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MAY 13, 2010 9:51AM

Bogarting the mistakes of prohibition

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Make something people enjoy and want to buy and you can make some money. Make that same thing illegal and you can make a lot of money. If there is one lesson we should have learned from the prohibition it is that people will indulge in their vices and are willing to pay a premium for the chance to do so. California has the opportunity in November to decriminalize the recreational use of marijuana, adding a boon to its debt laden economy, and support for this measure is growing on both the right and the left.

marijuana leaf

Take a quick walk around Venice, California and you can see a promising industry already emerging. Dispensaries, marijuana clubs and good old fashioned head shops are scattered all about this west Los Angeles district. The legendary Venice boardwalk has a bevy of such places, often with different variations of the word 'Kush' and a fragrant earthy aroma wafting through the air. The medicinal marijuana economy looks to be doing well in the Golden State.

Many Californians want to go one step further and make recreational marijuana legal, regulate it and tax it. This is no longer the stuff of the political rants of hippies and Rastafarians but has gone mainstream, often with young fiscal conservatives in expensive suits touting the economic benefits of legalization. Money always talks and perhaps louder than ever in the state of California which is facing a current estimated budget deficit of $26.3 billion. Over the past year Governor Schwarzenegger has entertained near draconian budget cuts, from closing over 200 state parks to forcing state workers to take unpaid furloughs to cutting billions of dollars in funding to K-12 and community colleges. Californians have been up in arms over the proposed cuts but also have been opposed to higher taxes. Something has to give - in walks Mary Jane.

Marijuana is now seriously being touted for its economic benefit. According to the California Board of Equalization, BOE, Californians use just over one million pounds of marijuana per year. The proposal by Assemblyman Tom Ammiano would place a $50 per ounce fee on retail sales of marijuana in the state, generating roughly $1.4 billion in revenue. The potential for helping alleviate California's budget woes doesn't end there. Based on national figures, the cost for the arrest and prosecution of marijuana related offenses in California is nearly $500 million per year with an additional quarter of a billion spent on incarceration. Adding the tax revenue to potential savings gives the state over $2 billion per year, which is almost a tenth of the current deficit. Obviously, it is not a magic bullet to solve the budget crisis but it does make significant progress to bringing the deficit down.

There are, of course, other considerations. The same national figures I cited earlier estimate it will cost $70 million per year to establish a regulatory body and add marijuana awareness programs for our youth. Other critics have cited health care costs ranging from legitimate, increases in lung cancer, to the questionable, marijuana addled addicts missing work and causing general chaos. There are also concerns as to whether people will pay the $50 tax to buy through legal retail establishments or will continue going to a local dealer who sells it cheaper.

This is where both liberals and conservatives can stop bogarting the mistakes of the prohibition and embrace the groovy machinations of the free market. Many same concerns were raised in regards to ending prohibition, and certainly there are medical and social costs we have seen as a result, but the United States did not go to hell in a handbasket as a result. The BOE also estimates that California produces over $35 billion worth of marijuana each year. The question of whether it should be legalized comes down again to dollars and sense, common sense.

Once a clear market is in place, the invisible hand of Adam Smith will enter and pass that joint along. One thing we Americans are good at is seizing an economic opportunity and it won't take long for the new Berkeley grads, venture capitalists and corporate titans to create an innovative and robust market place for marijuana retail. Delivery services already exist for medicinal purposes but that would be just the beginning. Imagine the Starbucks of marijuana shops dotting the corners of streets from San Diego to Sacramento. There will be upscale and premium offerings, paired nicely with couture paraphernalia and plush leather chairs and set against the backdrop of adult contemporary music. Surely someone will open a place called something like Doobies and Munchies and you can smoke a bowl of LA Confidential before ordering a grilled cheese with bacon. And these capitalists will demand that all resellers play by the rules. The mom and pop pot shops will be driven out of business and the black market will diminish as pushers move on to more lucrative products. The BOE estimates that use will increase and street value will diminish but I am betting on good old American ingenuity to make this new green economy thrive.

Even if legalizing marijuana exceeds fiscal expectations, there is still a lot California will need to do to address the deficit but it is a step in the right direction. The war on drugs has been an abysmal failure only bolstering the economic windfall of selling illegal substances. Perhaps this is an instance when we can say 'make money, not war' and puff puff pass the bill.

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Comments

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I'm not saying I don't agree with you. But how do you regulate and tax a plant that people could grow in their gardens, especially in California? It's like putting a tax on tomatoes or cucumbers. I suppose you could tax what is for sale, and regulate the quality and content. But it's so abundant, so easy to grow in a warm climate like California's, I don't think regulating it will really generate all that much $$ for the state.
Sure it will. Of course marijuana is easy to grow, but making your own hamburgers is also easy. Doesn't stop fast food from making millions. Americans, especially pot-smoking Californians, are lazy like that.
Ha! Damion, you actually made me laugh out loud with the 'lazy, potsmoking Californians comment' - and I agree. There are many things we can produce right at home but prefer to go somewhere else to partake in the endeavors of someone else. Why does a sandwich taste better if someone else makes it?

Large, legal establishments will be able to offer varieties and blends that the homegrowers cannot match. Furthermore, once corporate America sinks its teeth into this there will be more pressure and more funds to regulate and shut down any real threat to a burgeoning industry.

