marijuana garden
Pinning down the economic impact of legalizing pot might be more difficult than either side realizes. (AP Photo/File)

The economics of legalizing marijuana

BY Kim Shepard  on August 9, 2012 @ 12:34 pm (Updated: 3:30 pm - 8/10/12 )

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The Washington State Office of Financial Management has released its report on the economic impact of Initiative 502 which would legalize and tax marijuana.

According to the report, the state could rake in nearly $2 billion in the next five years if the legalization of marijuana is passed, or it could take in nothing at all. The O.F.M says there are too many variables to pin down a better number. Still, some experts have an understanding of pot economics and can offer educated guesses on the impact.

The first, obvious economic impact of I-502 is the taxes it would place on marijuana once pot is legalized. To figure out just how much money that will bring in, Professor Jonathan Caulkins at Carnegie Melon University says we first have to know the price of pot. He says that will change once it is legal.

"Marijuana is essentially an agricultural crop [...] there's no reason why it should be nearly as expensive as it is except for the prohibition," Caulkins says.

Caulkins compares the production of legal pot to the growing of crops like apples or tea. There are estimates the price could drop by as much as 50 percent.

The Washington initiative sets up a three-tiered tax system where it would be taxed at 25 percent at the production level, at the distribution level and at the point of sale.

"The price decline would greatly reduce the revenues relative to what you would naively project if you imagined that it was still going to be $10 or $12 a gram," says Caulkins.

There is also a financial risk that comes along with legalizing marijuana. It could set up a battle with the federal government, which still considers the drug illegal.

"One of the nightmare scenarios for Washington is Congress gets really nasty and says, 'Ha! No more federal highway dollars for you.' If they do something like that then the financial loss vastly swamps any of the financial gains," Caulkins says.

There has also been debate over the amount of money the state would save by not enforcing the prohibition of pot and the amount that would be spent on the enforcement of the new laws legalizing marijuana. Harvard economist Jeffrey Miron says both numbers are relatively small.

"Legalizing marijuana isn't going to solve any state's or country's or city's budget woes," says Miron.

Aside from the direct economic impact, Miron says there would likely be secondary effects on our state's economy. For example, Washington's 8.3 percent unemployment rate might drop.

"The number of people employed wouldn't necessarily change very much. It would just be that someone who had been employed as an illegal marijuana grower would now be a legal marijuana grower," Miron says.

That now legal job could get a few people off unemployment and state aid programs.

So taking it all into consideration, there likely would be a positive economic impact from the legalization of marijuana. Unfortunately, there are too many variables for anyone to guess just how much.

"The claims that legalizing marijuana is somehow a panacea for all the world's problems, that's just completely nutty," says Miron, "Most of what we'll see different is recognizing explicitly what is already occurring."

Miron and Caulkins agree the financial argument should not be the main consideration for people deciding whether or not to support legalizing marijuana.

Kim Shepard, KIRO Radio Reporter
Kim Shepard is a news anchor and reporter for KIRO Radio and the office optimist. She's energetic, quick to laugh and has a positive outlook on life.
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Comments (89)


