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Reefer Madness
The Underwhelming Pot Moment

In Colorado, marijuana doesn’t pay. Josh Barro has a piece in the Upshot on the low amount of revenue the state has gotten from pot taxes. At first the state predicted it would take in $118 million from pot taxes; now, it’s predicting only $69 million—in a state with a budget of $27 billion. Why was the number revised down?

But Mr. [state director of marijuana coordination Andrew] Freedman says the biggest drag on revenue is that so much of Colorado’s marijuana market remains unregulated. A 2014 report commissioned by the state’s Department of Revenue estimated 130 metric tons of marijuana was consumed in the state that year, while just 77 metric tons was sold through medical dispensaries and recreational marijuana retailers. The rest was untaxed: a combination of home growing, production by untaxed medical “caregivers” whose lightly regulated status is protected in the state constitution and plain old black-market production and trafficking.

In other words, legalization neither created a tax windfall nor ended the in-state black market. Both of those facts should give us pause. On the other hand, legalization not only in Colorado but also in Washington, Alaska, Oregon, and D.C. does appear to be cutting into the profits of Mexican drug cartels. Time Magazine reports that U.S. Border Patrol and the Mexican army have seen drops in the amount of weed they have confiscated since legalization started in those states. The story speculates that losses in pot profits could help reduce the money cartels have on hand to fund corruption and violence—but it also notes that they could get revenue from new crimes they’ve moved into,”from sex trafficking to stealing crude oil from Mexican pipelines.”

Put all this together, and it seems like pot legalization is a pretty middling: some new revenue, but much to bank on; a persistent black market at home; and losses for cartels that will now branch out into other crimes. That’s not dispositive about whether legalization should have happened or not, but it does show that the effects may not be as radical as advocates supposed.

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  • Kevin

    Focusing on the tax revenue side of this is misguided. The two big issues are which policy is likely to reduce the toll drug use takes on society (hugely complicated and not at all clear) and which is likely to reduce government violations of liberty (such as searches, incarcerations, taxation to support an expensive war on drugs, etc.). Unfortunately these involve serious trade offs in terms of who suffers harms and how much – but the idea we will tax drug use on the way to fiscal nirvana is pretty silly and the wrong metric to look at.

    • JR

      Agree completely. The whole point of legalization is to not punish casual users of the drug. The idea that it would somehow create a magical pot of gold while combating global crime and being environmentally friendly, maaaaaaaaaan, was always a bit of a pipe dream. If done correctly, over time we can expect pot market to develop like every other market, with a few competing brands, and a high degree of standardization. Think beer. Ending the prohibition made bootlegging go away, but it didn’t create a paradise on earth.

    • FriendlyGoat

      It’s not only silly. It’s a morally-questionable stand for a society to be taking. Cannabis is said to have medicinal value (perhaps mostly in calming and comforting) for some people in medical or psychological distress. That would be a reason for getting it to THOSE people as cheaply as possible—-not loaded with taxes.
      The idea of taxing the otherwise “recreational” use of anyone else getting high for the heck of it WHILE we question the safety or wisdom of that is a case of some taxpayers not giving a darn about others as long as other kinds of taxes might go down. We shouldn’t be proud of this rationale.

    • Corlyss

      The problem with looking at the social consequences is the whelter of laws that make the government responsible for “fixing” the people involved or at least “saving” people from the consequences of their own poor decisions. Government hasn’t worked and its intervention has only produced more of what we wanted it to stop.

  • TheCynical1

    This author is a tax collector for the welfare state.

  • fastrackn1

    The legal pot needs to become cheaper than the illegal pot or a large portion of users will continue to buy the illegal pot.

  • Corlyss

    Legalize and tax all the currently controlled substances; criminalize incapacity that endangers public safety; forget the rest of the associated ankle-biting misdemeanors.

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