If pot is legalized, government will distort the market for it

Last week, California governor Arnold Schwarzenegger signed into law legislation that reduces the possession of less than an ounce of marijuana from a misdemeanor to an infraction. This attempt to decriminalize the possession of marijuana comes on the heels of similar actions taken by several other states, which are apparently convinced that certain drug laws are ineffective at best and contribute to both fiscal and societal chaos at worst. But proponents of legalizing or decriminalizing marijuana place far too much faith in the power of government to alleviate social ills.

Proponents of decriminalization argue that criminalizing marijuana only forces it underground, perpetuating a black market in drug dealing whose associated activities include violent crime and social disorder. Rather than fomenting such unintended consequences, government should instead regulate, tax, and benefit from the orderly sale and distribution of this commodity. Many drug legalization advocates further argue that the revenue generated from taxing marijuana can be used to benefit a whole host of social concerns.

What many in the drug legalization crowd fail to recognize is that government, in its infinite wisdom, will ultimately distort this newly legitimate marketplace to such a degree that it will render the perceived benefits of its creation insignificant. In its zeal to capitalize on what it sees as a major new source of revenue, government will popularize marijuana use among the general public and, through overzealous taxation and regulation, fail to reduce the aforementioned black market and all of its attendant criminality.

Case in point: California’s Proposition 19, while not setting a uniform standard for taxation of marijuana across the state, will allow individual localities the leeway to set their own standards of taxation on the sale and cultivation of marijuana. If Proposition 19 and Measure C — a related measure linked to the passage of Prop 19 — pass, localities will be able to tax marijuana at rates upwards of ten percent.

While Proposition 19 would make the possession and recreational use of marijuana legal in California, levying a ten percent tax on those selling it lawfully, coupled with a host of other fees related to its cultivation, will increase its cost to such a degree that many pot smokers will simply continue to buy their weed from sources unencumbered by the state’s regulations, e.g. drug dealers.

This does not bode well for the proposition that legalizing “harmless” drugs such as marijuana will lessen the prevalence of illicit drug dealers. The state may ultimately generate significant tax revenue from the sale of marijuana, but at what cost? How many new drug users will decide to try marijuana due to the perception that its being legal somehow makes it safe? What are the ramifications on other forms of drug use, given the potential for marijuana to be a gateway drug? Do the potential costs truly outweigh the desired benefits, given that government market distortions will likely only perpetuate the crime and social ills currently associated to its sale and use?

These are all relevant questions that drug legalization advocates should be challenged on. While the benefits of decriminalizing marijuana may be considerable in theory, any optimism should be tempered by the realization that government interventions rarely play out as intended. In this case, the potential harms caused by the passage of Proposition 19 likely outweigh the possible benefits.

Scott G. Erickson is an advocate of conservative, principled solutions to the issues facing America. He has worked to advance conservative priorities through coalition building and is an active participant in myriad organizations seeking to restore the foundational principles of America. A committed public servant, he has worked in the field of law enforcement for the past decade and holds both his B.S. and M.S. in Criminal Justice Studies. He resides in the San Francisco Bay Area.

  • Duncan20903

    The article’s conclusions are silly, plain silly.

    How do you explain the CBOE’s report that in 2009 California pocketed between $50 million and $100 million in sales and use taxes imposed on medical cannabis? Every single last one of the patients who paid those sales taxes are allowed to grow their own cannabis or to go to black market vendors to avoid that tax.


    Yes, there will be a black market. It is ridiculous that every single ill caused by prohibition be required to disappear completely or we should forget about trying to reduce the size and scope of those ills. Next time you’re in a traffic collision just forget using the brakes to minimize the damage. The cars going to be wrecked anyway.

    Why in the world would anyone think that a minor black market operating on the fringes is going to be similar to the ones the current destructive, demonstrable, epic failure of public policy that is the hall mark of the war on (some) drugs promote?

    Hey, can you tell me where I can find the black market dealer for cigarettes? I am aware that there is one, but have no clue how to find a participating vendor. Ditto for drinking alcohol. Where do I find that under the table?