  • Add A Comment

  • murr wrote...
    They are so against it/ untill it comes to money
    August 10, 2012 5:20 am
    Just like the oldest profession. Once it lines their own pockets ??? Then its good. W.S.O.F.M. You just have to let them have control, because they have know how to run things. LIKE A BUDGET . It just way to funny to see this.
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  • SickofSeattleite wrote...
    how would it get the the now legal pot grower off Govt assistance...
    August 10, 2012 5:38 am
    hello!!! They will still keep the operation on the down low and keep receiving the assistance....
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • froggy wrote...
    They must already be using it...
    August 10, 2012 5:45 am
    if they think that taxing it will bring in a lot of revenue. With the ease in which marijuana is grown, nobody will be buying it. You will see potted pot everywhere. The only way it will be sold is when those using it become so apathetic that they are unable to tend their plants and have to buy it. Of course this will eventually end up costing the State more money in unemployment costs. When employers start drug testing more and all the users get fired for having it in their systems, those fired will be applying for unemployment and costing the State more than the taxes that have been collected.
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  • Rick (4) wrote...
    @froggy
    August 10, 2012 9:47 am
    To grow pot under the new law, you will need to be a licensed farm by the state. All others would be growing it illegally and the penalty stays the same as today. They will not license grow your own operations. This is another reason why the medical pot users oppose this new law.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • PhilDeBowl wrote...
    froggy's MISinformation service
    August 12, 2012 8:05 am
    Medical MJ laws allow for personal grows, I-502 will not change that. If you say it does it is incumbant upon you to cite the section in the initiative that states that.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • Troll Hunter wrote...
    froggy
    August 10, 2012 8:58 pm
    Anyone can grow it? Perhaps, but not everyone can grow any worth a darn. Besides, most Americans arte way too lazy to spend the time growing it. They would much rather just run and buy it.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • PhilDeBowl wrote...
    and then
    August 12, 2012 8:00 am
    And then the flying monkeys will be unleashed and they will devour all the unicorns. Hey Froggy if your so good at foreseeing the future can you give me next weeks lotto numbers.
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  • vsekvsek wrote...
    Liberal logic 101.
    August 10, 2012 5:45 am
    Its an inconvient truth that the batman film shooter was a big pot head. Sure WHILE they are high they are mellow and want pizza. What happens when they are not? Ahh the economics of dead people from crazy pot heads going on shooting rampages. Oh but pot makes you "mellow" -l o l!!!!
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  • jhower28 wrote...
    uneducated
    August 10, 2012 8:56 am
    Sure that batman shooter may have smoked cannabis. that doesn't mean he didn't have bigger problems than that. that is a typical prohibitionist reply....it was the weed that did it. i honestly believe he failed out of school and that set him off. he was mentally unbalanced and crazy...before cannabis. you sound typically uneducated on the subject so crawl back in your hole.
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  • PhilDeBowl wrote...
    @vsek
    August 12, 2012 8:08 am
    What an assinine comment.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • just Fred wrote...
    drug testing?
    August 10, 2012 6:10 am
    Froggy, I've seen this comment before, perhaps by you, but why would people be tested for marijuana? It would be a legal product, just as alcohol is now so employers could not fire someone for using marijuana, as long as it is not on the job, just as they can not fire someone for using alcohol as long as it is not consumed on the job. Sorry, your argument doesn't hold up. It's time our society grows up and looses the refer madness attitude.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • Rick (4) wrote...
    @just Fred
    August 10, 2012 9:42 am
    Sorry, but businesses will still follow the federal law for drug use and yes they will fire users. Nowhere in the state bill does it prevent employers from doing so.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • cdbtx wrote...
    My favorite
    August 10, 2012 6:47 am
    "There is also a financial risk that comes along with legalizing marijuana. It could set up a battle with the federal government, which still considers the drug illegal"

    Does the federal government consider murder illegal or is it actually illegal?

    Thus another fine example of how the typical supporter is being played like a fool.

    Until the Fed's reclassify.. nothing will change.. except those claiming to want to legalize it in the states pockets will be getting fuller.

    PT Barnham's watching and smiling..

    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • DesertRez wrote...
    Yes Fred, but
    August 10, 2012 6:48 am
    My company is multi-national, so they would still test for pot. Also, the first thing they do after an accident is test for drugs/alcohol.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • Denco25 wrote...
    Another Dangerous Drug
    August 10, 2012 6:50 am
    Just what we need -- added more impaired drivers to the roadways, as if drunken drivers are not bad enough. When will people wake up to the devastation that comes about when people choose to sit behind the wheel, drunk or high, and go out and kill innocent victims.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • Rick (4) wrote...
    @Denco25
    August 10, 2012 9:44 am
    Those high drivers are already on the roads, so this will not change that. But the new law does have an extremely low intoxication low for pot, so more will get busted for DUI than in the past.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • Buzzby wrote...
    Facts, not assumptions
    August 11, 2012 4:24 pm
    Denco25 - are you aware that the states which have passed medical marijuana laws have experienced a 10% reduction in traffic fatalities? This is directly attributable to a reduction of the number of people who get behind the wheel after consuming alcohol. Studies of drivers under the effects of marijuana have shown almost no change in driving ability, except that the drivers drove more slowly and carefully. Drunk drivers think they're in NASCAR. Stoned drivers overestimate what little impairment they might have.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • PhilDeBowl wrote...
    @denco
    August 13, 2012 1:48 pm
    Then you are for prohibition of ALL intoxicating materials,why stop at MerryWanna ,why not prohibit ALL substances that might affect driving. Silly isn't it? Scientific fact, MJ is safer than alcohol,so why don't we prohibit alcohol and legalize MJ?
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • shark75 wrote...
    Seeing as though the democrats in Olympia are outright criminals
    August 10, 2012 7:07 am
    This should be a perfect fits for them.
    { "Thumbs Up":"1","Thumbs Down":"-1" }
  • FormerMarineSgt wrote...
    Wow... So much hard work, so little actual common sense...
    August 10, 2012 7:15 am
    1) We will not eliminate the anti-marijuana police expenses. The costs will just be re-directed to chase down the folks who continue to grow and sell illegally (i.e.: Those not following the law a
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