The Economics of Legalizing Marijuana – Watching Our Federal Debt Go Up In Smoke

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“Ever see 41 Billion Dollars?…. On Weed!”

You are about to read a blog post about a Canadian teacher advocating for marijuana to be legalized.  That might have been a lot more noteworthy a few months ago before Liberal leader Justin Trudeau (a former teacher) came out and stated that he was in favour of full legalization (not that faint-hearted decriminalization stuff) of marijuana.

Up until now I have not been a big fan of Mr. Trudeau’s if I’m being honest, but this new plank to his platform is brilliant in all kinds of ways.  Many people were quick to point out that this would go over well with the youth voters (these exist?) and the more liberal (lowercase l) parts of his base.  The less-covered aspect of this is how it appeals to libertarian-based “small c” conservatives like myself.  See, I’ve never tried marijuana (much to my students’ disbelief), and I don’t intend to any time soon.  I have seen people become psychologically addicted to the effects of the drug (I’ve read all the stats on non-addiction and I can say for certain that while you might not go through withdrawal from THC leaving your system, there is a definite dangerous dependency on what the drug does for people in terms of dulling their sensory inputs) and I can’t stand the smell.  Yet I firmly believe we should legalize marijuana, if only for the monetary benefits!

The Economics of Legalizing MarijuanaBefore we get to the juicy part where a teacher tells people why weed is great, I should point out a few things quickly.

  • I’m not ignorant to the negative physical effects of long-term marijuana use.  I would never advise someone to start smoking marijuana under any circumstances – save for maybe certain extremely select medical instances that I’m not an expert on.
  • We absolutely need to focus on developing better roadside tests for people that drive while under the influence of marijuana – and don’t give me that crap about how you drive better stoned because it’s ridiculous and all it does is turn reasonable people like myself against you.
  • Marijuana rarely has a positive overall effect on people’s lives – but last time I checked, neither did potato chips, pop, energy drinks, cigarettes, Jersey Shore, and/or alcohol.
  • We need much better programming and an overall strategy to deal with the abuse of THC amongst Canada’s youth.

Ok, on to the part where my students’ parents would cringe.  If we accept that the harmful physical effects of marijuana (not all the other stuff that drug kingpins spice marijuana up with) are no worse than those caused by the long-term use of several other legal substances (as has been pretty effectively proven in numerous studies) then we can leave that argument alone.  Yes, marijuana is bad for you.  Yes, even occasional use of marijuana is not good for you.  Yes, in a perfect world there would be no need for recreational drugs of any kind.  And yes, we have already set a pretty strong precedent with other recreational drugs.

Here are some facts about legalizing marijuana.  These are not numbers I found on “ILoveWeed.com” or “CanadianMaryJaneLover.ca”.  These are reputable studies and polls quoted in Canada’s most trusted news publications:

In a recent Maclean’s article:

“In Canada, Gerald Thomas, an analyst with the Centre for Addictions Research of B.C., and Chris Davis, an analyst with the Canadian Centre on Substance Abuse, used Health Canada data to chart the health and social costs of cannabis, tobacco and alcohol. Their findings: tobacco-related health costs are over $800 per user; alcohol-related health costs were $165 per user; cannabis-related health costs were $20 per user. Enforcement costs added $153 per drinker and $328 for cannabis user. In other words, 94 per cent of the cost to society of cannabis comes from keeping it illegal.”

Also noted in the same article:

“Stop the Violence B.C.—a coalition of public health officials, academics, current and former politicians—is trying to take the emotion out of the legalization debate by building science-based counter-arguments to enforcement. One of its member studies concludes B.C. would reap $500 million a year in taxation and licensing revenues from a liquor-control-board style of government regulation and sale.”

The National Post wrote:

“A recent study published in the International Journal on Drug Policy shows exactly what’s at stake. According to a coalition of researchers from the University of British Columbia and Simon Fraser University, B.C.’s domestic marijuana market could be worth more than $500-million annually. With relatively low production costs, most of that revenue goes directly into the pockets of increasingly sophisticated criminal organizations — the proceeds of which are known to fuel the importation of cocaine and firearms into Canada. Tough law-enforcement efforts have failed to limit the supply and consumption of marijuana, while lining the pockets of gang members.”

