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Study Finds Legalizing Marijuana Could Severely Slash Drug’s Price

Robert MacCoun
Robert MacCoun

By Andrew Cohen

A new study co-authored by Berkeley Law Professor Robert MacCoun finds that legalizing the production and distribution of marijuana in California could lower the drug’s price by as much as 80 percent and increase consumption. Conducted by the RAND Corporation, a nonprofit, nonpartisan private research institution, the study examines key issues raised by state proposals to legalize marijuana.
Some reports claim that taxing legal marijuana could raise more than $1 billion in revenue. But the RAND study cautions that potential revenue could be dramatically lowered due to tax levels, tax evasion, and the federal government’s response.
The study, entitled “Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets,” is available here.

“The biggest surprise to me is that pre-tax prices will drop far lower than I’d expected in my earlier analyses of the issue,” says MacCoun, a leading authority on alternative drug laws and author of the 2001 book Drug War Heresies: Learning from Other Vices, Times, and Places. “This matters a lot, because a tax would have to be massive to offset an 80 percent price drop, or consumption could rise really dramatically. And it’s difficult to believe that a really steep tax is sustainable when evasion is so easy.”
Two proposals to legalize marijuana growing and sales are pending in California. Assembly Bill 2254 would legalize marijuana for adults 21 and older and require the state’s Department of Alcoholic Beverage Control to regulate its possession, sale, and cultivation. Authored by Assemblyman Tom Ammiano (D-San Francisco), the bill would create a $50 per ounce excise tax that would fund drug education, awareness, and rehabilitation programs.

“The Ammiano tax scheme would end up encouraging even more potent forms of marijuana and I believe that marijuana potency has big implications for public health,” MacCoun says.  “But I think it is unlikely to pass, unless perhaps legislators panic if it looks like the ballot initiative is going to succeed in giving control over taxation to local jurisdictions.”

In November, California voters will consider a ballot measure titled the Regulate, Control and Tax Cannabis Act of 2010. That initiative would make it legal for adults 21 and older to cultivate marijuana on a 5-by-5 foot plot, and to possess, process, share, or transport up to one ounce of marijuana. It would also authorize cities or counties to allow, regulate, and tax the commercial cultivation and sales of marijuana—although such activities would remain illegal in jurisdictions that do not opt in.
“The ballot initiative will also probably lose,” says MacCoun. “Support is tight and the opposition hasn’t really been launched yet. But polls aren’t fully trustworthy here; this is the kind of issue where people may say one thing to a pollster and do another thing in the polling booth, so surprises are possible.”

And what if both proposals fail? “Reformers needn’t throw in the towel. They just need to think a lot harder about how to design a better alternative to the current regime.”
Only two countries have altered the criminal status of supplying marijuana. The Netherlands allows the sale of five grams or less in licensed coffee shops, and in Australia four jurisdictions have reduced the penalties for cultivating a small number of marijuana plants to confiscation and a fine. Neither has legalized the type of larger-scale commercial cultivation that California is considering.

In two of the nine background papers prepared for the RAND study, MacCoun presented extensive analyses of the Dutch and Australian models. While he believes California can learn “a great deal” from each, he says “the California proposals jumped right past them into truly uncharted waters.”
Study researchers say one effect of legalizing marijuana would be a dramatic drop in price as growers move from clandestine operations to legal production. Based on an analysis of known production costs and surveys of the current price of marijuana, they suggest the untaxed retail price of high-quality marijuana could fall as low as $38 per ounce—compared to about $375 today.

MacCoun asserts that it is feasible to decriminalize possession and end marijuana arrests without full-scale legalization of production and sales. “And there are other ways to design alternative schemes for legally obtaining cannabis,” he says, “including the Dutch model or simply allowing home cultivation of very small quantities. Part of the problem is that some alternatives that are more responsible from a public health standpoint are less attractive if you want to generate state revenues.”