Economic Impact of Legalizing Marijuana

Introduction

People consume recreational drugs to get the euphoric effect that these psychotropic products create. The most extensively consumed illegal psychotropic substance is marijuana. Governments across the world, including the Canadian one, have engaged in aggressive actions to mitigate the production and consumption of this drug within their borders. Law enforcement agencies constantly carry out raids on suspected drug producers and distributors, leading to large seizures of the drug. In spite of these persistent efforts, the production and consumption of cannabis in Canada have remained stable over the past decade.

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The drug is produced clandestinely and sold in the underground market. The Canadian Center of Substance Abuse reports that cannabis use among Canadians in 2012 was 10.2%, which is over two times higher than the global average of 4.5% (2). The reported consumption rate of the drug indicates that there is a significant cannabis market in Canada. Despite the popularity of this drug among Canadians, the country continues to impose prohibitive policies that make marijuana consumption illegal. The illegitimate status of the drug makes it impossible for the government to obtain revenue from the marijuana market. This paper will argue that legalization would be beneficial to the Canadian economy since it would lead to an increase in tax revenues and decrease the law enforcement costs associated with the criminalization of marijuana.

Economic Benefit of Legalization

Legalizing marijuana would give the government access to an expansive source of revenue from the marijuana market. Marijuana has a high retail price with a single marijuana cigarette costing as much as $8.60. This is in contrast to the production cost of only $1.50 for the same product. This highlights that the drug has a significant profit margin. The government would benefit from these substantial profits if the industry was legalized.

Ducatti indicates that through regulation the government could take a great share of the profit through taxation (97). Current estimates indicate that the Canadian cannabis market is between $2billion and $7 billion. Based on these estimates, Barmak asserts that the Canadians use at least $3 billion each year on marijuana consumption (33). After taxation, the government would acquire in excess of $2.0 billion from the cannabis industry.

Advocates of legalization point out that decriminalizing marijuana would lead to the regulation of the marijuana industry by the government. As it currently stands, the industry operates outside of the legal framework which means that no taxes are remitted to the government from this lucrative industry. Barmak asserts that legalization would provide the government with additional tax revenues since marijuana operators would be dealt with in the same way that other legitimate businesses are (31). The government would be able to charge the industry license fees for operation. Taxes would also be charged for other business activities such as advertisement and individuals employed in the industry would pay income tax.

Decriminalization would significantly reduce the expenditure of law enforcement officials in the country. Due to the criminalization of marijuana, the government is forced to dedicate significant resources to fighting the production and consumption of this drug. Cannabis possession accounts for the majority of drug crimes in the country. The Canadian Center of Substance Abuse reports that 52.4% of all drug crimes reported by the police in 2012 involved marijuana possession (5). MacQueen reports that the costs of enforcing criminalization in Canada are disproportionately high when compared to the social and health consequences of marijuana use (18).

The criminal justice system uses between $300 and $500 million annually to enforce the prohibition policies. Advocates of decriminalization declare that it would “free up valuable resources and allow law officials to concentrate on bigger problems such as violent crime and trafficking in hard drugs” (Hyshka 81). The government would save the money currently spent on enforcing the prohibitive drug laws.

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Legalization would contribute to economic growth by making sure that the country is not deprived of valuable manpower when cannabis users are incarcerated. Due to the tough drug possession laws, most of the marijuana possession cases have to be tried in a criminal court. Convicted individuals are fined or given prison sentences. This has a deleterious effect on the national economy as individuals who could be contributing to the economy by being involved in the national workforce are incarcerated. Hyshka reveals that the criminal records as a result of cannabis possession stigmatize individuals and restrict their employment opportunities (82). The criminalization of marijuana therefore does the country more economic harm as potential members of the labor force are incarcerated or prevented from working due to cannabis use. Legalization would ensure that cannabis users continue to contribute to the economic growth of the country by remaining in the labor force. In addition to this,

Counterarguments

A significant argument made against legalization is that marijuana use has adverse effects on the human body. Scientists agree that marijuana presents many health risks to the user. The Canadian Center of Substance Abuse reports that cannabis use has many adverse effects including respiratory problems, lung cancer and impairing of cognitive functioning (1). In addition to this, cannabis increases the risk of mental disorders such as psychosis and depression. Dealing with this health consequences of marijuana use imposes a considerable burden on the healthcare system of the country. Research indicates that there is an overrepresentation of cannabis users in addiction treatment centers in the country. The Canadian Center of Substance Abuse reports that, “40.4% of the individuals seeking addiction treatment cited marijuana as the presenting problem” (3).

