Politics Blog

Legal pot: maximum tax revenue, maximum profit, maximum social damage?

Washington and Colorado's quasi-legal marijuana industry is likely to cause a lot of unnecessary harm, says Mark Kleiman, professor of public policy at UCLA and an advisor to Washington state on marijuana issues.

Writing in Washington Monthly, Kleiman says the industry now being established in both states may maximize profits for the industry and revenue for the state, but it may also help to maximize drug use among those who find that too much pot-smoking is disrupting their lives.

Kleiman isn't arguing against legalization. He says it is too late for that. Instead, he calls on the federal government to step in and take over the legal marijuana business, setting up a system that does away with the harmful social costs of marijuana prohibition, while also minimizing the negative side effects of legalizing a powerful and, for some, harmful drug. 

Here are just a few key quotes from Kleiman's lengthy essay--emphasis mine:

Cannabis consumption, like alcohol consumption, follows the so-called 80/20 rule (sometimes called “Pareto’s Law”): 20 percent of the users account for 80 percent of the volume. So from the perspective of cannabis vendors, drug abuse isn’t the problem; it’s the target demographic. Since we can expect the legal cannabis industry to be financially dependent on dependent consumers, we can also expect that the industry’s marketing practices and lobbying agenda will be dedicated to creating and sustaining problem drug use patterns ...

The trick to legalizing marijuana, then, is to keep at bay the logic of the market—its tendency to create and exploit people with substance abuse disorders. So far, the state-by-state, initiative-driven process doesn’t seem up to that challenge ...

It remains to be seen whether even the modest taxes and restrictions passed by the voters survive the inevitable industry pressure to weaken them legislatively ...

The industry’s marketing efforts will be constrained only by rules against appealing explicitly to minors (rules that haven’t kept the beer companies from sponsoring Extreme Fighting on television)...

The difficulty is that marijuana is both relatively cheap compared to other drugs and also easy to grow (thus the nickname “weed”), and will just get cheaper and easier to grow under legalization. According to RAND, legal production costs would be a small fraction of the current level, making the pre-tax value of the cannabis in a legally produced joint pennies rather than dollars ...

 Taxes are one way to keep prices up. But those taxes would have to be ferociously high, and they’d have to be determined by the ounce of pot or (better) by the gram of THC, as alcohol taxes now are, not as a percentage of retail price like a sales tax. Both Colorado and Washington have percentage-of-price taxes, which will fall along with market prices ...

The other way to keep legal pot prices up is to limit supply. Colorado and Washington both plan to impose production limits on growers. If those limits were kept tight enough, scarcity would lead to a run-up in price. (That’s happening right now in Colorado; prices in the limited number of commercial outlets open on January 1 were about 50 percent higher than prices in the medical outlets.) But those states are handing out production rights for modest fixed licensing fees, so any gain from scarcity pricing will go to the industry and encourage even more vigorous marketing ...

In Uruguay ... which is now legalizing on the national level, the current proposal requires cannabis vendors to be registered pharmacists. Cannabis is, after all, a somewhat dangerous drug, and both much more complex chemically and less familiar culturally than beer or wine. In Washington and Colorado, by contrast, the person behind the counter will simply be a sales agent, with no required training about the pharmacology of cannabis and no professional obligation to promote safe use.

Kleiman's essay is one of several on legal marijuana issues in the current online issue of Washington Monthly.

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