Sacramento Bee — Washington Post — CA BRD of EQ (Bill Analysis) — Miron Essay (Harvard) Marijuana Policy Project


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Legal pot could generate $1.4 billion in revenue, tax board says (Emphasis mine)

California could see a nearly $1.4 billion per year increase in state revenues were it to legalize marijuana, the state Board of Equalization says in an analysis of pending legislation to to do that.

The bill (Assembly Bill 390) by Assemblyman Tom Ammiano, D-San Francisco, is still awaiting its first committee hearing and is likely not to be considered until next year. It would impose not only sales taxes but a $50 per ounce fee on marijuana sales, which would be licensed by the state much as alcoholic beverages are regulated.

Today, although considered illegal by federal authorities, California allows limited sales of marijuana for medicinal purposes, subject to local control, in accordance with a ballot measure approved by voters in 1996. And the state imposes sales taxes on those pot transactions. But wider sales would, under the Ammiano bill, be dependent on federal permission.

California is considered by federal authorities to be the nation’s top marijuana producing state with 8.6 million pounds a year, valued at $13.8 billion, making it one of the state’s largest agricultural crops, much of which is exported to other locales.The Board of Equalization analysis concludes that assuming 16 million ounces of marijuana consumption in California a year, legalization under AB 390 would generate $990 million from the $50 per ounce special levy and $392 million in sales taxes.

“We can no longer afford to keep our heads in the sand when it comes to marijuana,” Ammiano said in a statement. “The move towards regulating and taxing marijuana is long overdue and simply common sense. The benefits of regulation are clear – controlling marijuana would generate up to $1.3 billion in much needed revenue for the state, restrict access to only those over 21, end the environmental damage to our public lands from illicit crops, and improve public safety by redirecting law enforcement efforts to more serious crimes.

“It defies reason to propose closing parks and eliminating vital services for the poor while this potential revenue is available. California has an historic opportunity to be the first state in the nation to enact a smart, responsible public policy for the control and regulation of marijuana.”


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In Calif., Medical Marijuana Laws Are Moving Pot Into the Mainstream

By Karl Vick, Sunday, April 12, 2009; Page A03 (Emphasis mine)

LOS ANGELES — With little notice and even less controversy, marijuana is now available as a medical treatment in California to almost anyone who tells a willing physician he would feel better if he smoked.

Pot is now retailed over the counter in hundreds of storefronts across Los Angeles and is credited with reviving a section of downtown Oakland, where an entrepreneur sells out classes offering “quality training for the cannabis industry.” The tabloid LA Journal of Education for Medical Marijuana is fat with ads for Magic Purple, Strawberry Cough and other offerings in more than 400 “dispensaries” operating in the city.

Los Angeles officials say applications for retail outlets surged after Feb. 26, when U.S. Attorney General Eric H. Holder Jr. announced that the Drug Enforcement Administration will no longer raid such stores. Those pressing for change in drug laws regard the announcement as a watershed in a 40-year battle against marijuana’s official listing as a dangerous drug — a legal fight that, in California, is being waged on ground that has shifted dramatically toward acceptance.

All told, 13 states have legalized medical marijuana, a trend advocates credit in part to growing openness to alternative healing. As a “Schedule 1” drug under the 1970 federal narcotics act, marijuana officially has “no currently accepted medical use.” But doctors have found it effective in reducing nausea, easing glaucoma, and improving appetite and sleep in AIDS patients…

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But in California, pot is such a booming growth industry that lawmakers are being asked to consider its potential as a salve to the state’s financial woes. Betty Yee, chairman of the California State Board of Equalization, endorsed a bill in February to regulate the estimated $14 billion marijuana market, citing the state’s budget problems. California currently collects $18 million in sales taxes from marijuana dispensaries, and Yee said a regulated pot trade would bring in $1.3 billion.

“I think the tide is starting to turn in terms of marijuana being part of the mainstream,” she said. “The pieces seem to be falling into place.”

…The new reality can be disorienting. In Mendocino County, the heart of Northern California’s “Emerald Triangle,” marijuana farming has been openly tolerated since the arrival of counterculture refugees in the late 1960s. But elected officials say they are being forced to crack down on growers who offended neighbors with aggressive farming after medical marijuana laws hastened pot’s shift from the black market to a gray zone.

Prop. 215 opened up a new world for people who had been underground,” said Scott Zeramby, referencing the 1996 ballot proposition that legalized pot for medical users. By 2007, Zeramby’s garden supply business in the town of Fort Bragg was doing $2.5 million in business amid a land rush by new growers eager to cash in.

“Things were getting a little crazy, even out of hand,” Zeramby said. “What happened? A critical mass.”

…”Medical marijuana, right here, right now,” chants a barker on the Venice Beach Boardwalk, outside the doorway of the Medical Kush Beach Club. “Get legal, right now.”

It really is that easy, the barker explains. Before being allowed to enter the upstairs dispensary and “smoking lounge,” new customers are directed first to the physician’s waiting room, presided over by two young women in low-cut tops. After proving state residence and minimum age (21), customers see a doctor in a white lab coat who for $150 produces a “physician’s recommendation.”

Valid for one year, it is all that California law requires to purchase and smoke eight ounces legally.

Oakland allows anyone with a medical card to cultivate 72 plants — 12 times the number the state legislature suggested in SB 420, which passed in 2003. (Even the title of the bill could be taken for a knowing wink, “420” being subculture code for enjoying marijuana). The bill generously interpreted the ballot initiative, which allowed pot to be dispensed for “any illness for which marijuana provides relief.”

…”They blend in quite well. It’s not what you would expect,” said Gertha Hays, who owns a boutique next door. “You might think it’s going to be drug dealers, all this and that. It’s not like that. And there’s no particular stereotype of who’s a cannabis smoker. It’s all types.”

Some customers walk over from the Alameda County Public Health Department. There, for $103 ($51.50 if on Medi-Cal), residents can upgrade from a simple physician’s recommendation to an official medical marijuana identification card, widely regarded as stronger protection against prosecution.

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CALIFORNIA STATE BOARD OF EQUALIZATION STAFF LEGISLATIVE BILL ANALYSIS

Date Introduced: 02/23/09 (Emphasis mine)

Bill No: AB 390 Tax: Marijuana Fee Author: Ammiano Related Bills: This analysis will only address the provisions which impact the State Board of Equalization (Board).

BILL SUMMARY

Among other things, this bill would impose a fee of fifty dollars ($50) per ounce on the retail sale of marijuana in this state. The Board would be required to administer and collect the fee on or after a specified date, and the funds would be dedicated to drug education, awareness, and rehabilitation programs.

ANALYSIS CURRENT LAW

Federal Law. Existing federal law prohibits the manufacture, possession, sale or distribution of marijuana. (21 U.S.C. § 841 et seq.) Congress enacted the Controlled Substances Act, (21 U.S.C. § 801 et seq.) (CSA) as part of the Comprehensive Drug Abuse Prevention and Control Act of 1970. The CSA establishes five “schedules” of certain drugs and other substances designated “controlled substances.” (21 U.S.C. §§802(6), 812(a).) For a drug or other substance to be designated a schedule I controlled substance, it must be found that the substance “has a high potential for abuse,“ have “no currently accepted medical use in treatment in the United States,” and lack accepted safety for use of the drug or other substance under medical supervision.” (21 U.S.C. § 812 (b)(1).)

Federal law lists marijuana as a schedule I controlled substance, deemed to have no accepted medical use. (21 U.S.C. § 812:Schedule I(c)(10).) State Law. Existing state law prohibits, except as authorized by law, the possession, cultivation, transportation, and sale of marijuana and derivatives of marijuana. (Health and Safety Code Sections 11357, 11358, 11359, and 11360.) Existing state law, as authorized under The Compassionate Use Act of 1996 (Proposition 215 of 1996), allows a patient or the patient’s primary caregiver to cultivate or possess marijuana for the patient’s medical use when recommended by a physician, as specified. (Health and Safety Code Section 11362.5) Under existing law, there is no fee imposed on the possession, sale, transport or cultivation of marijuana or derivatives of marijuana.

Under existing Sales and Use Tax Law (Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code), sales tax is imposed on all retailers for the privilege of selling tangible personal property at retail in this state, except where specifically exempted by statute. Tangible personal property is defined in law to mean any personal property which may be seen, weighed, measured, felt, or touched, or which is in any other manner perceptible to the senses. Therefore, under the law, retail sales of marijuana and any other illegal drugs or property, are subject to sales or use tax to the same extent as is any lawful retail sale of tangible personal property. This staff analysis is provided to address various administrative, cost, revenue and policy issues; it is not to be construed to reflect or suggest the Board’s formal position.

