Reality Check: Marijuana won’t boost economy

Reality Check: Marijuana won’t boost economy
22 comments, 01/03/2009, by , in Opinion
Intro

First and foremost, let me say that I would love to see marijuana legalized in the United States. As a user, with some growing experience, I believe it will be the best thing in the long run for this nation. Let’s continue…Now that I am down from the high – that is, the high I got from hearing that California may legalize marijuana outright and NJ’s attempt at medical marijuana – I realize or at least believe that marijuana will not be that great of a boost to the economy. In fact, I’ll go so far as to say that it’s the worst idea yet regardless of what side your on – for the economy or for legalization. In fact, I believe, if anything, it may be a boost to anti-marijuana groups in the long term when it does NOT work to boost the economy as many expect.

Problem One: Fallacy of Worth

Today, marijuana is the number one cash crop valued at about $40 Billion in the United States alone. No one argues that figure. California alone expects to reap in $1 Billion of that in tax revenues if they are successful at legalizing it. But, anyone with any business acumen, if they think about it carefully, knows that is not true. When gauging the worth of a product, we take in all factors – costs, supply vs demand, taxes, profit margin, etc.

Cost
If we discuss the costs, all one needs to remember is the very reason marijuana is such a high value cash crop is due to prohibition. The fact that it’s illegal drives up the price considerably. Take away the prohibition and the prices plummet from cultivation to trafficking to the final point of sale. No prohibition = no risk = lower operational costs.

Supply vs Demand
Also, it’s a given that growers will not only grow more marijuana but will be less likely to lose crops to DEA/police raids and theft. Factor in the long term potential that marijuana may have foreign suppliers from all over the world. All of this leads to a greater supply and much lower costs of cultivation along with the competition from many different suppliers from around world. Any kid, after a high school economics class, will tell you all about that supply vs demand chart. Granted, once prohibition is lifted, demand will increase but it will be wrong to imagine that competition alone won’t drive down the prices especially if US growers are competing with South Africa or Zimbabwe where you can get damn good landrace sativas for around $20 USD per pound.

Taxes
Califorina Assemblyman Tom Ammiano proposed a fixed tax of $50 per ounce of marijuana. How feasible is this when marijuana prices hit rock bottom? You get more than an ounce of tobacco in a carton of cigarettes which you can buy online for $10-$20. Imagine paying another $50 for marijuana that not only costs considerably less but probably isn’t even rolled for you.

When NY started to increase the taxes on a pack of cigarettes, it opened up a black market. I recently gassed my car at a Hess station off the University Heights bridge and there was a sign stating $7.56 for a pack of cigarettes, “lowest price allowed by law.” You can get the same pack on the street for $4. While I believe in taxation, we need to be equitable and reasonable in taxing policy, something the United States has not done very well intelligently.

All one needs to do is look up information on the 1920 and 1930’s era of alcohol prohibition to understand the TRUE value of marijuana as a cash crop [Wiki].

When [the] repeal of Prohibition occurred in 1933, organized crime lost nearly all of its black market alcohol profits in most states (states still had the right to enforce their own laws concerning alcohol consumption), because of competition with low-priced alcohol sales at legal liquor stores.

We’ve been here before. Let’s not act “new to the game”.

Problem Two: Smoker Beware

As a person with growing experience, I know what it takes to plant, care for, and process marijuana properly. One thing we don’t do as growers is use chemicals in the drying and curing process of marijuana. While I expect that to continue in the short term, in the long term, we WILL have companies like Altria (Phililp Morris/Marlboro) who infest their tobacco products with all kinds of manmade chemicals. This is to be expected if marijuana is actually legalized.

Also, let’s mention the idea that when the regulations hit, the potency will be controlled. As a user and grower, I will NOT be purchasing marijuana when they begin this practice especially when I can grow my own more potent marjuana and it should be legal for me to do so if they’re legalizing marijuana. Or, maybe I’d just get my product direct from the grower. That’s how everyone does it now, technically.

Problem Three: What about hemp?

We’re talking about legalizing marijuana but where’s the conversation about hemp and all of its benefits. It seems as though these politicians are counting on the potheads to rescue the economy without making any mention of the use of hemp as a cash crop. I’d like to assume that if the consumption of marijuana is made legal then also hemp itself, a very low-thc version of marijuana which can be used to produce food, clothing, and a million other things. I just hope my assumption isn’t far from reality.

Problem Four: Greed is always a bad idea

Legalizing marijuana because you think it will be a boost to the economy isn’t a smart reason; it’s a greedy reason. People who are greedy don’t think carefully about the actions they take. While I do believe it will be a boost in the short term as demand will increase faster than supply, in the long term, legalized marijuana will be a huge disappointment.

