UVSS HEMPOLOGY 101 CLUB
LECTURE SERIES 2007/08

LESSON #14 : ECONOMICS OF LEGALIZATION - Part 2

…in a free and democratic society, which recognizes fundamentally but not exclusively the rule of law as the source of normative rules and in which government must promote autonomy insofar as possible and therefore make only sparing use of the instruments of constraint, public policy on psychoactive substances must be structured around guiding principles respecting the life, health, security and rights and freedoms of individuals, who, naturally and legitimately, seek their own well-being and development and can recognize the presence, difference and equivalence of others. CANNABIS: OUR POSITION FOR A CANADIAN PUBLIC POLICY REPORT OF THE SENATE SPECIAL COMMITTEE ON ILLEGAL DRUGS, 2002.

If only it were legitimate, there would be much to admire about the drug industry. It is, to start with, highly profitable. It produces goods for a small fraction of the price its customers are willing to pay. It has skilfully taken advantage of globalization, deftly responding to changing markets and transport routes. It is global but dispersed, built upon a high level of trust, and markets its wares to the young with no spending on conventional advertising. It brings rewards to some of the world’s poorer countries, and employs many of the rich world’s minorities and unskilled.

Taken at retail prices, it is almost certainly the world’s largest illicit market, although probably smaller than the widely quoted estimate by the United Nations Office of Drug Control and Crime Prevention of $400 billion, which would put it ahead of the global petroleum industry. The Economist, July 28, 2001.

World governments have handed profits worth billions of dollars annually to criminals, but there is a catch. Criminal firms are denied the use of normal corporate strategies. One would not wish to express strong sympathy for drug dealers, but consider their predicament. In illegal trades, contracts do not have the backing of the law. Disputes cannot be settled, and debts cannot be recovered by appeal to the courts. Firms cannot compete by normal means. Drug dealers cannot use the media to advertise new products, special offers or ‘spring sales’. Illegal drug firms are not quoted on stock exchanges so the ‘dawn raid’ takes on special meaning. In the absence of normal competitive processes, firms protect and expand their markets by the use of violence, or the threat of violence. Fraser Forum, June 1998

There are about one million people employed in the commercial marijuana industry, including growers, retail dealers, wholesale distributors and importers. Some of these are part-time or occasional. With sales at about $25 billion,, we estimate net income for people involved in the U.S. marijuana industry at about $15 billion.

Domestic farmers supply a large percentage of the marijuana market; so much so that certain analysts estimate that marijuana is the largest domestic agricultural crop. The estimated value of the U.S. marijuana crop is $15 billion to $20 billion a year; however, much of that is grown for personal use rather than commercial use. That is more than 8% of the total gross revenue of legal agricultural crops ($240 billion in 2000). As a percentage of net farm income, marijuana revenues are even higher. With estimated profits of $15 billion, marijuana farming is 20% of total farm income ($46.4 billion in 2000). Rosenthal and Kubby, WHY MARIJUANA SHOULD BE LEGAL, Thunder Mouth Press, 1996, pg 26, 27.

The estimated value of Canada’s marijuana production- up to $7 billion- exceeds it’s farm receipts of both cattle (($5.63 billion) and wheat ($1.73 billion), or the $4.3 billion taken in by forestry and logging. Only oil and gas extraction, worth $15.8 billion, is worth more. Canada’s legal farm operators have net margins of 5.5%. An economist in Vancouver’s Simon Fraser University figures pot growers have a 72% annual rate of return, after discounting for costs, labour, thefts and arrests. FORBES, November 10, 2003. 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. The Budgetary Implications of Marijuana Prohibition, Jeffrey A. Miron, Visiting Professor of Economics Harvard University, June 2005.