    On the other hand I know where to go to buy cocaine and heroin and could get you hooked up with either or both in less than an hour.Of course presuming that I was willing to accommodate such a transaction.. No, I am not a fan of either. My knowing where to buy it is a function of the idiotic prohibition laws and it’s availability prevalent. For some reason meth isn’t particularly common around here. I do know that if I had a doctor’s RX I could fill it at any licensed pharmacy in the US. Yes, meth is legally available by prescription. Google the brand name Desoxyn for details.

  • MaineGeezer

    Saying we shouldn’t end drug prohibition because we might have to experiment a bit to get the regulation and tax structure correct is silly. Even if there are no taxes at all, the huge social benefits to be derived from ending drug prohibition make it worthwhile to do so, two major ones being:

    1. An end to prohibition-fueled crime and violence;
    2. We get to control what gets sold, where, and to whom. Under prohibition, the criminals decide.

    The organization Law Enforcement Against Prohibition (www.leap.cc), whose members have been in the front lines of the drug war and personally witnessed its failure and devastation, agree that drug prohibition has to end and be replaced by legalized regulated sale to improve public safety and to control drug use. Under prohibition there are no controls at all.

  • gooners

    Funny how societies move, isn’t it? For over sixty years these arguments against ending marijuana prohibition have been taken as fact. Now they just seem quaint.

  • kao711

    I am skeptical of your argument that the costs of legalizing marijuana outweigh the benefits. It seems that there are very large benefits to be had, and that the costs are minimal in comparison.

    The Economist reported that the price of marijuana is likely to decrease by more than 80% if it is legalized, due to the increase of people willing to supply marijuana as it will no longer be illegal to do so (TIME and CBS report similar figures). This does not take the probable tax into account, but it does seem that there will be sufficient room for the government to tax marijuana while still taking rents away from black market drug dealers. Going back to The Economist’s data, a standard ounce of marijuana in California costs between $300 and $450. With the 80% decrease from legalization, an ounce of marijuana should cost between $60 and $90. I don’t know what a drug distributor’s cost structure looks like, but it seems likely that the government could have taxes that are well over 10% and still put black market distributors out of business. I believe that, given the large cushion for taxation of the product, state legislators will have no trouble keeping a safe distance from the over-taxation of marijuana to the point that the black market could reclaim consumers.

    As far as costs and benefits go it seems clear that there is tax revenue generated from the legalization of marijuana. But there is also a large benefit in that the legalization of marijuana will severely cripple the Mexican drug cartel. The White House Office of National Drug Control Policy reports that about 60% of Mexican drug cartels’ profits come from marijuana sales, the vast majority of which are US sales. By making prices lower through more competition (due to legalization), these cartels would lose these profits to a large extent. Without these profits, these cartels could not have the same influence no just Mexico, but also America. The Mexico’s cartel’s are accountable for the deaths of over 200 Americans.

    Given the facts and economic data, it seems that the legalization of marijuana would be highly beneficial for the US. While unintended consequences often seem inevitable, it might be unfair to say that the legalization of marijuana will hurt America simply because the government is at times incompetent. As for marijuana being unhealthy and its status as a “gateway drug,” these arguments are highly disputed, and cannot be used to posit that the costs of legalization will likely outweigh the benefits.

  • LindaSpeaks

    This author is so wrong on so many levels. The price will drop as competition increases. Though there may appear to be an increase in users it will actually be a decrease in denial by users no longer afraid of prosecution. There will be a decrease in teen use as a taxed and regulated market will make it harder for them to get. With a recreational choice that is non-lethal there will be fewer alcohol deaths, less domestic violence and sexual assault. I would hardly call that a cost to society.

    Every objective study, including the government’s own, shows cannabis to be safer than alcohol…..

    Yes on Prop 19 is a step towards a saner society.

