Study: Legalizing pot could boost use, lower price
July 06, 2010
C.J. Lin, Los Angeles Daily NewsCalifornians will be smoking a lot more pot – and paying a lot less for it – if a ballot measure legalizing recreational use of marijuana passes in November. But other predictions about the effects of legalizing the drug are a lot more hazy, according to a study released Wednesday by Rand Corp.'s Drug Policy Research Center.
"No government has legalized the production and distribution of marijuana for general use," said Beau Kilmer, a Rand researcher and lead author of the report titled "Altered State?"
"So there is little evidence on which to base any predictions about how this might work in California."
For example, if the marijuana trade remains underground, tax revenues generated from legal sales might not reach the $1.5 billion estimated by some government officials. But the shortfall might be more than made up for by "drug tourism," which has helped boost city coffers in Amsterdam for decades.
The passage of Proposition 19, which would authorize a statewide marijuana tax of $50per ounce, could cause prices to plummet from about $375 per ounce to a pre-tax retail price of $38 an ounce as growers shift from illegal operations to commercial production, according to the report.
While researchers were confident that prices would drop by about 80 percent and usage would spike by at least 50 percent, they warned of a "tremendous amount" of uncertainty about other effects.
Would it boost the number of drug-related accidents? How would it impact the illegal drug trade from Mexico? And exactly what would its economic value be to a state desperate to balance its budget?
Revenue could range from $650 million to $1.49 billion depending on the level of demand, tax rates, tax evasion and the response by the federal government, according to the six-month study.
The bill leaves it to local jurisdictions to set tax rates on the drug, so it is impossible to calculate tax revenue, according to the study. The $50 tax is about 10 times the rate of the state's tobacco taxes, which could lead to tax evasion or smuggling, said Kilmer, citing a $3-per-ounce tobacco tax in Canada that ended up being repealed because of widespread smuggling.
"As there is more tax evasion, the revenues to the state go down," Kilmer said. "But it's not clear how much evasion there will be post-legalization.
"That depends on how many restrictions there are."
Los Angeles city officials, who have shut down hundreds of marijuana dispensaries in the last month, declined to comment.
One financial benefit the state could enjoy is a surge in "drug tourism," researchers said.
"You could imagine people coming to California on potential drug holidays, like in Amsterdam," Kilmer said, adding that about 10 percent of tourism in the city can be attributed to its cannabis coffee shops. "But people could be less likely to come to California because maybe they don't want to be a part of this."
It is unclear how users will respond to the drop in price, but researchers estimated that consumption could increase by at least 50 to 100 percent, and perhaps even more. If usage were to rise by 100 percent, marijuana use in the state would be on par with levels recorded in the late 1970s, according to the study.
Researchers also pegged the cost of enforcing marijuana laws at less than $300 million instead of the $200 million or $1.9 million cited by other studies. About 2 percent of the state's policing costs can be attributed to marijuana, according to researcher Robert J. MacCoun of the University of California, Berkeley.
Proposition 19, authored by Sen. Tom Ammiano, D-San Francisco, is one of two proposals on November's ballot that would legalize marijuana for those ages 21 and older.
The $50-per-ounce tax would be used to fund programs operated by the state's Department of Alcohol and Drug Programs.
The second initiative, called the Regulate, Control and Tax Cannabis Act of 2010, would also legalize the cultivation of pot on a 5-by-5-foot plot, and allow users to legally possess, process, share or transport up to one ounce of marijuana.
"It goes without saying that medical marijuana patients would welcome a significant drop in the cost of their medication ... that is over-taxed and prohibitively expensive for many who rely on it," said Kris Hermes, spokesman for Sacramento-based Americans for Safe Access, a medical marijuana advocacy group. "The real question is whether cities will be able to establish new regulatory schemes, which will arguably lower the cost of marijuana, before facing resistance by the federal government."
Public Safety First, the campaign to defeat the legalization of marijuana in California, said the Rand report "highlights the major flaws in Proposition 19."
"We could find ourselves in a situation where we see the worst of all worlds: recreational marijuana consumption goes up; illegal marijuana sales to evade taxes begin; tax revenues go down; we get sued by the federal government and they withhold federal funds from the state," the group said in a statement.
"Aside from pre-tax pot prices going down," the group's spokesman said, "I doubt that's what the proponents had in mind."