These statistics suggest that marijuana use creates an economic burden since the substance abuse treatment facilities are publicly funded. Opponents of legalization declare that decriminalizing this drug would make it accessible to more people, therefore increase the adverse economic effects.

Another argument against legalization is that it would lead to increased consumption due to the reduction in price. Marijuana currently has a high retail price for producers and distributors face significant risk when dealing with the product. Ducatti reveals that a risk-premium is attached to marijuana since the people who participate in its illegal production and sale put themselves at risk of imprisonment (97). Legalization would remove this risk causing many entrepreneurs to join the cannabis industry. This would increase supply and drive prices down leading to higher consumption. Excess consumption of marijuana is associated heightened levels of violence and an increase in road accidents.

Finally, fears have been expressed that legalization of marijuana would create business problems between Canada and the US. Canada is overly reliant on the US for its trading activities and almost half of the country’s GDP is from trading activities with its Southern neighbor. Policy makers in Canada are therefore keen to ensure that the trade relationship with the US is amicable. Legalizing marijuana would lead to potential trade problems since the US has strict drug policies. Hyshka notes that if Canada decriminalized cannabis, the US would feel the need to tighten controls at the Canada-US border (85). This would curtail the free flow of goods, therefore decreasing the economic gains for Canada.

Refutations and Supporting Evidence

While marijuana use has some adverse health effects, opponents of legalization exaggerate the scale of these effects. Research indicates that using marijuana only has mild effects on the individual. Jones and Hathaway document that there is no evidence that even very heavy marijuana users develop lung cancers (166). Major health effects and addiction only occur among heavy users of the drug. Proponents of legalization highlight that the heavy use of legal substances such as alcohol and tobacco also results in devastating health effects. However, most people consume these products in a controlled manner. It can therefore be expected that legalizing marijuana will not increase the burden on the healthcare system since most people will take this drug responsibly.

The argument that legalization will lead to an increase in supply and a lowering of cost is not based on solid facts. If marijuana prices were left to the free market, its retail price would fall as supply increased. However, the government is empowered to set the taxation level on consumer products. Typically, products such as alcohol and tobacco are highly taxed in order to increase their price and reducing consumption. Ducatti states that the same taxation system could be used, ensuring that marijuana products remain highly priced in spite of legalization (97). This approach would ensure that consumers are not encouraged to buy large quantities of the drug due to low prices.

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Concerns about the potential trade problems between Canada and the US following the legalization of marijuana ignore the fact that the Canadian government is capable of effectively monitoring the products that cross the border. While Canada has an expansive illegal marijuana production industry, most of the products are consumed locally. The greatest percentage of marijuana smuggled into the US is obtained from Mexico. MacQueen reveals that Canadian producers recognize that their border with the US is well policed and therefore avoid smuggling drugs into the US (18). It can be expected that producers will continue to exercise caution even after the drug is legalized. As such the decriminalization will not threaten Canada-US trade relations.

Conclusion

This paper set out to present economic arguments in support of the legalization of marijuana in Canada. The paper began by showing that this drug is highly popular in the country, making it a multi-billion industry. Legalizing the product would enable the government to obtain tax revenues from commerce in this product. At the same time, decriminalization would save the government millions of dollars that are currently used to enforce the prohibitive policies. The paper has also looked at some of the arguments offered against legalization. However, these arguments are either exaggerated or not based on facts.

The paper has shown that the health effects of marijuana are mild and that the cost of the drug can remain high even after legalization. Trade relations between Canada and its most important trading partner, the US will not be affected by the decriminalization of marijuana. From the arguments forwarded in this paper, it makes economic sense to legalize marijuana in Canada.

Works Cited

Barmak, Sarah. “How big business will make billions on the legalization of pot.” Canadian Business 86.4 (2013), 31-35. Web.

Canadian Center of Substance Abuse. Canadian Drug Summary: Cannabis. 2014. Web.

Ducatti, Larissa. “The Economic Case for Marijuana Legalization in Canada.” Journal of Alternative Perspectives in the Social Sciences 5.1 (2012): 96-100. Web.

Hyshka, Elaine. “The Saga Continues: Canadian Legislative Attempts to Reform Cannabis Law in the Twenty-First Century.” Journal of Criminology & Criminal Justice 51.1 (2009): 73-91. Web.

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Jones, Craig and Andrew Hathaway. “Marijuana medicine and Canadian physicians: Challenges to meaningful drug policy reform.” Contemporary Justice Review 11.2 (2008): 165-175. Print.

MacQueen, Ken. We need to legalize marijuana now. Maclean’s 126.23 (2013): 16-22. Web.

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