Legalize marijuana because it’s the right thing to do to repair the backward drug policy that does more harm to the United States than good. Even if people believe marijuana is dangerous, prohibition is a great deal more harmful to society than the substance itself. And I think with the fact that no one has ever died from marijuana use, we can safely assume that it just might be safer than drinking too much water [Water Poisoning].

Anti-marijuana ammo
In forgetting about the safety and benefits of marijuana and ignoring anti-marijuana groups’ concern for the love of money, we may give these fringe groups all the ammo they need to recriminalize marijuana in the future. Why should it be legal if it doesn’t boost the economy? It’s a pitiful backdoor attempt at legalizing marijuana, much like the people who have the audacity to piggy back onto medical marijuana efforts. I am NOT for it. NOT THIS WAY!

One Benefit: Lower Law Enforcement Costs

The greatest benefit of legalizing marijuana is the cost savings associated with the paring down of law enforcement expenditures. I’ve written about this recently [Budget cuts? Police first!]. I’d rather the United States, or California, make the smart decision to legalize marijuana instead of thinking it will be a major boon to the economy.

Perhaps, the short term boost is all this economy requires. But, then what?

About anthonytaurus

  • Anthony NYC

    I detailed EXACTLY whose usage I was talking about. I estimated an average of 1 pack of cigs per day for your avg. smoker and one ounce per 6 months (and per MONTH if you like for more regular users) for your avg. pot smoker. Not realistic? Can you come up with a better estimate? See below.

    Most adults smoke pot but most of those people only do it once in a while. Very few pot consumers are on a daily, let alone a 2 gram a day such as yourself but even at your level, the NYC cig tax beats your burden by 10 bucks. The comparison here is to someone smoking a pack a day. No good? Is this less than average in your opinion or more? See below.

    A terminally ill patient using an ounce of medi-pot per day should not be taxed at all on it. They currently have care-givers that grow it for them in medi-states if need be. I agree with you that if there is no clause to cover them in the legalization law there should be.

    Explain to me how a grower will save thousands in “costs” by selling his 500 lb. harvest to an illegal buyer over a legal one. If his 500 lb. harvest will be sold for $2 million is a couple Gs really gonna sway him to risk heavy fines and/or jail time? If it were me I certainly wouldnt.

    Ammiano never claimed to have calculated the 1 Billion number. That was the state of California’s tax collector, a non-partisan group of government ECONOMISTS.

    “Betty Yee, chairwoman of the California Board of Equalization, the state’s tax collector, said that legal marijuana could raise nearly $1 billion per year via a $50-per-ounce fee charged to retailers. An additional $400 million could be raised through sales tax on marijuana sold to buyers.”

    from http://www.nytimes.com/2009/03/01/us/01sin.html?_r=1&partner=rss&emc=rss

    As for usage:

    Cigs: http://www.oas.samhsa.gov/2k3/cigs/cigs.htm

    Scroll down to: Table 1. Number of Cigarettes Smoked Per Day among Daily** Smokers, by Age, Gender, and Race/Ethnicity: Percentages, 2002

    You will see the highest percentage falls under 1 pack per day range, hence my average estimate is correct.

    MJ: http://www.idmu.co.uk/hol3.htm

    This is an old one I admit but it estimates the “regular” users average at EXACTLY the amount I said: 1 oz/month.

    My other point was that the majority of “users” are not “regular” or “daily” users and so that would bring the average consumption way, way down. Scroll down to the table at the bottom of the UK link and you will see the median monthly consumption of pot at 14 grams or half an oz.

  • AnthonyNYC.. you make assumptions that simply aren’t true. You claim you base your info on so many factors but you fail because your logic is absolutely flawed.

    example: you make the claim the the tax burden to potheads will be $8.33 per month. BASED ON WHOSE USAGE? At $50/ounce, the burden to me would be 100 monthly. To a terminally ill person who may go through an ounce a day, AND SOME DO, that’s $1500 monthly. So, once again, BASED ON WHOSE USAGE?

    example: you claim that cig users buy a pack a day. BASED ON WHOSE USAGE? Not everyone smokes a pack a day. Some people may average more than 1 pack a day. So, once again, BASED ON WHOSE USAGE?

    Then you go into completely erroneous figures based on those flawed assumptions. Your math and logic is WRONG. Yes, you have made serious errors in your math.

    example: You claim you use historical evidence. WHAT HISTORICAL EVIDENCE?