The National Post also stated:

“Estimates vary wildly on the cost impact of marijuana use and of enforcement. Back in 2002 the Senate report pegged the annual cost of cannabis to law enforcement and the justice system at $300 million to $500 million. The costs of enforcing criminalization, the report concluded, “are disproportionately high given the drug’s social and health consequences.”

USA Publications Have Stated:

The government would save an estimated $13.7 billion on prohibition enforcement costs and tax revenue by legalizing marijuana, according to a paper endorsed by 300 economists.

Marijuana Prohibition Costs Taxpayers $41.8 Billion A Year Including lost tax revenues, a 2007 study found that enforcing the marijuana prohibition costs tax payers $41.8 billion annually, Forbes reports.

Legal Marijuana Could Be $100 Billion Industry Economist Stephen Easton estimated in 2010 Bloomberg Businessweek reports.

So there are some obvious monetary benefits, but who is this teacher that doesn’t care about the kids you might ask?  Well here’s the thing…

“Tax it, regulate. It’s one of the only ways to keep it out of the hands of our kids because the current war on drugs, the current model is not working. We have to use evidence and science to make sure we’re moving forward on that.”Justin Trudeau

 

“It’s certainly not the best case on the evidence. Regulation doesn’t always keep booze and cigarettes away from kids, now does it? Still, it’s tough to imagine that selling marijuana at government-licensed stores would make it easier for children to obtain it. A UNICEF report released in April found that 4% of children aged 11, 13 and 15 reported smoking cigarettes “at least once a week”; 16% reported having been drunk on at least two occasions; and fully 29% reported “having used cannabis in the last 12 months.”–National Post

Perception Meet Reality

I can tell you this much.  I live in a rural prairie town where things like “homegrown values” are still talked about.  It is probably one of the most conservative places in Canada – and yet every single one of my students recently put their hand up when I asked the question, “Who here is confident that hypothetically, if they wanted to, they could get their hands on marijuana inside of fifteen minutes?”  The statistics bear out this reality.  We are currently doing a terrible job of managing this unfortunate reality.  We have developed all kinds of strategies to try and convince young people not to smoke cigarettes and yet we allow adults to have the freedom to make the choice.  I’d be a huge advocate of taking a solid percentage of the revenues collected from legalizing marijuana and working off the tobacco-precedent in terms of showing minors the negative effects marijuana can have on your health (make it a part of the presentation that shows what smokers who get cancer look like, and what liver cancer due to alcoholism does to a person).  Right now we’re chasing them into the arms of drug dealers who obviously have their best interests in mind right?

On a moral level, I’m a libertarian who believes people should have the right to do what they want as long as they don’t need to take my money to do it (there seems to be an ever-increasing number of people who need my tax dollars to do anything – or nothing at all) and it doesn’t infringe on my rights.  Smoking marijuana in your home does not affect me, driving while under the influence does, it’s that simple.

It's All About the Green

Apart from that however, I’m going to get back to the economics on this because it boggles my mind.  Now admittedly I’m no expert, but the broader Canadian public stands to benefit from legalizing marijuana in the following ways:

  • Decreased enforcement costs (less police, lawyers, judges, and paperwork needed to go after small-scale drug offences).
  • Decreased jail costs (less people in jail = less guards, less food, less necessities etc.)
  • Huge tax revenue from sales
  • Huge tax revenue from producers – current drug producers and distributors (i.e. drug dealers) don’t pay taxes, but Marlboro and Budweiser do.

If reports produced by Canada’s senate put enforcement costs at $500 million back in 2003, it has to be significantly higher today right?  So that’s a nice little savings right there, and it frees up police time to go after stuff like white collar crime that affects our everyday lives in a huge way and yet is rarely ever looked at.

Who Wants a Piece of the Marijuana Profit Pie er… Brownie?

As a financial geek and someone who hates paying taxes, the key for me really comes down to the tax revenue we are missing out on by not taxing the marijuana industry at either end.  In Canada, 70% or so (depending on the province) of the cost of a cigarette is taxes.  The balancing act one has to play in the Sin-tax market is to set the tax rate as high as possible without setting it high enough to encourage too much black market consumption.  Imagine the revenue the feds and the provinces could produce if they had a 300% tax on marijuana?  Anyone that says this is too high a tax rate that it will result in a price that is too high is forgetting several factors such as:

  • The current “street price” of marijuana has to take into account a profit margin for several layers of drug dealers and the additives they put in for various reasons.
  • Currently, marijuana is only grown in very small quantities (from a tobacco-related standpoint).  Legalizing it would allow for large-scale industrialization where it could be cultivated on a level where fields or large greenhouses of it could make use of economy of scale.
  • The distribution system in place for marijuana today is extremely inefficient and has to take into account all sorts of legal costs etc.  Allowing it to go through legal distribution and shipping lines would take a massive percentage of the costs down.

