The Economic Implications of the Legalization of Marijuana in the United States

The legalization of the recreational use of marijuana in Colorado and Washington has caused the already debated question of “should marijuana be legalized” to be an even hotter topic. Most people, who argue against the legalization of marijuana, feel as if the state should not be involved in the distribution of a substance that is deemed morally wrong by a rather large proportion of the population. People, who argue for it, mainly focus on moral, along with economic issues. A very popular argument for the legalization of marijuana is that instead of investing in the black market, people would be investing in the state. What are the economic effects of legalizing marijuana in the United States? The legal marijuana market has serious potential, but it will not bring in as much money as states expected and it will not solve America’s drug War.

             According to estimates by Arcview, a marijuana research firm, the national legal marijuana market value in 2013 was $1.53 billion (2013). This number was generated through assessing all states that have active and open sales of marijuana to people legally aloud to posses it under state law (Arcview, 2013). Arcview projects this number to grow to about $2.57 billion this year—an impressive increase of 68 percent from last year (2013). The legalization of marijuana in Washington and Colorado is expected to add $253 million and $455 million to their respective markets this year (Arcview, 2013).

             It is not strictly marijuana that brings in money. The legalization of cannabis has caused innovators, looking to gain profit from the expanding business, to develop creative marijuana products (Leinwand Leger, 2014). For example, a Colorado man named James Howler created marijuana infused candy in 2009 (Leinwand Leger, 2014).

Howler went from having trouble finding and accountant that would work for him to having venture capitalists from New York craving a stake in his Cheeba Chews and a part of the $2.6 billion business (Leinwand Leger, 2014). The National Cannabis Industry Association grew from 150 members to 500 members in the past year (Fish, 2014). “”One of our members had a job fair in Denver a couple of months ago and they had 1,500 people show up””(Fish, 2014). Jobs have been created for people in the technological world (app developers) and in completely different job sectors such as security (Healy & Johnson, 2014). Established laboratories that test products are among the fastest growing parts of the legal cannabis industry (Fish, 2014). This changes the way people think about their marijuana as they go from getting risky weed from the black market to certified marijuana and tested marijuana products (Fish, 2014).

             Although it seems like being in the marijuana business is easy-going, it is actually a difficult industry to be in. Almost all banks refuse to deal with dispensaries and growth facilities (Fish, 2014). This makes it very difficult to gain access to any sorts of funding (Healy & Johnson, 2014). Having a cash only business also makes it very difficult for these businesses to pay expenses such as payroll, utilities and taxes and it requires some serious security (Fish, 2014). Entrepreneurs have to be creative when it comes to growing their business while following all federal laws (Leinwand Leger, 2014). Because weed is illegal under federal law, a marijuana product can’t cross state lines (Leinwand Leger, 2014).

            Both Washington and Colorado have not been afraid to heavily tax recreational marijuana. In Colorado, marijuana is taxed three times. A 10% state sales tax is imposed on retail marijuana and on marijuana products (Wood, 2014). This is combined with the 2.9% existing sales tax (Wood, 2014). Colorado also imposes a 15% sales tax on all wholesale sales of marijuana from the grower to a retail operation (Wood, 2014). These heavy taxes are actually keeping users from buying retail marijuana (Wood, 2014). Colorado is missing $21.5 million of the $33.5 they projected to collect in the first six months (Wood, 2014). One explanation for this is that people are still buying on the black market (Wood, 2014). According to the Marijuana Policy Group, only an estimated 60% of purchases in Colorado will be done legally (Wood, 2014). Weed is considerably cheaper on the black market; so many users are just continuing to buy illegally (Wood, 2014). The low taxation on medical marijuana could also contribute to this issue (Wood, 2014). Medical Users aren’t switching over to expensive legal weed and some are even selling their cheap medical weed on the black market (Wood, 2014).

            Another question that needs to be asked is what will happen to the cartels. Some farmer’s in the Sinaloa state of Mexico claim that they have stopped planting marijuana crops because of massive drops in wholesale prices (Miroff, 2014). “One farmer is quoted as saying: “It’s not worth it anymore. I wish the Americans would stop with this legalization.””(O’Hara, 2014). It is impossible to give an exact numbers that shows how hard legal marijuana will hurt the cartels, but it is certain that the cartels will be affected considering they used to make up to 35 to 40 percent of their profit from marijuana (O’Hara, 2014). Although this all sounds good, there is still bad that will come from the situation. Cartels are now focusing on exporting more heroin and they are doing so very easily (Miroff, 2014). This being said, legalizing marijuana would slow down and possibly stop the trafficking of marijuana, but it wouldn’t stop drug trafficking all together.

            Colorado has proved that the market for the legalization of marijuana has tremendous potential and that it can benefit both the public and government economically. However, it has also shown that legalizing marijuana doesn’t solve all drug related issues. Some users continue to buy from the black market and drug trafficking is certainly not finished. That being said, the United States is still a very long way away from even considering being a nation where Marijuana is legal on a federal level. 

By,

Liam Nicol

References:

Arcview Public Research. (2014). The state of legal marijuana markets 2nd edition.             Arcview Public Research. Retrieved from             http://static.squarespace.com/static/526ec118e4b06297128d29a9/t/530808f6e4b0  1ddda837dc99/1393035510447/Executive+Summary+-            +The+State+of++Legal+Marijuana+Markets+2nd+Edition.pdf

Fish, S. (2014, June 11). Legal marijuana, a multibillion-dollar industry, still faces legal hurdles. Aljazeera America. Retrieved from             http://america.aljazeera.com/articles/2014/6/11/marijuana-industrygrowing.html 

Healy, J. & Johnson, K. (2014, July 18). Next gold rush: legal marijuana feeds        entrepreneurs’ dreams. The New York Times. Retrieved from             http://www.nytimes.com/2014/07/19/us/new-gold-rush-legal-marijuana-feeds-        entrepreneurs-dreams.html?_r=1

Leinwand Leger, W. (2014, October 6). Entrepreneurs eye emerging marijuana markets.                 USA Today. Retrieved from             http://www.usatoday.com/story/news/nation/2014/10/04/entrepreneurs-eye-         emerging-marijuana-markets/15522833/ 

Miroff, N. (2014, April 6). Tracing the U.S. heroin surge back south of the border as         Mexican cannabis output falls. The Washington Post. Retrieved from    http://www.washingtonpost.com/world/tracing-the-us-heroin-surge-back-south-    of-the-border-as-mexican-cannabis-output-falls/2014/04/06/58dfc590-2123-4cc6-           b664-1e5948960576_story.html

O’Hara, M. E. (2014, May 8). Legal pot in the US is crippling Mexican cartels. Vice News. Retrieved from https://news.vice.com/article/legal-pot-in-the-us-is-crippling-mexican-cartels

Wood, R. W. (2014, September 2). $21.5 million in marijuana taxes just went up in            smoke. Forbes. Retrieved from             http://www.forbes.com/sites/robertwood/2014/09/02/21-5-million-in-marijuana-    taxes-just-went-up-in-smoke/taxes-just-went-up-in-smoke/