in question has the highest potential for abuse, as well as no currently endorsed medical use (by the FDA at least). [huffingtonpost.com] With other drugs such as Heroin or Cocaine also classified as Schedule 1 drugs, shouldn’t it be surprising that the campaign to legalize marijuana is picking up steam dramatically? No, because as is being brought to light now more than ever, the general American public is realizing that many of the misconceptions they’ve had about marijuana aren’t necessarily true, and more often than not were cultivated by those with a vested interest in the success of the tobacco industry. So now, as a nation, we stand on the cusp of what 2016 Democratic presidential candidate Bernie Sanders describes as, “ending the federal prohibition of marijuana.” Of course the ethical implications are enormous, but the financial implications are as well. When assessing financial ramifications of legalizing marijuana, tax revenue is the key factor. Although not on a national level, states such as Colorado and Washington have legalized marijuana recreationally in their respective states, with encouraging results. In the fiscal year span of June 30, 2014 to June 30, 2015, Colorado generated over $70M in tax revenue as a byproduct of marijuana sales, nearly twice as

courtesy of washingtonpost.com

much as the $42M generated in tax revenue from alcohol sales. [time.com] This number is only expected to rise — and dramatically so — in coming years, as the stigma surrounding marijuana will continue to diminish amidst shifts in national attitude and law. In Canada, newly sworn-in Prime Minister Justin Trudeau has vowed to push for marijuana legalization in his country, while assessing Colorado’s approach and results.

One solution posed as a hypothetical plan to successfully roll out the legalization of marijuana, specifically in my home state of Ohio, was dubbed Issue 3. Issue 3 differed from the approach other states due to two notable reasons. First, with the approval of Issue 3, Ohio would be the first state to fast-track past legalization on a strictly medical scale, and become the first state to jump immediately from marijuana being criminalized to being available recreationally. The second, and most important aspect of Issue 3 on an economic level, is the explicit introduction of a monopoly within the state. Issue 3 would grant licenses to sell marijuana to only a select few, putting the power namely in the hands of rich investors who see marijuana as America’s next ultra-lucrative cash-crop, and would like to pave and preserve their path to reaping the benefits of legalization for years to come, at the expense of small-business opportunities. ResponsibleOhio, the group which led the charge behind Issue 3 released a report breaking down their estimates for tax revenue upon the passing of the issue. ResponsibleOhio states that the effective tax rate on marijuana would be about 23%, with slight variations depending on the form of the marijuana. This 23% tax rate would lead to an estimated $554M in annual tax revenue once the industry is fully operational, which would be in about four years. [bizjournal.com] 5% of revenue would be allocated to, “municipalities and townships on a per capita basis for public safety and health services”, 30% of revenue would be allocated to, “county on a per capita basis for public safety and health services”, and another 15% would be allocated to, “fund the commission, a marijuana business incubator, non-profit medical marijuana dispensaries, mental health and addiction prevention and treatment programs, and a program to subsidize medical marijuana for patients who cannot afford the full cost.” [cleveland.com] Ultimately, for ethical concerns around both the monopolistic nature of this plan, as well as the simple act of legalizing marijuana, Issue 3 did not pass, only securing 34.8% of the final vote. [norml.com]

Juxtaposing the dramatic rise and fall of Ohio’s Issue 3 plan, is Colorado’s Amendment 64, which was historically passed on November 6, 2012. As was similarly present in Ohio’s Issue 3, the minimum legal age to use marijuana is 21, driving under the influence of marijuana carried legal repercussions similar to driving drunk, and posed laws to regulate the production and sale of marijuana. However, these regulatory laws are the single greatest differentiators from Issue 3. Where as Ohio’s Issue 3 explicitly created a monopoly, putting the power solely in the hands of rich investors, Colorado’s Amendment 64 offers the opportunity for citizens to apply for licenses granting the ability to operate recreational (as well as medical) marijuana retail stores. This rejection of a monopolistic industry in favor of potential for a free market offered a much more inclusive options for voters. A cornerstone of Colorado’s Amendment 64 is that the first $40M in tax revenue generated by any commercial production facility directly benefits Colorado’s public school capital construction assistance fund. [colorado.gov] As previously stated, on the strength impressive tax revenue statistics alone, Amendment 64 has made a convincing argument for its right to be considered as a blueprint for other legalization efforts to follow. In addition to funding standard government programs such as public health and transportation, Amendment 64 has also offered innovative uses for tax revenue, such as a $1M initiative to fund substance abuse programs in schools. [denverpost.com]

In assessing both of these proposals, it’s no surprise that Amendment 64 is in effect and thriving while Issue 3 is nothing more than a reference point as a failed, rushed attempt to capitalize on the looming marijuana gold rush by monopoly-minded investors. In Amendment 64, the consumer is put in a much greater position to benefit, with substantial opportunities for small-business growth and meaningful tax revenue usage. The fight for legalization of marijuana is a fight by the public, for the public, and with Amendment 64, not only is the public afforded the opportunity to profit from a small business perspective, but laws, such as those that force commercial dispensaries to send the first $40M of tax revenue towards the public school system, aim to maintain a balance within the industry. Today, the tobacco industry is viewed as corrupt to the core, and this is namely because of the same monopolistic, heavy pro-government aspects that define Ohio’s Issue 3. Marijuana has the potential to emerge as powerful positive influence on our nation going forward — with the legalization of marijuana, America has an enormous chance to develop its next great cash crop, to drastically reduce taxpayer spending on legal and incarceration fees for those convicted of nonviolent crimes, and to provide a wealth small business opportunities for citizens. The effort to legalize marijuana is the next great gold rush that everyone’s waiting to pounce on — but in order to execute this, the general public, not government, must be the primary focus.