The bottom line is that marijuana could likely be produced and sold to consumers for an insanely small percentage of what it currently goes for on the street (maybe 5-10%?).

Profits = Tax Dollars

Then we get into the taxation on producers.  After carefully regulating the market, corporations would have to produce a consistent product that they would likely make a good profit margin on (however, also one that would be held in check by the free market).  This profit would then be taxed.  Everyone that works for these companies would also have their wages taxed.  Shareholders that made money on these corporations would be taxed as well.  Right now we are getting none of this because drug dealers don’t pay taxes!!  Not only that, but often the profit made from marijuana deals fuels activities such as prostitution, gun running, harder drug peddling, and other activities that cost the government HUGE amounts of money to enforce laws against!  The way these costs add up is astounding.  It makes it tough to even come up with a reasonable estimate.  If you put marijuana sales at a quarter of cigarette sales for instance, you’re easily in the $3 billion range when all costs are figured out.  That is revenue that is sitting there waiting to be taken with absolutely no negative lifestyle changes from the current way of doing things that I can figure out.

Health Care Costs Go Up In… Steam?

So here’s a controversial side note to consider.  If we’re worried about the public health costs of THC would it not make sense to have some sort of tax-incentive or government subsidization applied to the purchase of vaporizers?  For those of you who aren’t familiar with this product, the basic idea is that you apply a little grade ten chemistry to marijuana and you get the THC without the vast majority of bad stuff that is in non-filtered joints (and the bad stuff in cigarettes for that matter).  By heating up marijuana and turning the THC into a gas, a person can then inhale almost pure THC without several more harmful substances.  One of my health-conscious friends in university used to use one all of the time (which I appreciated due to my abhorrence for the smell associated with weed).  If vaporizers were scientifically proven to reduce the various harmful physical side effects that our public health care system eventually has to pay for, wouldn’t that be a good investment for the Canadian government to encourage?

With every poll that comes out it appears that my view is no longer a minority.  Where do you stand on the topic?

15 Comments

  1. Jordann @ My Alternate Life on July 30, 2013 at 12:53 pm

    Excellent post. I particularly like that you let well known publications lay out your argument for you, that adds a lot of weight. I completely agree with you, and have since I was old enough to grasp the intricacies of this issue. Just wish law makers would finally wake up and make this happen – most people want it anyway.



  2. Chris Acton on July 30, 2013 at 4:22 pm

    Excellent article and I completely agree with you on almost everything above. Including the dangers of marijuana use (speaking as an ex-smoker) I think that the pro-marijuana people ignore or don’t notice (and yes, it may be that they’re just too stoned) the harmful effects of weed. Yet, prohibition clearly doesn’t work. And legalization/regulation clearly has benefits as you explain in detail.



  3. Patrick on July 30, 2013 at 10:08 pm

    Completely agree with everything you’ve posted, it still boggles my mind that we haven’t gone this route. My guess is that the US is applying a lot of pressure to keep us from going this route.



  4. Tracey H on July 31, 2013 at 7:58 am

    I didn’t see tourism mentioned in the article. Can you imagine how attractive Canada would be to tourists (especially US tourists just across the border) if marijuana were legalized?



  5. Lauren @Cheapstudents.ca on July 31, 2013 at 2:23 pm

    Really great take on this issue and to be honest it’s definitely something I have looked at before. About a month or so back I read an article in Maclean’s all about the topic and to me it seems like a no brainer. A lot of the budget deficit issues, government cuts as well as threats of increased taxes and fees could be lessened as a direct result of marijuana being legalized. Think of all the troubles the GTA and Hamilton area are facing lately about fixing our transportation problems, imagine the $’s earned from marijuana legalization going towards public transit and decreasing the use of cars? I would rather that then an attempt to increase my sales tax. So I’m in for legalizing weed, why not?



  6. Teacher Man on July 31, 2013 at 10:18 pm

    Our friends in Denver claim that the taxes from legalizing MJ down there are going towards improving the education system. Sounds like a smart move to me.