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PROPOSED LAW

This bill would, among other things, add Part 14.6 (commencing with Section 34001) to Division 2 of the Revenue and Taxation Code (RTC) to enact the Marijuana

Supplemental Fee Law.

This bill would impose a fee of fifty dollars ($50) per ounce for the sale of marijuana sold at retail in this state on or after the date determined by Business and Professions Code (BPC) Section 25406. BPC Section 25406 provides that the bill’s provisions shall be enforced when the later of the following has occurred: (1) 30 days after the operative date of the regulations issued pursuant to Chapter 14.5 (commencing with Section 25400) of Division 9 of the BPC (added by this bill), or 2) 30 days after the date when federal law permits the possession and sale of marijuana consistent with BPC Chapter 14.5. Definitions.

This bill would define “marijuana,” for purposes of imposing the supplemental fee under the RTC, to include all marijuana, concentrated cannabis, and their derivatives, except that marijuana containing less than one-half of 1 percent tetrahydrocannabinol by weight is not subject to this supplemental fee. The bill provides that this fee shall not be imposed on marijuana used medicinally with a doctor’s recommendation as specified in Health and Safety Code Section 11362.5, which is known and cited as The Compassionate Use Act of 1996.

This bill would also define “retailer,” for purposes of imposing the supplemental fee, to mean any retailer licensed pursuant to BPC Section 23394.1 who sells marijuana at retail. BPC Section 23394.1 provides that an off-sale general license authorizes the sale, to consumers only and not for resale, of marijuana, concentrated cannabis, or any of its derivatives pursuant to the provisions of BPC Chapter 14.5.

Collection and Administration. Returns and payments, determinations, collections of fees, overpayments and refunds, and administration required under the provisions of this bill would be governed by Chapters 5, 6, 7, and 8 of the Sales and Use Tax Law. The Board would be required to enforce the provisions and may prescribe, adopt, and enforce rules and regulations relating to the administration and enforcement of this bill.

Disposition of Fund and Adjustment of Fees. Any amounts required to be paid under this part would be deposited into the Drug Abuse Prevention Supplemental Funding Account, which this bill would create in the State’s General Fund. Upon appropriation by the Legislature, the monies in the fund would be used exclusively for drug education, awareness, and rehabilitation programs under the jurisdiction of the Department of Alcohol and Drug Programs. The Department of Alcohol and Drug Programs would be required to review annually the fee imposed under this part to determine whether a lesser fee would provide sufficient resources to support its drug education, awareness, and rehabilitation programs.

Based on this annual review, the Department of Alcohol and Drug Programs would be required to adjust the fee to an amount not to exceed fifty dollars ($50) per ounce of marijuana that is necessary to fund the programs. Other provisions. Under proposed Chapter 14.5, Commercial Marijuana Production and Sale, of Division 9 of the BPC, the Department of Alcoholic Beverage Control (ABC) would license both commercial cultivators of marijuana and wholesalers of marijuana, who would be allowed to package and prepare marijuana for sale and would be authorized to sell marijuana to licensed sales outlets. These provisions would establish fees for the initial application for a license and fees for each annual renewal of a license. This staff analysis is provided to address various administrative, cost, revenue and policy issues; it is not to be construed to reflect or suggest the Board’s formal position.

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Effective and operative date. The provisions of the bill would become effective on January 1, 2010; however, the bill’s provisions would become operative the later of either: (1) 30 days after the operative date of the regulations issued pursuant to Chapter 14.5 of Division 9 of the BPC, or (2) 30 days after the date when federal law permits the possession and sale of marijuana consistent with Chapter 14.5.

BACKGROUND – MEDICAL MARIJUANA SELLERS – SALES TAX

As previously stated, in 1996 California voters passed Proposition 215, also known as the Compassionate Use Act of 1996, which allows patients and their primary caregivers to cultivate or possess marijuana for personal medical treatment with the recommendation of a physician, as specified. In 2003, SB 420 (Ch. 875, Vasconcellos, Stats. 2003) was enacted to establish statewide guidelines for Proposition 215 enforcement. In particular, SB 403 clarified that nonprofit distribution is allowed in certain cases for patient cultivation cooperatives, small-scale caregiver gardeners, and dispensing collectives.

However, despite the fact that numerous medical marijuana dispensaries are currently in business in California, the sale of medical cannabis is illegal under federal law. Up until late 2005, the Board’s longstanding policy was to not issue a seller’s permit to a person whose sole selling activity is the unlawful sale of tangible personal property, so as not to confer permissive authority or condone an illegal activity. However, although it was Board policy not to issue seller’s permits, the sale of medical marijuana has always been considered taxable.

In October 2005, the Board changed its policy after hearing a case that came before the Members of the Board involving medical marijuana sales, when the Board recognized the difficulty in reconciling its authority to issue assessments for taxes due from a seller’s marijuana sales while, at the same time, not issuing seller’s permits to such sellers, and also took into account the legality under state law of some sales of marijuana as authorized in SB 420. Now, the Board issues seller’s permits to those medical marijuana sellers that apply and will issue seller’s permits to any other sellers making unlawful sales. As part of the Board’s education outreach efforts, a special notice was mailed to California sellers of medical marijuana to clarify the application of tax to sales of medical marijuana and the requirement that they must hold a seller’s permit.

COMMENTS

1. Sponsor and purpose. Assembly Member Ammiano is sponsoring this measure in an effort to generate more revenue for the state by regulating and taxing marijuana in a manner similar to alcohol.

2. Sales of marijuana would be subject to the proposed fee and the sales tax. As previously stated, retail sales of marijuana are subject to tax to the same extent as any other lawful retail sale of tangible personal property. Under the provisions of this bill, a retailer must apply to the ABC to obtain a license to sell marijuana at retail and be liable for the fee on its sales of marijuana in this state. In addition to the proposed fee, a licensed marijuana retailer would be required to apply for a seller’s permit, file returns, and pay sales tax to the Board. This staff analysis is provided to address various administrative, cost, revenue and policy issues; it is not to be construed to reflect or suggest the Board’s formal position.

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It should also be noted that the proposed fee would be included in the amount on which the sales tax would be imposed. Under current law, sales and use tax is due based on the gross receipts or sales price of tangible personal property in this state. The proposed marijuana fee would not be specifically excluded from gross receipts or sales price, so it would be included in the amount on which sales tax is computed.

3. What if marijuana is sold in amounts less than one ounce? It is not clear if the proposed fee would apply to retail sales of marijuana that are sold in amounts of less than one ounce. It is our understanding that medical marijuana is often sold in containers or packages of 1/8 of an ounce. Medical marijuana may also be purchased in the form of cigarette or joint. Would the sale of one or more joints, which would be less than an ounce, be subject to the fee? Would other marijuana products, such as edible products (e.g., brownies) containing marijuana be subject to the fee? This bill would require that the ABC develop an inspection and tracking system to ensure that marijuana may not be sold by an off-sale general licensee if that marijuana has not been assessed the proposed fee. While it is not specific, it appears that the intent of the bill is to make all sales of marijuana made by an off-sale general licensee subject to the proposed fee.

4. Operative date depends on federal changes. BPC Section 25406 provides that the ABC will begin enforcing the bill’s provisions beginning the later of when the following occur: (1) 30 days after the operative date of the regulations issued pursuant to Chapter 14.5 of Division 9 of the BPC, or (2) 30 days after the date when federal law permits the possession and sale of marijuana consistent with Chapter 14.5. Therefore, it appears the fee would be imposed on the retail sale of marijuana when such sale is permitted by the federal government. As the Board would require sufficient time to implement the fee collection provisions of the bill, it is recommended that the bill be revised to set an operative date for imposition and collection of the fee to be, e.g., the first day of the quarter beginning no less than 180 days after the later of the two events occurs.

5. The bill provides for three types of licenses issued by the ABC. The ABC would be responsible for issuing a license to commercial cultivators of marijuana (BPC Section 25401), marijuana wholesalers (BPC Section 25403), and marijuana retailers (BPC Section 23394.1). Marijuana wholesalers are authorized to package and prepare marijuana for sale and are also authorized to sell marijuana to licensed sales outlets. A retailer (off-sale general licensee) would be authorized to sell marijuana to consumers only and not for resale. The ABC is required to adopt and enforce regulations concerning the operations of commercial cultivators of marijuana, the sale and packaging of marijuana by wholesale licensees, and the sale of marijuana by off-sale general licensees. These regulations shall include an inspection and tracking system to ensure that marijuana cultivated, distributed, and ultimately sold by an off-sale general licensee is assessed the proposed fee.

