CA NORML Costs of Prohibition


CA NORML Analysis Finds Marijuana Legalization Could Yield California $1.5-$2.5 Billion Per Year

While California gubernatorial candidates debate ways to reduce the state's budget deficit, legalization of marijuana looms as an attractive way of raising revenue for the state.

California NORML estimates that a legal market for marijuana could yield the state $1.5 - $2.5 billion. A basic $1 per joint excise tax would yield about $1 billion to the state, while the state would save over $150 million in enforcement costs for arrests, prosecutions and prison. Additional benefits would accrue from sales taxes and spinoff industries. Total retail sales of marijuana would be on the order of $3-$5 billion, with total economic impact of $8-$13 billion including spinoff industries such as coffeehouses, tourism, and industrial hemp.

Los Angeles NORML director Bruce Margolin, who is running for governor as a Demorat, is making marijuana legalization the centerpiece of his campaign. "It is time to take California's number one cash crop off the black market and tax its distribution and sale," he says. www.margolinforgovernor.com

Among the major candidates for Governor, while all have endorsed medical marijuana, only Green candidate Peter Camejo has proposed full legalization www.votecamejo.org. Other candidates advocating legal marijuana include independent BE Smith, the first Californian to serve federal prison time for growing medical marijuana, and former Green assemblywoman turned Democrat Audie Bock.

California NORML's analysis of the benefits of marijuana legalization are as follows:

Details of California NORML's analysis follow below.

Revenue from Taxation of Legal Marijuana:

(A) Consumption: More than 1.6 million Californians

Over 1.6 million Californians have smoked marijuana within the past 30 days, according to the most recent National Household Survey on Drug Abuse, which found 5.6% of all Americans over age 12 are current marijuana users. Insofar as these figures are based on self-reporting of illicit activity, they are undoubtedly on the low side.

According to the survey, one-third of this population, or 530,000 Californians, are daily users.

The bulk of consumption is accounted for by "regular" users, who consume marijuana at least several times per week. Included is a small minority of very heavy smokers (10 or more joints per day), who push the average consumption figures upwards. According to a British survey by the Independent Drug Monitoring Unit [1], "regular" users average 2 oz of cannabis per month or about 2 grams per day (a gram yields one or two joints). The population of regular users is somewhat larger than that of daily users. Assuming 600,000 - 700,000 "regular users" in California averaging 2 grams per day, consumption by this group accounts for 1.2 to 1.4 million grams per day. Assuming the remaining 1 million monthly users average one joint every 10 days, this adds another 100,000 grams per day. Total marijuana consumption by Californians may therefore be reasonably estimated at 1.3 to 1.5 million grams per day, or about 1 to 1.2 million pounds per year.

(B) Economic Revenues from Taxation: a $3 - $5 billion market

The total value of the domestic marijuana market can be estimated on the basis of its current retail price. Depending on quality, retail price of a single gram (one or two joints) ranges around $10 - $15 ($280 - $420/ounce) for domestic bud, or as low as $5-7 for Mexican grass. For comparison, the prevailing price on the quasi-legal Dutch market is $6/gram. At $10/ gram, the total value of California's domestic marijuana market comes to about $ 5 billion per year. In a legal market, prices could be expected to fall. If they fell to current Dutch prices, the retail value of the current market would be $3 billion. However, this decrease would be at least partly offset by an increase in consumption. In sum, the total domestic market might reasonably be estimated at $3 - 5 billion in California.

Excise tax of $1/joint could yield $ 1 billion per year

Excise taxes could be used to regulate the price of marijuana and generate revenues for the state. At current levels of consumption, an excise tax of $1 per gram of marijuana would yield $475 - $550 million per year, while a tax of $ 2 per gram ($1 per half-gram joint) would yield around $ 1 billion, about the same as California's current excise tax on cigarettes.