    You ask: Why would a grower then sell his legally produced harvest to an unlicensed dealer when the demand from legal buyers is so great?

    Answer: Simply put, profit. Are you seriously going to sit there and type all of that thinking that if a grower can save THOUSANDS in costs, they won’t do it? Really? This is planet earth where humans live. What planet are you on where you believe the things you claim?

    Who ever said I was against legalization? I have always been for legalization. I just want to do it the right way. Once again, another erroneous, unfounded claim by yourself. Are you trying to discredit my views because your arguments are wrong and made up? I am willing to debate but we need an honest debate. You are not being honest at all.

    My vision is to legalize marijuana much like alcohol was legalized.. in a smart, common sense way. If you DO know the current taxes on alcohol and cigarettes then you KNOW $50/ounce is extortion. It’s my belief that such a high tax will continue to drive the black market.

    Maybe you’re the one interested in this legalization effort failing. I want it to succeed. But, it won’t succeed if we don’t discuss real and honest figures. You don’t do that. You don’t care to do that.

    You ought to study your history better. Study your economics better. Study actual usage better. From everything you’ve written thus far, it’s obvious to me you don’t know what the hell you’re talking about.

    We may be on the same side but I couldn’t walk with you on this struggle. You’re being dishonest and misleading. You’re following other misleading advocates by making up figures that support your claims. This is NOT the way the debate should go.

    When REAL economists look over these numbers, as opposed to the economically uneducated politicians like Ammiano, they will be in for a rude awakening. Marijuana will not bring California $1 Billion in tax revenues. And, no, we’re not talking about the savings on police expenditures. We’re talking about Ammiano’s proposal. He claimed marijuana would bring in $1 billion in tax revenues. NORML claimed marijuana would bring in 1.5-2.5B yearly in tax revenues. As I would ask Ammiano, and as I would ask NORML, I would ask you, BASED ON WHOSE USAGE?

  • Anthony NYC

    Correct, I am of the opinion that legalization is the most important thing. The regulation thereafter is secondary.

    The most dangerous thing about pot is its illegality which tears families apart and ruins otherwise normal lives everyday for simple possession convictions, wastes Billions of dollars per year on prosecutions, is an untapped revenue stream and keeps violent criminal enterprises in business.

    $1,000,000,000 + the first year and after that oh only $250,000,000 in revenue you say? Not even counting the money saved by not searching for, arresting, prosecuting, convicting and taking care of in prison the hundreds of thousands of simple possessors of pot every year? Screw it, leave it illegal then. Please.

    What am I making up exactly?

    I base my ideas on historical evidence, the current political climate, macro-economics and a little thing called logic. Try it with your friends!

    If alchohol prohibition is your pure evidence what is the issue again? Isnt alchohol pretty well regulated in this country with no black market to speak of? Did it take a few years of tax adjustments to regulate it correctly? Yes! and pot will go through the same thing. No one can accurately predict how the markets will behave when its legalized, just like its impossible to predict if this trillion dollar econ stimulus is going to have the desired effect. $50 is a good starting point and its a starting point that we NEED. It wont be set in stone and shouldnt be.

    Look at my math again. Did I make a mistake in calculating that the tax burden on the average pack a day cigarette smoker in NYC as about 12x the average ounce every 6 months pot smoker under the $50 an ounce proposition?

    $3.56/day is $110/month.

    $50 over six months is $8.33/month

    The tax burden on avg. cig smokers amounts to 110/8.33 or 13 TIMES the burden imposed by the pot tax. Again, even if you smoke an ounce a month (which is ALOT for someone who does anything else but smoke) the tax burden is half of what it is for cigs in NYC. Half.

    I do know the rates of taxation for tobacco and alchohol Anthony. Thank you, I can google too! 🙂

    The bottom line is this: Legalization will boost supply and the price shall come down. Inherent in an illegal product is the risk associated with procuring it. If this risk evaporates so does the cost associated with it. Corporations and small businesses will invest in the idea that there will be a substantial pot market to be tapped that they never had access to before. I.E. San Fransisco has more pot dispensaries than Starbucks ever since they legalized medicinal pot and made it easy to get a docs note.

    Why would a grower then sell his legally produced harvest to an unlicensed dealer when the demand from legal buyers is so great?

    I really dont know what you are arguing when you say that $50/oz is not reasonable. what should it be then? Is $35 ok? $25? If you are really for legalization as you claim, do you have any ideas for its regulation? I’m having a hard time figuring out why you would be so against legalization in the first place unless you stand to lose something from it.