6. Proposed fee should reference the Fee Collections Procedures Law. As written, the proposed fee, to the extent feasible, would be administered and collected in a manner consistent with the Sales and Use Tax Law, including the returns and payments, determinations, collections of fees, overpayments and refunds. However, since this fee does not parallel the sales and use tax, it is This staff analysis is provided to address various administrative, cost, revenue and policy issues; it is not to be construed to reflect or suggest the Board’s formal position.

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Recommended that the administrative provisions be placed under the Fee Collections Procedures Law (Part 30 (commencing with Section 55001) of Division 2, of the Revenue and Taxation Code). The Fee Collection Procedures Law contains “generic” administrative provisions for the administration and collection of fee programs to be administered by the Board. The Fee Collection Procedures Law was added to the Revenue and Taxation Code to allow bills establishing a new fee to reference this law, thereby only requiring a minimal number of sections within the bill to provide the necessary administrative provisions.

Among other things, the Fee Collection Procedures Law includes collection, reporting, refund and appeals provisions, as well as providing the Board the authority to adopt regulations relating to the administration and enforcement of the Fee Collection Procedures Law. The bill should also be amended to specify a due date for the fee and return and to authorize the payment of refunds on overpayments of the fee. Staff will work with the author’s office to address these issues as the bill progresses through the legislative process.

7. Disposition of proceeds – refund payments and administrative costs. While the bill provides that the any amount required to be paid to the State be deposited in the Drug Abuse Prevention Supplemental Funding Account in the State’s General Fund, which this bill creates, and be expended exclusively for drug education, awareness, and rehabilitation programs, the bill does not specify how payments for refunds and the Board’s administrative costs would be funded. The bill should be amended to address this issue.

8. The Board would need adequate time to notify feepayers of any reduction in the fee. The ABC would be required annually to review the proposed fee to determine whether a lesser fee would provide sufficient resources to support its drug education, awareness, and rehabilitation programs. It is suggested that the bill be amended to specify a date by which the ABC must notify the Board of a change in the fee rate, prior to the date the change would be effective, to provide Board staff sufficient time to notify feepayers of any fee rate change.

9. Legal challenges of any new fee program might be made on the grounds that the fee is a tax. In July 1997, the California Supreme Court held in Sinclair Paint Company v. State Board of Equalization (1997) 15 Cal.4th 866 that the Childhood Lead Poisoning Prevention Act of 1991 imposed bona fide regulatory fees and not taxes requiring a two-thirds vote of the Legislature under Proposition 13.

In summary, the Court found that while the Act did not directly regulate by conferring a specific benefit on, or granting a privilege to, those who pay the fee, it nevertheless imposed regulatory fees under the police power by requiring manufacturers and others whose products have exposed children to lead contamination to bear a fair share of the cost of mitigating those products’ adverse health effects.

Although this measure has been keyed by the Legislative Counsel as a majority vote bill, opponents of this measure might question whether the fees imposed are in legal effect “taxes” required to be enacted by a two-thirds vote of the Legislature. This staff analysis is provided to address various administrative, cost, revenue and policy issues; it is not to be construed to reflect or suggest the Board’s formal position.

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COST ESTIMATE

The Board would incur substantial administrative costs in creating a new fee program, identifying and notifying affected feepayers, developing computer programs, developing returns and supplemental schedules, developing publications and regulations, preparing and mailing special notices, training staff, and responding to numerous inquiries from affected feepayers and the public. This bill provides that the proposed fee would not be enforced until federal law permits the possession and sale of marijuana consistent with the provisions under the BPC. An estimate of these costs is pending.

REVENUE ESTIMATE BACKGROUND, METHODOLOGY, AND ASSUMPTIONS

Under this measure, the definition of marijuana includes all marijuana, concentrated cannabis, and their derivatives, except that marijuana containing less than one-half of one percent tetrahydrocannabinol by weight is not subject to this fee. Further, the measure provides that this fee shall not be imposed on marijuana used medicinally with a doctor’s recommendation as specified in Health and Safety Code Section 11362.5.

According to the report titled Marijuana Production in the United States (2006), an estimated 22.3 million pounds of marijuana was grown in the U.S. in 2006 with a value of $35.8 billion. California was the top producing state; it produced 8.6 million pounds with a value of $13.8 billion. The report also discusses that, although most marijuana is produced for local, in-state use, California is considered an export state in which marijuana is produced for both in-state use and export to other states. Our literature review indicates that estimated consumption of marijuana in California amounts to one million pounds per year, or 16 million ounces.

Based on the estimated 16 million ounces of annual consumption in California and several assumptions (which are summarized in the Qualifying Remarks section), the revenue effect of the bill is an estimated total annual revenue gain of $1.4 billion, as follows: • $990 million from the proposed $50 per ounce levy on retail sales of marijuana • $392 million in sales tax revenue.

This staff analysis is provided to address various administrative, cost, revenue and policy issues; it is not to be construed to reflect or suggest the Board’s formal position.

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REVENUE SUMMARY

The revenue impact of imposing a $50 per ounce levy on retail sales of marijuana in California would be as follows: Sales and Use Tax Revenue (In Millions of Dollars) Net Excise Revenue Gain $ 990 State (6.00%) $ 263 Fiscal Recovery Fund (0.25%) 11 Local (2.00%) 88 Special District (0.75%) 31 Total Sales and Use Tax Revenue $ 392 Total revenue from the excise tax and sales and use tax $ 1,382 Qualifying Remarks.

This estimate is based on numerous assumptions, all of which come from law enforcement estimates and academic studies. The most significant ones are as follows:

• Legalization of marijuana would cause its street price to decline by 50 percent.

• This 50 percent decline in price would lead to additional consumption of 40 percent.

• The imposition of the $50/ounce tax would then lead to reduced consumption of 11 percent.

Some of the revenue raised would result from additional residents consuming marijuana (that were not doing so when it was prohibited by law) in response to its being legalized.

However, a portion of this additional consumption could be at the expense of cigarettes and alcohol currently being consumed; in other words, there could be a “substitution effect” toward marijuana and away from cigarettes and alcohol. To the extent that this happens, current excise taxes from cigarettes and alcohol would switch to marijuana and the net revenue gain from the bill would be somewhat less than the $1.4 billion number cited above (exactly how much lower is unknown). The same is true with respect to the sales and use tax component of the estimate. In other words, consumers choosing to increase their consumption of marijuana would likely do so by reducing their consumption elsewhere, some of which is subject to the sales and use tax (such as cigarettes), some of which is not (such as groceries and most services).

If consumers are simply switching their consumption toward marijuana and away from some other taxable good, the increase in sales tax revenue from this measure would be less. As currently drafted, this measure stipulates that “each person 21 years of age or older may have in cultivation no more than 10 mature plants at any given time.”Substantial home production would clearly have an impact on the revenues generated . Available research indicates, however, that such production is likely to be minimal.

Analysis prepared by: Debra A. Waltz (916) 324-1890 07/15/09Revenue estimate by: Ronil Dwarka (916) 445-0840 Contact: Margaret S. Shedd (916) 322-2376 ls 0390-1dw.DOC This staff analysis is provided to address various administrative, cost, revenue and policy issues; it is not to be construed to reflect or suggest the Board’s formal position.

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The Budgetary Implications of Marijuana Prohibition

June 2005

Jeffrey A. Miron
Visiting Professor of Economics
Harvard University
Cambridge, MA 02138
781-856-0086
miron@fas.harvard.edu

The Marijuana Policy Project provided funding for the research discussed in this report. Daniel Egan provided excellent research assistance.

Executive Summary

  • Government prohibition of marijuana is the subject of ongoing debate.
  • One issue in this debate is the effect of marijuana prohibition on government budgets. Prohibition entails direct enforcement costs and prevents taxation of marijuana production and sale.
  • This report examines the budgetary implications of legalizing marijuana – taxing and regulating it like other goods – in all fifty states and at the federal level.
  • The report estimates that legalizing marijuana would save $7.7 billion per year in government expenditure on enforcement of prohibition. $5.3 billion of this savings would accrue to state and local governments, while $2.4 billion would accrue to the federal government.
  • The report also estimates that marijuana legalization would yield tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco.
  • Whether marijuana legalization is a desirable policy depends on many factors other than the budgetary impacts discussed here. But these impacts should be included in a rational debate about marijuana policy.

