The Effects of Marijuana Legalization on the Economy

Introduction

Marijuana legalization is a hot topic throughout the country, as some states have legalized the use of marijuana for medical and recreational use. So far there have been 10 states that have legalized marijuana for recreational and medical use according to the (map of marijuana legality). The rest of the country is either on the fence or have no plans of legalizing marijuana use as a whole. Many reasons contribute to the issue, whether it is economic or ethical, however for this research we will focus on the economic impact that legalization of marijuana has had on the previous states in terms of GDP. In my research, GDP will be our dependent variable and legalization status will be our independent variable. We will be measuring GDP in terms of percentage growth in order to measure the rate that GDP is growing for the states that have either legalized or have not done so in order to measure the true impact of legalization. Measuring in terms of pure output will yield biased results due to some states naturally producing more GDP than others.

The issue of marijuana legalization in the U.S. has major implications on both incarcerations cost and tax revenue by the government. Some research has estimated that the United States government spends “$9.2 million every day to incarcerate people charged with drug related offenses” (American Progress, Pearl). According to the federal bureau of prisons, drug offenses account for 45.4% of the number of inmates in U.S. prisons (BOP).  Looking into the incarceration rates in America, Drug related incarceration reported 1,429,299 new incarcerations in 2018 for possession of drugs, with 608,775 due to marijuana possession. The statistics indicates that a major portion of the cost of drug related incarceration for possession can be due to the high incarceration for marijuana possession. The data clearly indicates that drug incarceration is a major issue in the United States, with a strong proportion of this coming from marijuana use. The issue is one of prevalence for the United States government because of the potential to save with less incarceration for possession.

On the other end of the spectrum marijuana legalization is driven by the potential revenue that governments can gain from taxes. In Canada the legalization of marijuana saw increased tax revenue of $186 million Canadian dollars ($140 million US dollars) (Reuters). Now of course Canada is not the United States and the figures reported by Canada would be much more different in the United States. If we look at the impact that it could have in the United States, we can turn to the state level. Colorado legalized marijuana and saw tax revenues of 135 million in 2015 (Hajizadeh, 2016). As one of the first states in the United States to legalize marijuana the tax revenue generated by the sale of marijuana for recreation shows that it can be profitable for the government to tax. The increase in tax revenue from marijuana sales opens the door for the United States to spend the additional revenue on things that would benefit the country. The potential of additional tax revenue should be of a particular interest to the citizens as well, because of the potential to improve infrastructure or decrease current tax rates.

Literature Review

It appears that legalization of marijuana is a no brainer for the government, but there does appear to be some other cost associated with implementing new policies. Evans (2013) predicts the true impact of legalizing marijuana goes beyond just the surface effects, with things like costs of repealing laws, implementing and enforcing new laws all being a factor.  Evans article does a great job at showing us the negative impacts of marijuana legalization, but it does so from an almost completely biased standpoint. The journal fails to take an adequate take on the tax revenue from recreational sales, instead focusing on miniature tax revenues of medical sales as it’s example.

As one of the first states to legalize marijuana, Colorado has been a model for the rest of the country. Hajizadeh (2016) notes that Colorado recorded a strong $1billion in sale of medical and recreational marijuana in 2015. Hajizadeh’s study was done on the potential of Canada’s economy when legalizing marijuana, before Canada eventually legalized it. It was predicted that marijuana would be a $10-Billion-dollar industry, with the government potentially cashing out on 50% depending on how high they set the tax (Hajizadeh, 2016). The journal predicted a very profitable industry for both the government and business, but failed to account for the fiscal cost predicted by Evans (2013). Instead of looking at purely the market, the journal should have perhaps looked more into GDP to get a bigger picture of the impact of marijuana legalization on the economy.

Citations

1. Betsy Pearl - https://www.americanprogress.org/issues/criminal-justice/reports/2018/06/27/452819/ending-war-drugs-numbers/
2. Drug War Statistics http://www.drugpolicy.org/issues/drug-war-statistics
3. Federal Bureau Of Prisons https://www.bop.gov/about/statistics/statistics_inmate_offenses.jsp
4. Cannabis Generates C$186 Million in Tax Revenue in Canada in First Months Of Legalization https://www.reuters.com/article/us-canada-cannabis/cannabis-generates-c186-million-in-tax-revenue-in-canada-in-first-months-of-legalization-idUSKCN1TK2YV
5. Hajizadeh M. Legalizing and regulating marijuana in Canada: review of potential economic, social, and health impacts. Int J Health Policy Manag. 2016;5(8):453–456. doi:10.15171/ijhpm.2016.63 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4968247/
6. Evans, David G. "The economic impacts of marijuana legalization." The Journal of Global Drug Policy and Practice 7.4 (2013): 2-40.
7. Map Of Marijuana Legality By State https://disa.com/map-of-marijuana-legality-by-state