Froggy, there will definitely be those who continue to grow at home but I think any prospect they have of cutting into the revenue stream will be marginalized as companies strive to become the Budweiser of bud. Market dynamics could become the best friend a stoner ever had - outside of Cheetos.
Marijuana agriculture is a wonderfully complex activity. Just look at a High Times magazine and you will see the beautiful varieties. Getting a plant to form a sticky wicked bud is an art and when it is legal you will see an industry as rich as the wineries are now. Oh please make this happen in California. It will be the dawn of a new age and I think it will mellow out America.
$50 an ounce tax?! What's current street-price of an ounce?
Froggy, one could grow tobacco also, or make they’re own beer, wine or spirits and a few do but billions in tax revenues are generated yearly from the vast majority who don't. Don't forget anyone trying to market those legal substances without difficult to obtain legal authorization would face extreme penalty, as it would be with legalized pot. In essence leaving the marketing spoils to huge companies with pre-existing distribution chains probably tobacco or pharmaceutical giants. As Brian pointed out, not the mom and pops or even the giant growers, dealers and pot shops who control the market currently, so guess who wont be voting for legalization in November? All those profiting from the status quo, especially the ‘mom and pops’, in addition to those who are morally or politically opposed. I live in the heart of one of Northern California “green belts” and personally know lots of moms and pops, they tell me they will vote no. Though prohibition is asinine and the benefits of legalization far outweigh the negatives; I’ll be shocked if it passes.
Bearpaw - good question...um, not that I would know but, well people talk and I hear things, and those in the know say that the average price for a dime-bag of run-of-the mill product runs about $40.

Considering it is called a 'dime-bag' this would seem to indicate that inflation has taken its toll.
A good article, but it doesn't go far enough. Prohibition probably created far more alcoholics than it prevented. People are perverse enough that they simply will do what they are forbidden to do because they are forbidden to do it. Prohibition was what made the Roaring Twenties roar. All anti-recreational drug laws should be revoked and all convictions for non-violent drug offenses should be overturned and records expunged. The drug laws probably do more to clog the criminal system than any other class of "offenses." That alone would amount to an enormous savings and return a large number of people to normal lives, or at least the opportunity for a normal life. And this should be done on a national scale; not just at the state level.
Marijuana has a great illegal distribution network. How many people will cough up $50 an ounce to be legal? How can legitimate companies compete with the black market?

Yes, you can legalize and tax, but don't expect to make a dent in the black market at extortionate tax rates.
I have on my wall a copy of the pardon the governor of Mississippi gave to my great-grandfather for the 'manufacturing of intoxication liquor.' He was a bootlegger, and a clumsy one at that.

However, he stopped making moonshine once it became legal to go down to the corner and buy booze. Actually, he stopped making it for resell but continued to make it for himself from time to time. My point being that prices dropped, the market shifted and great grandpa turned to gambling.

Likewise, BOE anticipates the street price of marijuana will go down once it's legal. Add to that the pressure the market will impose on those still trying to deal, the market and its tentacles can be vicious, and an increase in users who have refrained mostly for legal reasons and I think it is quite plausible that this plan will succeed. It merely takes a paradigm shift and legalizing would accomplish that quickly.

Zanelle has a great point. Marijuana already has its connoisseurs but once it becomes mainstream it will be chic yuppie couples going to bud tastings and learning about munchy pairings. It could easily go the way of coffee, in which people accustomed to a 50 cent cup of Joe eased their way into being comfortable throwing down $2 for a cup and the elites started paying $100 for a pound. Mainstream commercialization is a beast and I believe the estimates are somewhat conservative especially when considering all the paraphernalia that could also be included.

Marijuana - it's not just for jazz singers any more.
Malusinka remember Al Capone got busted for not paying taxes not for selling liquor. Just like they don't bust me for making my own homebrew (its legal and excellent by the way) they would have my ass in a minute if I tried selling it without proper licensing and a tax ID number. Anyone truly growing for their own personal use on a small scale in California has nothing to worry about from the sate government as it is, or will be after November. Those profiting from the sale should pay taxes on it to benefit us all.
Fifty bucks is about 15-25% of the typical price per ounce here. Pot shops or 'clinics' are usually pricier than your buddy down the street. If the proposition passes your buddy down the street will be in just as much or more trouble if caught as he is now without that licensing. Yes I have a physicians recommendation and no I don't buy or sell it and wont after November regardless of the outcome. I'll be voting yes.
Ruff Stuff: Actually, growing your own tobacco is illegal, just like growing your own opium poppies would be.
why stop there? coca and poppy are easy to grow, and entertaining at any level of refinement.

i think the problem is that wine, beer and whiskey have established markets and well-trained political support. an awful lot of lobbying to get past there.

besides, you really don't need drugs to feel good. watching the 6o'clock news most days should lift your mood well enough, and it's free.
California seems eventually to pull the rest of the country in their direction, so I'm hoping you all do figure this out for the rest of us !
Californians aren't lazy pot-smokers - they are enthusiastic about it!
Anyone can grow peppers or tomatoes, in the country, in the suburbs, even in the city, watch them wood chucks, rabbits and deer! Yet most choose to go to a vegetable stand, farmers markets and shopping centers to buy. The same will happen with cannabis.

What I will be looking for is, what uses are people going to come up with for the industrial cannabis plant. From clothing, paper, food, oils, this plant is known for being useful. I am sure established industries is nervously watching.
A oZ of GOOD pot can cost you 400 bucks depending on many factors, you might get a oZ of commercial for 160. Don't expect these prices to hold in a legal market, they wont. The price will drop, and then perhaps regulated. In the South you can drive in the country and see little tiny gardens with tobacco growing, if these were to go big and I mean BIG then they would have a problem, but at levels most anyone would grow, it is no big deal. Besides, the processing is to labor intensive, the delivery system of the cigarette is to perfected for any Government entity to worry about.