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I. Introduction

Government prohibition of marijuana is the subject of ongoing debate. Advocates believe prohibition reduces marijuana trafficking and use, thereby discouraging crime, improving productivity and increasing health. Critics believe prohibition has only modest effects on trafficking and use while causing many problems typically attributed to marijuana itself.

One issue in this debate is the effect of marijuana prohibition on government budgets. Prohibition entails direct enforcement costs, and prohibition prevents taxation of marijuana production and sale. If marijuana were legal, enforcement costs would be negligible and governments could levy taxes on the production and sale of marijuana. Thus, government expenditure would decline and tax revenue would increase.

This report estimates the savings in government expenditure and the gains in tax revenue that would result from replacing marijuana prohibition with a regime in which marijuana is legal but taxed and regulated like other goods. The report is not an overall evaluation of marijuana prohibition; the magnitude of any budgetary impact does not by itself determine the wisdom of prohibition. But the costs required to enforce prohibition, and the transfers that occur because income in a prohibited sector is not taxed, are relevant to rational discussion of this policy.

The policy change considered in this report, marijuana legalization, is more substantial than marijuana decriminalization, which means repealing criminal penalties against possession but retaining them against trafficking. The budgetary implications of legalization exceed those of decriminalization for three reasons. First, legalization eliminates arrests for trafficking in addition to eliminating arrests for possession. Second, legalization saves prosecutorial, judicial, and incarceration expenses; these savings are minimal in the case of decriminalization. Third, legalization allows taxation of marijuana production and sale.

This report concludes that marijuana legalization would reduce government expenditure by $7.7 billion annually. Marijuana legalization would also generate tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco. These budgetary impacts rely on a range of assumptions, but these probably bias the estimated expenditure reductions and tax revenues downward.

The remainder of the report proceeds as follows. Section II estimates state and local expenditure on marijuana prohibition. Section III estimates federal expenditure on marijuana prohibition. Section IV estimates the tax revenue that would accrue from legalized marijuana. Section V discusses caveats and implications.

II. State and Local Expenditure for Drug Prohibition Enforcement

The savings in state and local government expenditure that would result from marijuana legalization consists of three main components: the reduction in police resources from elimination of marijuana arrests; the reduction in prosecutorial and judicial resources from elimination of marijuana prosecutions; and the reduction in correctional resources from elimination of marijuana incarcerations. There are other possible savings in government expenditure from legalization, but these are minor or difficult to estimate with existing data.The omission of these items biases the estimated savings downward.

To estimate the state savings in criminal justice resources, this report uses the following procedure. It estimates the percentage of arrests in a state for marijuana violations and multiplies this by the budget for police. It estimates the percentage of prosecutions in a state for marijuana violations and multiplies this by the budget for prosecutors and judges. It estimates the percentage of incarcerations in a state for marijuana violations and multiplies this by the budget for prisons. It then sums these components to estimate the overall reduction in government expenditure. Under plausible assumptions, this procedure yields a reasonable estimate of the cost savings from marijuana legalization.

The Police Budget Due to Marijuana Prohibition

The first cost of marijuana prohibition is the portion of state police budgets devoted to marijuana arrests.

Table 1 calculates the fraction of arrests in each state due to marijuana prohibition. Column 1 gives the total number of arrests for the year 2000. Column 2 gives the number of arrests for marijuana possession violations. Column 3 gives the number of arrests for marijuana sale/manufacturing violations. Columns 4 and 5 give the ratio of Column 2 to Column 1 and Column 3 to Column 1, respectively; these are the percentages of arrests for possession and sale/manufacture of marijuana, respectively.

The information in Columns 4 and 5 is what is required in the subsequent calculations, subject to one modification. Some arrests for marijuana violations, especially those for possession, occur because the arrestee is under suspicion for a non-drug crime but possesses marijuana that is discovered by police during a routine search. This means an arrest for marijuana possession is recorded, along with, or instead of, an arrest on the other charge. If marijuana possession were not a criminal offense, the suspects in such cases would still be arrested on the charge that led to the search, and police resources would be used to approximately the same extent as when marijuana possession is criminal.

In determining which arrests represents a cost of marijuana prohibition, therefore, it is appropriate to count only those that are “stand-alone,” meaning those in which a marijuana violation rather than some other charge is the reason for the arrest. This issue arises mainly for possession rather than for trafficking. There are few hard data on the fraction of “stand-alone” possession arrests, but the information in Miron (2002) and Reuter, Hirschfield and Davies (2001) suggests it is between 33% and 85%. To err on the conservative side, this report assumes that 50% of possession arrests are due solely to marijuana possession rather than being incidental to some other crime. Thus, the resources utilized in making these arrests would be available for other purposes if marijuana possession were legal. Column 6 of Table 1 therefore indicates the fraction of possession arrests attributable to marijuana prohibition, taking this adjustment into account.

The first portion of Table 2 uses this information to calculate the police budget due to marijuana prohibition in each state. Column 1 gives the total expenditure in 2000 on police, by state. Column 2 gives the product of Column 1 with the sum of Columns 5 and 6 from Table 1. This is the amount spent on arrests for marijuana violations. For 2000, the amount is $1.71 billion.

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The Judicial and Legal Budget Due to Marijuana Prohibition

The second main cost of marijuana prohibition is the portion of the prosecutorial and judicial budget devoted to marijuana prosecutions. A reasonable indicator of this percentage is the fraction of felony convictions in state courts for marijuana offenses. Data on this percentage are not available on a state-by-state basis, so this report uses the national percentage. Data on the percentage of possession convictions attributable to marijuana are also not available, so this report assumes it equals the percentage for trafficking convictions.

In 2000 the percent of felony convictions in state courts due to any type of trafficking violation was 22.%. this total, 2.7% was due to marijuana, 5.9% was due to other drugs, and 13.4% was unspecified. This report assumes that the fraction of marijuana convictions in the unspecified category equals the fraction for those in which a specific drug is given, or 31.4% [=2.7%/(2.7%+5.9%)]. The report also assumes that the percentage of possession convictions due to marijuana equals this same fraction. These assumptions jointly imply that the percentage of felony convictions due to marijuana equals the fraction of felony convictions due to any drug offense (34.6%) multiplied by the percentage of trafficking violations due to marijuana (31.4%). This yields 10.9% (=34.6%*31.4%).

The second portion of Table 2 uses this information to calculate the judicial and legal budget due to marijuana prohibition. Column 3 gives the judicial and legal budget, by state. Column 4 gives the product of Column 3 and 10.9%, the percentage of felony convictions due to marijuana violations. This is the judicial and legal budget due to marijuana prosecutions. For 2000, the amount is $2.94 billion.

The Corrections Budget Due to Marijuana Prohibition

The third main cost of marijuana prohibition is the portion of the corrections budget devoted to incarcerating marijuana prisoners. A reasonable indicator of this portion is the fraction of prisoners incarcerated for marijuana offenses.

As with the percentage of prosecutions due to marijuana, state-by-state information on the percentage of prisoners incarcerated for marijuana offenses is not available. Appropriate data do exist for a few states, however, and this percentage is likely to be similar across states. This report therefore computes a population-weighted average based on the few states for which data exist; it then imposes this percentage on all states. This percentage is 1.0%, as documented in Appendix A.

The third portion of Table 2 calculates the corrections budget due to marijuana prohibition. Column 5 gives the overall corrections budget, by state. Column 6 gives the product of Column 5 and 1.0%, the estimated fraction of prisoners incarcerated on marijuana charges. This is the corrections budget devoted to marijuana prisoners. For 2000, the amount is $484 million.

Overall State and Local Expenditure for Enforcement of Marijuana Prohibition

As shown at the bottom of Table 2, total state and local government expenditure for enforcement of marijuana prohibition was $5.1 billion for 2000. This is an overstatement of the savings in government expenditure that would result from legalization, however, for two reasons. First, under prohibition the police sometimes seize assets from those arrested for marijuana violations (financial accounts, cars, boats, land, houses, and the like), with the proceeds used to fund police and prosecutors. Second, under prohibition some marijuana offenders pay fines, which partially offsets the expenditure required to arrest, convict and incarcerate these offenders. The calculations in Appendix B, however, show that this offsetting revenue has been at most $100 million per year in recent years at the state and local level. This implies a net savings of criminal justice resources from marijuana legalization of $5.0 billion in 2000. Adjusting for inflation implies savings of $5.3 billion in 2003.

mj_8939

III. Federal Expenditure for Marijuana Prohibition Enforcement

This section estimates federal expenditure on marijuana prohibition enforcement. There are no data available on expenditure for marijuana interdiction per se; existing data report expenditure on interdiction of all drugs, without separately identifying expenditure aimed at marijuana versus other drugs. It is nevertheless possible to estimate the portion due to marijuana prohibition using the following procedure:

  1. Estimate federal expenditure for all drug interdiction;
  2. Estimate the fraction of this expenditure due to marijuana interdiction based on the fraction of federal prosecutions for marijuana;
  3. Multiply the first estimate by the second estimate.