  7. Teacher Man on July 31, 2013 at 10:19 pm

    Absolutely, great point Tracey.



  8. Teacher Man on July 31, 2013 at 10:20 pm

    How long will that keep up though? How many states will have legalized it in ten years do you think?



  9. Teacher Man on July 31, 2013 at 10:21 pm

    Exactly. Thanks for the back up Chris.



  10. Patrick on August 1, 2013 at 9:57 pm

    Oh, I agree. And I think we’re just starting to see that ball get rolling. It’d still be nice if Canada could get out in front of something for once though..



  11. […] The Economics of Marijuana-Watching Our Federal Debt Go Up in Smoke – While the title is an exaggeration (as I’ve noted), this article on Young and Thrifty makes a good case for legalizing marijuana. […]



  12. Jerry Golick on August 4, 2013 at 12:15 pm

    Dear Mr. TeacherMan,

    I has taken a few days for me to reply to your blog entry. Living in Montreal, news (even internet news) sometimes travels slowly. For the record, I am 61 years old, reasonably successful in my life, and have been a habitual user of cannabis for the last 40 years.

    While, in the main, I agree with your position, I would like to take exception with some of your points:

    “I



  13. Teacher Man on August 4, 2013 at 2:15 pm

    That is one heck of a detailed post Jerry, thanks for taking the time to comment in such depth. I’ll reply in bullet points:

    1) Admittedly I’m not expert on THC but I can tell you for a fact that I’ve seen at least two dozen cases first-hand where the correlation between a habitual (daily) use of marijuana had adverse effects on people I knew well. On top of this, a quick Google search revealed plenty of government-researched data like that found on this site: www.drugabuse.gov/publi…/marijuana. I’d argue there are plenty of long-term effects that are very visible in today’s society. There is a bevy of evidence that backs this up.

    2) The idea that marijuana does not impact your reflexes and consequently make you a poorer driver is ridiculous. This is exactly the type of assertion that continues to cripple your argument for legalizing marijuana. Are you really suggesting that every person that is stoned to the point of their eyes closing is more “aware” of the fact they are inebriated? Again, please do your movement a favor and drop these claims as they only empower the extremists on the other side of the debate. What does it harm to make sure that people are not high when they are operating death machines?

    3) Your point about a room full of drunks or a room full of stoners is relevant and supports my general idea that people should be allowed to choose their own recreation if at all possible (assuming it doesn’t adversely affect anyone else). However that premise does not automatically prove the conclusion that marijuana has no adverse effects. If you tried to make the argument (as I did) that alcohol and THC each have negative side effects so it is illogical to allow one and not the other, I think that is done successfully.

    4) I will absolutely stand by the fact that routine use of MJ impacts young people. I know literally dozens of older professionals who understand how and when to use MJ recreationally without impacting their overall life adversely. My students on the other hand are negatively affected to a massive degree by routine MJ use. The same education that accompanies alcohol and tobacco should accompany MJ use in minors.

    5) Ultimately we come from the same place of people having the freedom to make their own choices right?



  14. jp on August 4, 2013 at 3:48 pm

    Nevada put a huge tax on tobacco products and gave every student a $10,000 scholarship if they graduated from a NV high school and went to a NV college (called the Millennium scholarship – they’ve since put more restrictions on it as they run out of money). Each state could do something similar with the MJ taxes – or use it for other educational and/or transportation/structural causes.



  15. Jerry Golick on August 5, 2013 at 12:43 pm

    Hi TeacherMan,

    Thank you for taking the time to reply in such detail to my post. And thank you as well for keeping the conversation civil (in the best Canadian tradition, eh?) on a topic that often leads to personal attacks and general nastiness. It is a pleasure to find someone who is willing to debate the facts.

    If you don



  16. Chris Acton on August 6, 2013 at 1:00 pm

    Jerry makes good points here and I feel I should qualify my earlier statement about the negative effects of marijuana. While I do see some concerning effects in some people I should add that I also know many people who smoke regularly (one for almost 60 years now!) and suffer no ill effects whatsoever. And yes, there are certainly many beneficial effects as well, the anticancer one being more well researched. Like many things it’s about who you are, what you’re smoking (there’s a tremendous variety out there) and a host of other factors….yes to individual choice and if you grew it in your own backyard it would likely be very benign.



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