The Economics of Legal Marijuana

The Economics of Legal Marijuana

This is an excellent article on how taxing and regulating marijuana would do wonders to stop the violence in Mexico. bring a seriously needed cash infusion into government coffers., and LOWER the cost of marijuana.

The article quotes from a Fraser Institute study saying:

The study estimates that the average price of 0.5 grams (a unit) of marijuana was $8.60 on the street, while its cost of production was only $1.70. In a free market, a $6.90 profit for a unit of marijuana would not last for long. Entrepreneurs noticing the great profits to be made in the marijuana market would start their own growing operations, increasing the supply of marijuana on the street, which would cause the street price of the drug to fall to a level much closer to the cost of production. Of course, this doesn't happen because the product is illegal; the prospect of jail time deters many entrepreneurs and the occasional drug bust ensures that the supply stays relatively low. We can consider much of this $6.90 per unit of marijuana profit a risk premium for participating in the underground economy. Unfortunately, this risk premium is making a lot of criminals, many of them with ties to organized crime, very wealthy.

“If we substitute a tax on marijuana cigarettes equal to the difference between the local production cost and the street price people currently pay--that is, transfer the revenue from the current producers and marketers (many of whom work with organized crime) to the government, leaving all other marketing and transportation issues aside we would have revenue of (say) $7 per [unit]. If you could collect on every cigarette and ignore the transportation, marketing, and advertising costs, this comes to over $2 billion on Canadian sales and substantially more from an export tax, and you forego the costs of enforcement and deploy your policing assets elsewhere.”

Its a very interesting article with some very interesting points. None that haven't been brought up time and time again on this blog and by many other pro marijuana supporters.

Legalizing All Drugs

Ok, everyone who reads this knows that I am all for the legalization of marijuana, but of late there has been a lot of talk in the press about legalizing all drugs. This is certainly an extreme view amongst legalization circles, and on this one I am not entirely decided. I mean on one hand, its not really my business what someone else injects into their body, if they want to kill themselves slowly or quickly that's their business, on the other hand many drugs are highly addictive and once a person starts its hard to stop, although I reject the notion that after one taste you can be hopelessly addicted to ANY substance for life, I don't care how addictive it is using anything once does not make you an adict.

The money that would be saved in enforcement would be beyond measure really, not to mention the income from taxation, but how much of that would just be redirected to health care due to deteriorating health. There is a simple solution to that and say you can't get treated under governemnt health plans for ailments resulting from dangerous behaviours, it has to come out of your own poket. This is something I am actually rather a proponent of, ie if you are an alchoholic and your liver has issues, you have to pay for the treatment, if you are a smoker and get lung cancer you have to pay for the treatment, if you are a meth adict you have to pay for the treatment to get you out. However accidents and general illnesses of course would be covered. Of course the problem with this line of thought is where do you draw the line? Is a skydiver elegiable for coverage if his shute malfunctions? Skydiving is a dangerous activity.

In my mind marijuana obviously should be legalized, the proven negative effects are so incredibly small as to not even count. There is no logical reason to keep marijuana illegal. Other drugs, I still am unsure about. Though, as with marijuana, regulation is always the better option to prohibition.

Legalized Marijuana and Government Spending

One of the main arguments used by most pot activists is that legalized marijuana would bring in new tax revenue streams for the government. Many who are opposed or so not have a strong opinion disagree, they claim that since marijuana is so easy to grow that there would be virtually no increase in the tax stream.

While, of course, many people would probably grow a plant or two in their basement or their back yards in order to not have to purchase that, but I doubt it will really be that many that end up doing it. Its also easy to grow your own vegetables, and while many people grow vegetables in their back yards are back yard vegetable gardens really a threat to farmers? Of course not, for one your not likely to produce enough to never have to buy vegetables on again, also the vast majority of people just plain don’t bother because to them the convenience of going to the grocery store is worth the increase in cost. I think the same thing would happen to marijuana, most people would rather go to the corner store and pick up some joints or pre-cut and cured marijuana rather then grow their own harvest and cure their own.

It is true that growing marijuana is relatively easy, marijuana will grow in just about every environment on earth. The trick is growing good marijuana takes quite an effort. Everyone who has lit a joint from more then one plant knows that marijuana quality ranges dramatically, raising high quality plants takes a green thumb and dedication. I know I for one would probably be more likely to be willing to pay someone else to take care of that for me rather then spend the time and energy to grow my own.

Naturally it all depends on the delicate balance of price and tax rate. If the government gets too greedy and sets the tax rate too high, it is quite likely that there will be more home growers then people who buy.

It will also depend on the growers, as long as they produce good quality marijuana the people would be willing to pay for it. If they produce the same crap the Canadian government is trying to pass off to medical marijuana patients people will grow from home.

The final variable in the equation is the restrictions placed on growing marijuana. I have been very vocal in this blog that marijuana should be legalized, regulated, and taxed. I don’t think everyone should be able to put up a greehouse in their back yard and grow scads of plants, growers (not home growers, but producers growing for sale marijuana) should have to meet certain guidelines to make sure that the marijuana is good quality and does not have any unhealthy additives.

Cops to Train Civilians to Help Catch Grow Ops

I was listening to Tucker and Taz on FM96 this morning and there was a story about the police asking nosey neighbours to come to a conference to learn how to report crimes they see. According to Sarah Kelley the police are particularly interested in showing these people how to spot a grow op.

Now I am all for the public taking part in crime prevention, however if the police really wants to do something to prevent grow ops they should support legalization. The only reason grow ops exist is because growing marijuana is illegal, if it were legal the grow ops would be proper businesses instead.

According to the London Police Services website, the average grow op steals $1000 worth of hydro, and can generate up to $1million a year in tax free dollars. Lets assume an average tax rate of 30%, which is low according to Ontario’s own website. At that rate the government is throwing away $312,000 from each grow op per year. That’s not to mention the cost of enforcing the laws and incarcerating the criminals caught breaking this law. According to this Readers Digest article there are at least 50,000 grow ops across Canada, although it would be my guess that this number is a gross underestimation, at that number the government is throwing away $1,500,000,000 in income tax each year alone, that’s right $1.5 billion, and $600 million in uncollected electricity. I wonder what the cost would be if you added how much man power is used to enforce the laws, plus all the propaganda put out to cast people who use marijuana or grow marijuana as evil gangsters.

If the police want to stop the organized crime aspect of marijuana it is real simple, support legalization. Only through legalization can this stop. Legalization and regulation would make sure that the majority of marijuana grown would be for personal use, or by law abiding businesspeople instead of criminals.