This provides a reasonable estimate of federal expenditure for marijuana interdiction so long as this expenditure is roughly proportional to the variable being used to determine the fraction of total interdiction devoted to marijuana.

Table 3 displays federal expenditure for drug interdiction. This was $13.6 billion in 2002 (Miron 2003b), and it is the figure that applies for all drugs. To determine expenditure for marijuana interdiction, it is necessary to adjust for the fraction of federal expenditure devoted to marijuana as opposed to other drugs.

Table 3 next shows possible indicators of the relative magnitude of marijuana interdiction as compared to other-drug interdiction. These indicators include use rates, arrest rates, and felony convictions for marijuana versus other drugs. For the purposes here, the most appropriate indicator is the percentage of DEA arrests or convictions for marijuana as opposed to other drugs.

The data therefore indicate that $2.6 billion is a reasonable estimate of the federal government expenditure to enforce marijuana prohibition in 2002.

As with state and local revenue, this figure must be adjusted downward by the revenue from seizures and fines. Appendix B indicates that this amount has been at most $214.2 million in recent years, implying a net savings of about $2.39 million. Adjusting for inflation implies federal expenditure for enforcement of marijuana prohibition of $2.4 billion in 2003.

IV. The Tax Revenue from Legalized Marijuana

In addition to reducing government expenditure, marijuana legalization would produce tax revenue from the legal production and sale of marijuana. To estimate this revenue, this report employs the following procedure. First, it estimates current expenditure on marijuana at the national level. Second, it estimates the expenditure likely to occur under legalization. Third, it estimates the tax revenue that would result from this expenditure based on assumptions about the kinds of taxes that would apply to legalized marijuana. Fourth, it provides illustrative calculations of the portion of the revenue that would accrue to each state.

Expenditure on Marijuana under Current Prohibition

The first step in determining the tax revenue under legalization is to estimate current expenditure on marijuana. ONDCP (2001a, Table 1, p.3) estimates that in 2000 U.S. residents spent $10.5 billion on marijuana. This estimate relies on a range of assumptions about the marijuana market, and modification of these assumptions might produce a higher or lower estimate. There is no obvious reason, however, why alternative assumptions would imply a dramatically different estimate of current expenditure on marijuana. This report therefore uses the $10.5 billion figure as the starting point for the revenue estimates presented below.

Expenditure on Marijuana under Legalization

The second step in estimating the tax revenue that would occur under legalization is to determine how expenditure on marijuana would change as the result of legalization. A simple framework in which to consider various assumptions is the standard supply and demand model. To use this model to assess legalization’s impact on marijuana expenditure, it is necessary to state what effect legalization would have on the demand and supply curves for marijuana.

This report assumes there would be no change in the demand for marijuana. This assumption likely errs in the direction of understating the tax revenue from legalized marijuana, since the penalties for possession potentially deter some persons from consuming. But any increase in demand from legalization would plausibly come from casual users, whose marijuana use would likely be modest. Any increase in use might also come from decreased consumption of alcohol, tobacco or other goods, so increased tax revenue from legal marijuana would be partially offset by decreased tax revenue from other goods. And there might be a forbidden fruit effect from prohibition that tends to offset the demand decreasing effects of penalties for possession. Thus, the assumption of no change in demand is plausible, and it likely biases the estimated tax revenue downward.

mj_7841

Under the assumption that demand does not shift due to legalization, any change in the quantity and price would result from changes in supply conditions. There are two main effects that would operate (Miron 2003a). On the one hand, marijuana suppliers in a legal market would not incur the costs imposed by prohibition, such as the threat of arrest, incarceration, fines, asset seizure, and the like. This means, other things equal, that costs and therefore prices would be lower under legalization. On the other hand, marijuana suppliers in a legal market would bear the costs of tax and regulatory policies that apply to legal goods but that black market suppliers normally avoid. This implies an offset to the cost reductions resulting from legalization. Further, changes in competition and advertising under legalization can potentially yield higher prices than under prohibition.

It is thus an empirical question as to how prices under legalization would compare to prices under current prohibition. The best evidence available on this question comes from comparisons of marijuana prices between the U.S. and the Netherlands. Although marijuana is still technically illegal in the Netherlands, the degree of enforcement is substantially below that in the U.S., and the sale of marijuana in coffee shops is officially tolerated. The regime thus approximates de facto legalization. Existing data suggest that retail prices in the Netherlands are roughly 50-100 percent of U.S. prices.

The effect of any price decline that occurs due to legalization depends on the elasticity of demand for marijuana. Evidence on this elasticity is limited because appropriate data on marijuana price and consumption are not readily available. Existing estimates, however, suggest an elasticity of at least -0.5 and plausibly more than -1.0 (Nisbet and Vakil 1972).

If the price decline under legalization is minimal, then expenditure will not change regardless of the demand elasticity. If the price decline is noticeable but the demand elasticity is greater than or equal to 1.0 in absolute value, then expenditure will remain constant or increase. If the price decline is noticeable and the demand elasticity is less than one, then expenditure will decline. Since the decline in price is unlikely to exceed 50% and the demand elasticity is likely at least -0.5, the plausible decline in expenditure is approximately 25%. Given the estimate of $10.5 billion in expenditure on marijuana under current prohibition, this implies expenditure under legalization of about $7.9 billion.

Tax Revenue from Legalized Marijuana

To estimate the tax revenue that would result from marijuana legalization, it is necessary to assume a particular tax rate. This report considers two assumptions that plausibly bracket the range of reasonable possibilities.

The first assumption is that tax policy treats legalized marijuana identically to other goods. In that case tax revenue as a fraction of expenditure would be approximately 30%, implying tax revenue from legalized marijuana of $2.4 billion. The amount of revenue would be lower if substantial home production occurred under legalization. The evidence suggests, however, that the magnitude of such production would be minimal. In particular, alcohol production switched mostly from the black market to the licit market after repeal of Alcohol Prohibition in 1933.

The second assumption is that tax policy treats legalized marijuana similarly to alcohol or tobacco, imposing a “sin tax” in excess of any tax applicable to other goods. Imposing a high sin tax can force a market underground, thereby reducing rather than increasing tax revenue. Existing evidence, however, suggests that relatively high rates of sin taxation are possible without generating a black market. For example, cigarette taxes in many European countries account for 75–85 percent of the price (US Department of Health and Human Services 2000).

One benchmark, therefore, is to assume that an excise tax on legalized marijuana doubles the price. If general taxation accounts for 30% of the price, this additional tax would then make tax revenue account for 80% of the price. This doubling of the price, given an elasticity of -0.5, would cause roughly a 50% increase in expenditure, implying total expenditure on marijuana would be $11.85 billion (=$7.9 x 1.5). Tax revenue would equal 80% of this total, or $9.5 billion. This includes any standard taxation applied to marijuana income as well as the sin tax on marijuana sales.

The $9.5 billion figure is not necessarily attainable given the characteristics of marijuana production, however. Small scale, efficient production is possible and occurs widely now, so the imposition of a substantial tax wedge might encourage a substantial fraction of the market to remain underground. The assumption of a constant demand elasticity in response to a price change of this magnitude is also debatable; more plausibly, the elasticity would increase as the price rose, implying a larger decline in consumption and thus less revenue from excise taxation. The $9.5 figure should therefore be considered an upper bound.

These calculations nevertheless indicate the potential for substantial revenue from marijuana taxation. A more modest excise tax, such as one that raises the price 50%, would produce revenue on legalized marijuana of $6.2 billion per year.

Distribution of the Marijuana Tax Revenue

hemp_for_warThe estimates of tax revenue discussed so far indicate the total amount that could be collected summing over all levels of government. In practice this total would be divided between state and federal governments. It is therefore useful to estimate how much revenue would accrue to each state, and to state governments versus the federal government, under plausible assumptions.