Other economic studies have attempted to evaluate the revenues from a marijuana excise tax. According to a study by Caputo and Ostrom [2], a nationwide excise tax would yield $3.44-$12.25 billion (inflation adjusted to current dollars). Adjusted for population, California's share would come to $400 million - $1.5 billion. Similar results were obtained by Gieringer [3], who estimated $3.2 - $6.4 billion based on a nationwide $1 per joint tax, or $400 - $800 million for California. Doubling the tax to $2 per joint could bring the total up to $1.5 billion in California.

Total Tax Benefits Could Reach $1.5 - $2.5 billion

In addition to the excise taxes, sales taxes would generate another $240 - $400 million, depending on the size of the total domestic market ($3- $5 billion).

Another way to estimate the total tax revenues from marijuana is by drawing a parallel with California's current tax on cigarettes. Fully one-half of the current price of cigarettes is accounted for by taxes and fees. On a $3.60 pack, consumers pay a $0.87 excise tax, $0.28 in sales tax, and another $0.74 for the tobacco settlement. A similar 50% level of taxation in a legal $3 - 5 billion marijuana market would yield $1.5 - $2.5 billion.

SPINOFF INDUSTRIES WITH TOTAL IMPACT OF $8 - $13 BILLION

A legal market would generate additional benefits in the form of tourism and spinoff industries, such as coffee shops, paraphernalia, and industrial hemp. A comparable example would be California's wine industry, which generates $33 billion in economic activity according to the Wine Institute [4]. With $12.3 billion in retail sales, the wine industry generates 145,000 jobs, $4.3 billion in wages, and $1.2 billion in tourist expenditures. Extrapolating these figures to a legal marijuana market with 25% - 40% as much retail sales, one might expect $8 -$13 billion in total economic activity, with 36,000 to 58,000 jobs, and $1.2 to $1.7 billion in legal wages, which would generate additional income and business taxes for the state. With California taking the lead in marijuana legalization, especially strong spinoff benefits could be expected. For instance, Amsterdam-style coffeehouses would create jobs and be a magnet for tourism.

A particular spinoff industry of note would be industrial hemp, which California used to grow in the Delta and Imperial Valley. The hemp industry in California could rival the size of the cotton industry, which now generates $3.4 billion in revenues per year according to the National Cotton Council.

Sources:

[1] M. Atha and S. Blanchard, "Self-reported drug consumption patterns and attitudes towards drugs among 1333 regular cannabis users," Published by the Independent Drug Monitoring Unit 1997. Cited in Leslie Iversen, The Science of Marijuana, Oxford Press. 2000, pp. 217-9.

[2] Caputo and Ostrom, "Potential Tax Revenue from a Regulated Marijuana Market", American Journal of Economics and Sociology, Oct 1994.

[3] D. Gieringer, "Economics of Cannabis Legalization," in Ed Rosenthal, ed. Hemp Today, Quick Publishing, Oakland 1994.

[4] California Wine Institute, "Economic Importance of California Wine is $33 Billion to State", http://www.wineinstitute.org/communications/statistics/economicimportance.htm (2000).

COST OF MARIJUANA ENFORCEMENT IN CALIFORNIA IS OVER $156 MILLION PER YEAR

The cost of marijuana enforcement in California currently can be estimated at over $156 million per year, as follows.

State prison

(1400 prisoners @ $25K per year) $35 million

Jail costs (est. 40% of prison population) $14 million

Felony prosecution, court & probation

(9900 felony cases, SF DA's office estimates $9250 per case) $90 million

Felony arrests 12,000 arrests @ $732/arrest* $8.7 million

Misdemeanor court costs

$100 court time/case, 48,000 cases) $4.8 million

Misdemeanor arrests ($300/arrest,* offset by fines) ----- $0

California Marijuana Suppression Program (OCJP) $3.8 million

Total $156.3 million

Not counted above are costs of non-helicopter surveillance and investigation by local sheriffs and police.
Also not counted are the substantial costs of criminal penalties to prisoners and their families.

* Arrest costs based on report by State Office of Narcotics and Drug Abuse to the Cal. legislature "A First Report of the Impact of California's New Marijuana Law" (1977), adjusted for inflation.


CA NORML 2261 Market St. #278-A San Francisco CA 94114 (415) 563-5858 canorml@canorml.org