  • sawdustking

    I’m not sure how California or any other state can actually legalize marijuana and effectively facilitate an orderly method of distribution and taxation when there is a federal law banning the stuff. Decriminalization is the only option at the state level. In the big picture I don’t see why legal marijuana would be treated any differently that cigarettes or alcohol. Sure they tax the shit out of those but it’s still cheap enough to prevent a large scale black market. And IMO for every gateway user there would be one user that sticks to pot because it’s legal and he won’t get into any legal trouble. The real benefits would be in cutting off 60% of the Mexican drug cartels’ gross revenue, eliminating the billions of dollars we spend on enforcement, and generating not only excise tax revenue, but also to bring the industry into the realm of income and corporate taxes.

    • http://www.facebook.com/people/Kyle-Stratis/503607047 Kyle Stratis

      They do it the exact same way they did with Prop 215 and SB 420 (allowing dispensaries officially). The ex-DEA heads are making the same arguments they did when prop 215 was being voted on, that no one will get in the business because it’s federally illegal, is nonsense because people are already growing and selling in defiance of federal law. They don’t have the resources to go after everybody that’s going to be buying, selling, and growing.

  • mjs123

    Your article went pot and became a piece of garbage once you mentioned that pot is “harmless”. The title of article also reeks paranoia which screams that the writer is a stoner.

    • robb32

      MJS123, ok, you’re partially right…pot is harmless to the majority of normal non-obsessive people, much like hamburgers are harmless to the same demographic. There will be a FEW people that can’t handle personal freedom responsibly. The vast majority tho in fact will be fine. It also will reduce the associated crime OVERNIGHT.
      It’s not that we have too much confidence in Government at all, it’s that we have faith in our own personal freedom of choice and that they will stay out of our lives and hence.

      • MaineGeezer

        The dangers, real or imagined, of marijuana are irrelevant to the wisdom of ending prohibition and replacing it with legal regulated sale. That makes sense in any case. It just means the regulations we choose to impose may be different depending on the documented dangers.

    • Duncan20903

      Cannabis is relatively harmless. The only health hazards worthy of serious concern that the know nothing prohibitionist include in their hysterical rhetoric is not a health hazard of cannabis, but a health hazard of setting things on fire and inhaling the gasses produced by combustion. You would have a very similar risk profile if you decided to smoke oatmeal.

      Smoking is not required.It seems that the know nothings can’t grasp that fact. Vaporization has been given a clean bill of health in recent research. Eat it, tincture under the tongue, topical salve, eye drops and transdermal patches are also delivery methods which are available. Oh right, I almost forgot another delivery mode is suppositories for taking it anally.

      —“Work Accomplished
      In the area of non-smoked routes of cannabis administration, Dr. Donald Abrams’ study, “Vaporization as a ‘Smokeless’ Cannabis Delivery System,” has been completed and the results published in the Journal of Clinical Pharmacology & Therapeutics. This study found that vaporization was a safe and effective mode of delivery. Two CMCR clinical trials are now in progress utilizing vaporization.”—

      quote from http://www.cmcr.ucsd.edu/CMCR_REPORT_FEB17.pdf

  • gatortarian

    LOL, this have been the one thing that does concern me about legalization! As long as they don’t ban people from growing it let them tax away as I’m concerned.

    • thephranc

      They will have to ban growing it in order to remain in control and get the taxes. Growing it is very easy and if it was allowed every one who wanted to smoke weed would simply grow their own plants. I know I would. And that would mean no tax revenue. It would also mean more money in the system as people spend it on other consumables like food or electronics ect where it would still get taxed. Too bad government isn’t forward thinking enough and can only see the instant tax income on a particular thing. They could open up an entire underground money stream.

      • http://www.facebook.com/people/Kyle-Stratis/503607047 Kyle Stratis

        Like they do with beer right? Beer is really easy to brew on your own too (and it doesn’t take as long as it does to grow weed), but do you see everyone brewing beer to get around alcohol taxes? Of course not. This is a ridiculous argument against 19.

        YES ON 19!

    • Duncan20903

      What in the world makes you think that there is any realistic chance of a law against cannabis cultivation working? Are you unaware of the numbers of people that are currently violating the current cannabis cultivation laws? You know, the laws that come with felony criminal penalties attached?