Table 4a indicates the tax revenue that would accrue to each state and to the federal government under the assumption that each state collected revenue equal to 10% of the income generated by legalized marijuana and the federal government collected income equal to 20%. This is approximately what occurs now for the economy overall, except that the ratio of tax revenues to income varies across states from the 10% figure assumed here. The table indicates that under these assumptions, the federal government would collect $1.6 billion in additional revenue while on average each state would collect $16 million in additional tax revenue.

These calculations ignore the fact that marijuana use rates differ across states, so application of identical policies would yield different amounts of revenue per capita. Wright (2002, Table A.4, p.82), for example, indicates that the percent of those 12 and over reporting marijuana use in the past month ranged in 1999-2000 from a low of 2.79% in Iowa to a high of 9.03% in Massachusetts. Table 4b therefore shows the breakdown of revenue by state under the assumption that tax revenue is proportional to state marijuana use rates. A third possibility, which cannot easily be examined with existing data, is that revenue by state differs depending on the distribution of marijuana production.

V. Summary

This report has estimated the budgetary implications of legalizing marijuana and taxing and regulating it like other goods. According to the calculations here, legalization would reduce government expenditure by $5.3 billion at the state and local level and by $2.4 billion at the federal level. In addition, marijuana legalization would generate tax revenue of $2.4 billion annually if marijuana were taxed like all other goods and $6.2 billion annually if marijuana were taxed at rates comparable to those on alcohol and tobacco.

References

Baicker, Katherine and Mireille Jacobson (2004), “Finders Keepers: Forfeiture Laws, Policing Incentives, and Local Budgets,” manuscript, Department of Economics, Dartmouth College.

Bates, Scott W. (2004), “The Economic Implications of Marijuana Legalization in Alaska,” Report for Alaskans For Rights & Revenues, Fairbanks, Alaska.

Caputo, Michael R. and Brian J. Ostrom (1994), “Potential Tax Revenue from a Regulated Marijuana Market: A Meaningful Revenue Source,” American Journal of Economics and Sociology, 53, 475-490.

Clements, Kenneth W. and Mert Daryal (2001), “Marijuana Prices in Australia in 1990s,” manuscript, Economic Research Centre, Department of Economics, The University of Western Australia.

Durose, Matthew and Patrick A. Langan (2003), Felony Sentences in State Courts, 2000, Bureau of Justice Statistics, Office of Justices Programs, U.S. Department of Justice, NCJ 198821.

Easton, Stephen T. (2004), “Marijuana Growth in British Columbia,” Public Policy Sources, Fraser Institute Occasional Paper #74.

European Monitoring Centre for Drugs and Drug Addiction (2002), Annual Report 2002, available at (http://annualreport.emcdda.eu.int/pdfs/2002_0458_EN.pdf).

Gettman, Jon B. and Stephen S. Fuller (2003), “Estimation of the Budgetary Costs of Marijuana Possession Arrests in the Commonwealth of Virginia,” Center for Regional Analysis, George Mason University.

Harrison, Lana D., Michael Backenheimer, and James A. Inciardi (1995), “Cannabis use in the United States: Implications for Policy,” in Peter Cohen and Arjan Sas, eds., Cannabisbeleid in Duitsland, Frankrijk en do Verenigde Staten, Amerstdamn: Centrum voor Drugsonderzoek, Universiteit van Amsterdamn, 231-236.

Lewis, Minchin (2004), Report on the Syracuse Police Department Activity for the Year Ended June 30, 2002, Department of Audit, City of Syracuse.

MacCoun, Robert and Peter Reuter (1997), “Interpreting Dutch Cannabis Policy: Reasoning by Analogy in the Legalization Debate,” Science, 278, 47-52.

Miron, Jeffrey A. (2002), “The Effect of Marijuana Decriminalization on the Budgets of Massachusetts Governments, With a Discussion of Decriminalization’s Effect on Marijuana Use,” Report to the Drug Policy Forum of Massachusetts, October.

Miron, Jeffrey A. (2003a), “Do Prohibitions Raise Prices? Evidence from the Markets for Cocaine and Heroin,” Review of Economics and Statistics, 85(3), 522-530.

Miron, Jeffrey A. (2003b), “A Critique of Estimates of the Economic Costs of Drug Abuse,” Report to the Drug Policy Alliance, July.

Miron, Jeffrey A. (2003c), “The Budgetary Implications of Marijuana Legalization in Massachusetts,” Report to Change the Climate, August.

Murphy, Patrick, Lynn E. Davis, Timothy Liston, David Thaler, and Kathi Webb (2000), Improving Anti-Drug Budgeting: Santa Monica, CA: Rand.

Nisbet, Charles T. and Firouz Vakil (1972), “Some Estimates of Price and Expenditure Elasticites of Demand for Marijuana Among U.C.L.A. Students,” Review of Economics and Statistics, 54, 473-475.

Office of National Drug Control Policy (1993), State and Local Spending on Drug Control Activities, Washington, D.C.: ONDCP

Office of National Drug Control Policy (2001a), What America’s Users Spend on Illegal Drugs, Cambridge, MA: Abt Associates.

Office of National Drug Control Policy (2001b), The Price of Illicit Drugs: 1981 through Second Quarter of 2000, Washington, D.C: Abt Associates.

Office of National Drug Control Policy (2002), National Drug Control Strategy, Washington, D.C.: ONDCP.

Pacula, Rosalie Liccardo, Michael Grossman, Frank J. Chaloupka, Patrick M. O’Malley, Lloyd D. Johnston, and Matthew C. Farrelly (2000), “Marijuana and Youth,” NBER WP #7703.

Reuter, Peter, Paul Hirschfield, and Curt Davies (2001), “Assessing the Crack-Down on Marijuana in Maryland,” manuscript, University of Maryland.

Schwer, R. Keith, Mary Riddel, and Jason Henderson (2002), “Fiscal Impact of Question 9: Potential State-Revenue Implications,” Center for Business and Economic Research, University of Nevada, Las Vegas.

US Department of Health and Humans Services (2000), Reducing Tobacco Use: A Report of the Surgeon General, Tobacco Taxation Fact Sheet. Accessed at

http://www.cdc.gov/tobacco/sgr/sgr_2000/factsheets/factsheets_taxation.htm.

U.S. Department of Health and Human Services (2004), Treatment Episode Data Set (TEDS) Highlights – 2002, Washington, D.C.: Substance Abuse and Mental Health Services Administration, Office of Applied Statistics.

Wright, D. (2002), State Estimates of Substance Use from the 2000 National Household Survey on Drug Abuse: Volume I, Findings (DHHS Publication No. SMA 02-3731, NHSDA Series H-15), Rockville, MD: Substance Abuse and Mental Health Services Administration, Office of Applied Statistics.


Table 1: Percentage of Arrests Due to Marijuana Prohibition
Total Arrests MJ Possession MJ Sale/Man. Poss % S/M % Poss % /2
1 2 3 4 5 6
Alabama 215587 11501 258 0.053 0.001 0.027
Alaska 40181 1239 200 0.031 0.005 0.015
Arizona 304142 16288 1233 0.054 0.004 0.027
Arkansas 218521 6846 928 0.031 0.004 0.016
California 1428248 50149 12338 0.035 0.009 0.018
Colorado 282787 12067 604 0.043 0.002 0.021
Connecticut 146992 6751 773 0.046 0.005 0.023
Delaware 41515 2151 131 0.052 0.003 0.026
D.C.* 4009 32 0 0.008 0.000 0.004
Florida* 0 0 0 0.043 .006 0.022
Georgia 429674 24321 4093 0.057 0.010 0.028
Hawaii 64463 1110 167 0.017 0.003 0.009
Idaho 76032 2949 219 0.039 0.003 0.019
Illinois* 319920 0 0 0.043 0.006 0.000
Indiana 270022 14484 1806 0.054 0.007 0.027
Iowa 113394 6054 551 0.053 0.005 0.027
Kansas 78285 3277 594 0.042 0.008 0.021
Kentucky* 160899 10669 1188 0.066 0.007 0.033
Louisiana 297098 14941 2526 0.050 0.009 0.025
Maine 57203 3294 554 0.058 0.010 0.029
Maryland 318056 17113 2711 0.054 0.009 0.027
Massachusetts 160342 8975 1365 0.056 0.009 0.028
Michigan 413174 14629 2050 0.035 0.005 0.018
Minnesota 269010 9325 6782 0.035 0.025 0.017
Mississippi 202007 9925 1054 0.049 0.005 0.025
Missouri 322775 13202 1338 0.041 0.004 0.020
Montana 30396 384 35 0.013 0.001 0.006
Nebraska 97324 6787 326 0.070 0.003 0.035
Nevada 148656 3828 933 0.026 0.006 0.013
New Hampshire 50830 3706 550 0.073 0.011 0.036
New Jersey 375049 20285 3058 0.054 0.008 0.027
New Mexico 112829 2966 325 0.026 0.003 0.013
New York 1295374 101739 11309 0.079 0.009 0.039
North Carolina 523920 21179 2539 0.040 0.005 0.020
North Dakota 27846 896 137 0.032 0.005 0.016
Ohio 533364 25420 1863 0.048 0.003 0.024
Oklahoma 166004 11198 1302 0.067 0.008 0.034
Oregon 157748 6336 283 0.040 0.002 0.020
Pennsylvania 493339 16471 5057 0.033 0.010 0.017
Rhode Island 35733 2200 293 0.062 0.008 0.031
South Carolina 216451 14348 2370 0.066 0.011 0.033
South Dakota 41615 2449 153 0.059 0.004 0.029
Tennessee 232486 12869 2586 0.055 0.011 0.028
Texas 1074909 55509 1926 0.052 0.002 0.026
Utah 125553 4192 311 0.033 0.002 0.017
Vermont 17565 632 65 0.036 0.004 0.018
Virginia 303203 13140 1443 0.043 0.005 0.022
Washington 298474 13146 1329 0.044 0.004 0.022
West Virginia 51452 2618 248 0.051 0.005 0.025
Wisconsin 322877 45 16 0.000 0.000 0.000
Wyoming 34243 1633 164 0.048 0.005 0.024

* Quoting http://fisher.lib.virginia.edu/collections/stats/crime/2000cb.pdf : “(3) No arrest data were provided for Washington, DC, and Florida. Limited arrest data were available for Illinois and Kentucky.”

Source: FBI Uniform Crime Reports accessed at http://fisher.lib.virginia.edu/collections/stats/crime/.


Table 2: Expenditures Attributable to Marijuana Prohibition ($ in millions)
Police Budget Judicial Budget Corrections Budget Total
State Total: MJ Prohib: Total MJ Prohib: Total MJ Prohib. Total MJ Prohib.
Alabama 656 18.28 262 28.56 404 4.04 1,322 51
Alaska 177 3.61 130 14.17 175 1.75 482 20
Arizona 1096 33.79 611 66.60 955 9.55 2,662 110
Arkansas 351 6.99 156 17.00 328 3.28 835 27
California 8703 227.97 6255 681.80 7170 71.70 22,128 981
Colorado 830 19.48 329 35.86 820 8.20 1,979 64
Connecticut 682 19.25 430 46.87 554 5.54 1,666 72
Delaware 166 4.82 90 9.81 228 2.28 484 17
Florida 3738 103.19 1396 152.16 3272 32.72 8,406 288
Georgia 1279 48.38 525 57.23 1375 13.75 3,179 119
Hawaii 222 2.49 180 19.62 153 1.53 555 24
Idaho 207 4.61 102 11.12 191 1.91 500 18
Illinois 3053 84.28 961 104.75 1763 17.63 5,777 207
Indiana 843 28.25 325 35.43 727 7.27 1,895 71
Iowa 426 13.44 253 27.58 298 2.98 977 44
Kansas 430 12.26 206 22.45 349 3.49 985 38
Kentucky 488 19.78 290 31.61 610 6.10 1,388 57
Louisiana 829 27.89 359 39.13 780 7.80 1,968 75
Maine 164 6.31 69 7.52 123 1.23 356 15
Maryland 1120 39.68 489 53.30 1104 11.04 2,713 104
Massachusetts 1479 53.98 628 68.45 795 7.95 2,902 130
Michigan 1792 40.62 905 98.65 1853 18.53 4,550 158
Minnesotta 874 37.18 442 48.18 591 5.91 1,907 91
Mississippi 404 12.03 154 16.79 292 2.92 850 32
Missouri 886 21.79 359 39.13 627 6.27 1,872 67
Montana 136 1.02 66 7.19 125 1.25 327 9
Nebraska 235 8.98 96 10.46 231 2.31 562 22
Nevada 539 10.32 248 27.03 471 4.71 1,258 42
New Hampshire 187 8.84 92 10.03 115 1.15 394 20
New Jersey 2231 78.52 948 103.33 1480 14.80 4,659 197
New Mexico 382 6.12 167 18.20 315 3.15 864 27.47
New York 5717 274.42 2262 246.56 4392 43.92 12,371 564.90
North Carolina 1318 33.03 470 51.23 1159 11.59 2,947 95.85
North Dakota 68 1.43 55 6.00 40 0.40 163 7.82
Ohio 2124 58.03 1158 126.22 1937 19.37 5,219 203.63
Oklahoma 518 21.53 193 21.04 511 5.11 1,222 47.68
Oregon 696 15.23 356 38.80 747 7.47 1,799 61.50
Pennsylvania 2220 59.82 1067 116.30 2221 22.21 5,508 198.33
Rhode Island 211 8.23 105 11.45 139 1.39 455 21.06
South Carolina 653 28.79 179 19.51 559 5.59 1,391 53.89
South Dakota 88 2.91 40 4.36 81 0.81 209 8.08
Tennessee 940 36.47 399 43.49 604 6.04 1,943 86.00
Texas 3204 88.47 1355 147.70 3755 37.55 8,314 273.71
Utah 381 7.30 202 22.02 351 3.51 934 32.83
Vermont 78 1.69 39 4.25 66 0.66 183 6.60
Virginia 1176 31.08 513 55.92 1246 12.46 2,935 99.46
Washington 1007 26.66 470 51.23 1053 10.53 2,530 88.42
West Virginia 171 5.17 108 11.77 184 1.84 463 18.79
Wisconsin 1124 0.13 440 47.96 1030 10.30 2,594 58.39
Wyoming 99 2.83 50 5.45 98 0.98 247 9.26
56,398 1,707.41 26,984 2941.26 48447 484.47 131,829 5,133
Arrest Data: http://fisher.lib.virginia.edu/collections/stats/crime/ Judicial Percent: Pastore and Maguire (2003), Table 5.42, p.444
Budget Data: http://www.census.gov/govs/www/state00.html Incarceration Percent: Pastore and Maguire (2003), Table 6.30, p.499

Table 3: Federal Expenditure on Marijuana Prohibition, 2002

1. Prohibition Enforcement, All Drugs $13.6 billion
2. Marijuana Use Rate, Past Year, 2002 11.0%
3. Any Illicit Drug Use Rate, Past Year, 2002 14.9%
4. Ratio 74%
5. Ratio × Line 1 $10.0 billion
6. Percent of All Drug Arrests for MJ, 2001 46.0%
7. Line 6 × Line 1 $6.3 billion
8. Percent of All Trafficking Arrests for MJ, 2001 26%
9. Line 8 × Line 1 $3.6 billion
10. Percent of DEA Drug Arrests for MJ, 2002 18.6%
11. Line 10 × Line 1 $2.5 billion
12. Percent of DEA Drug Convictions for MJ, 2002 19.9%
13. Line 12 × Line 1 $2.7 billion

Sources:

Line 1: Miron (2003b, p.10).

Lines 2-3: SAMHSA, Office of Applied Statistics, National Survey on Drug Use and Health, 2002, http://www.samhsa.gov/oas/nhsda/2k2nsduh/Results/apph.htm#tabh.2.

Lines 6 and 8: Sourcebook of Criminal Justice Statistics Online, http://www.albany.edu/sourcebook/1995/pdf/t429.pdf/

Line 10: Sourcebook of Criminal Justice Statistics Online, http://www.albany.edu/sourcebook/1995/pdf/t440.pdf/

Line 12: Sourcebook of Criminal Justice Statistics Online, http://www.albany.edu/sourcebook/1995/pdf/t538.pdf


Table 4a: State Marijuana Tax Revenue – Population Method
Population Proportion Tax Revenue
Alabama

4,447,100

0.016

12.6

Alaska

626,932

0.002

1.8

Arizona

5,130,632

0.018

14.6

Arkansas

2,673,400

0.009

7.6

California

33,871,648

0.120

96.3

Colorado

4,301,261

0.015

12.2

Connecticut

3,405,565

0.012

9.7

Delaware

783,600

0.003

2.2

Dist. Columbia

572,059

0.002

1.6

Florida

15,982,378

0.057

45.4

Georgia

8,186,453

0.029

23.3

Hawaii

1,211,537

0.004

3.4

Idaho

1,293,953

0.005

3.7

Illinois

12,419,293

0.044

35.3

Indiana

6,080,485

0.022

17.3

Iowa

2,926,324

0.010

8.3

Kansas

2,688,418

0.010

7.6

Kentucky

4,041,769

0.014

11.5

Louisiana

4,468,976

0.016

12.7

Maine

1,274,923

0.005

3.6

Maryland

5,296,486

0.019

15.1

Massachusetts

6,349,097

0.023

18.0

Michigan

9,938,444

0.035

28.3

Minnesota

4,919,479

0.017

14.0

Mississippi

2,844,658

0.010

8.1

Missouri

5,595,211

0.020

15.9

Montana

902,195

0.003

2.6

Nebraska

1,711,263

0.006

4.9

Nevada

1,998,257

0.007

5.7

New Hampshire

1,235,786

0.004

3.5

New Jersey

8,414,350

0.030

23.9

New Mexico

1,819,046

0.006

5.2

New York

18,976,457

0.067

53.9

North Carolina

8,049,313

0.029

22.9

North Dakota

642,200

0.002

1.8

Ohio

11,353,140

0.040

32.3

Oklahoma

3,450,654

0.012

9.8

Oregon

3,421,399

0.012

9.7

Pennsylvania

12,281,054

0.044

34.9

Rhode Island

1,048,319

0.004

3.0

South Carolina

4,012,012

0.014

11.4

South Dakota

754,844

0.003

2.1

Tennessee

5,689,283

0.020

16.2

Texas

20,851,820

0.074

59.3

Utah

2,233,169

0.008

6.3

Vermont

608,827

0.002

1.7

Virginia

7,078,515

0.025

20.1

Washington

5,894,121

0.021

16.8

West Virginia

1,808,344

0.006

5.1

Wisconsin

5,363,675

0.019

15.2

Wyoming

493,782

0.002

1.4

State Populations: http://www.census.gov/popest/states/NST-EST2003-ann-est.html


Table 4b: State Marijuana Tax Revenue – Consumption Method
Use Rate†

User Population

Use Proportion

Tax Revenue

Alabama

0.044

193,449

0.011

8.9

Alaska

0.098

61,251

0.004

2.8

Arizona

0.055

284,237

0.016

13.0

Arkansas

0.054

145,166

0.008

6.7

California

0.068

2,296,498

0.132

105.4

Colorado

0.089

383,672

0.022

17.6

Connecticut

0.063

213,529

0.012

9.8

Delaware

0.068

53,206

0.003

2.4

Dist. Columbia

0.108

61,897

0.004

2.8

Florida

0.066

1,051,640

0.060

48.2

Georgia

0.051

420,784

0.024

19.3

Hawaii

0.072

87,110

0.005

4.0

Idaho

0.056

72,461

0.004

3.3

Illinois

0.056

689,271

0.040

31.6

Indiana

0.064

388,543

0.022

17.8

Iowa

0.046

135,489

0.008

6.2

Kansas

0.053

143,024

0.008

6.6

Kentucky

0.055

221,489

0.013

10.2

Louisiana

0.064

284,227

0.016

13.0

Maine

0.069

88,352

0.005

4.1

Maryland

0.057

302,959

0.017

13.9

Massachusetts

0.063

401,263

0.023

18.4

Michigan

0.071

705,630

0.040

32.4

Minnesota

0.063

311,403

0.018

14.3

Mississippi

0.050

142,802

0.008

6.6

Missouri

0.061

339,070

0.019

15.6

Montana

0.087

78,581

0.005

3.6

Nebraska

0.064

109,179

0.006

5.0

Nevada

0.086

172,450

0.010

7.9

New Hampshire

0.099

121,725

0.007

5.6

New Jersey

0.050

420,718

0.024

19.3

New Mexico

0.059

106,596

0.006

4.9

New York

0.075

1,427,030

0.082

65.5

North Carolina

0.056

448,347

0.026

20.6

North Dakota

0.056

35,771

0.002

1.6

Ohio

0.067

759,525

0.044

34.8

Oklahoma

0.052

180,469

0.010

8.3

Oregon

0.090

306,557

0.018

14.1

Pennsylvania

0.054

664,405

0.038

30.5

Rhode Island

0.095

99,485

0.006

4.6

South Carolina

0.050

198,996

0.011

9.1

South Dakota

0.057

42,875

0.002

2.0

Tennessee

0.047

266,827

0.015

12.2

Texas

0.049

1,015,484

0.058

46.6

Utah

0.046

102,502

0.006

4.7

Vermont

0.100

61,126

0.004

2.8

Virginia

0.064

455,149

0.026

20.9

Washington

0.081

479,192

0.027

22.0

West Virginia

0.050

90,056

0.005

4.1

Wisconsin

0.054

291,784

0.017

13.4

Wyoming

0.052

25,578

0.001

1.2

†Marijuana Use Rates: http://oas.samhsa.gov/2k2State/html/appA.htm#taba.1


Appendix A: Percentage of Corrections Population Incarcerated on Marijuana Charges

State-by-state data on the fraction of prisoners incarcerated on marijuana charges are not available, but data for a few states provide reasonable estimates of this fraction. This appendix displays the available information.

Appendix Table A1

State Year

% Incarcerated for MJ Violation

Population

Pop %

Weighted Share

California 2003

0.008

33,871,648

0.568

0.005

Georgia 2000

0.014

8,186,453

0.137

0.002

Massachusetts 2000

0.017

6,349,097

0.107

0.002

Michigan 2001

0.006

9,938,444

0.167

0.001

New Hampshire 2002

0.016

1,235,786

0.021

0.000

Total

0.061

59,581,428

Average:

0.012

Weighted Average

0.010

Sources:

New Hampshire: http://www.state.nh.us/doc/population.html.

California: http://www.corr.ca.gov/OffenderInfoServices/Reports/Annual/CensusArchive.asp.

Michigan: http://www.michigan.gov/documents/2001Stat_79881_7.pdf

Georgia: http://www.dcor.state.ga.us/pdf/inms03-12.pdf

Massachusetts: Miron (2002, pp.4-5).

x


Appendix B: Revenue Under Prohibition from Seizures and Fines

State-by-state data on fines and seizures are not available. There is sufficient information, however, to estimate an upper bound on the revenue from fines and seizures. There are also data on federal fines and seizures.

Seizures:

The two main sources of federal seizure revenue are the Drug Enforcement Administration (DEA) and the U.S. Customs Service. In 2002, the DEA made seizures totaling $438 million.[32] In 2001, the U.S. Customs Service seized property valued at $592 million.[33] These figures overstate revenue since some defendants recovered their seized property. The Customs seizures overstate revenue related to drugs because the figure includes seizures for all reasons, such as violation of gun laws, intellectual property laws, and the like. There may also be double-counting between the DEA seizures and the U.S. Customs seizures.

Summing together the two components yields $1,030 million (= $438+$592 million) as the seizure revenue that results from enforcement of drug laws. This figure must be adjusted downward, however, to separate out the portion due to violation of marijuana laws as opposed to other drug laws. As shown in Table 3, approximately 20% of the federal drug enforcement budget is attributable to marijuana, so it is reasonable to assume approximately 20% of the fines and seizures correspond to enforcement of marijuana laws.

Thus, seizure revenue at the federal level due to marijuana prosecutions is roughly $206.0 million annually.

State and local data on forfeiture revenue are not readily available for all states Baicker and Jacobson (2004), however, estimate using a sample of states that state forfeiture revenue per capita was roughly $1.14 during the 1994-2001 period. This implies aggregate state forfeiture revenue of $342 million. Deflating by 26%, the fraction of all drug trafficking arrests due to marijuana, implies that marijuana seizures yield $89 million to state governments.

Fines: In 2001, the total quantity of fines and restitutions ordered for drug offense cases in U.S. District Courts was just under $41 million.[34] Adjusting this by the 20% figure implies $8.2 million from marijuana cases. Assuming the ratio of state/local to federal fine revenue is similar to ratio of state/local to federal seizure revenue implies that state and local fines/restitution from marijuana cases is about $3.5 million.

Related Links

Interview with Milton Friedman on the Drug War, 1991

PollingReport – Illegal Drugs

Esquire:  He’s Not High: Inside Barney Frank’s Plan to Legalize Marijuana July 14, 2009

LA Times:  A pot tax? July 14, 2009

Mother Jones: The Patriot’s Guide to Legalization July/August 2009

HotAir:  Arnold: Time to discuss marijuana legalization, even though I oppose it

UN Office On Drugs & Crime:  World Drug Report – 2009 (view pdf/download @ docstoc)

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mj_animated_joint


END

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