Although it was somewhat overlooked beneath the drama of the 2012 presidential election, the referenda to legalize marijuana passed in Colorado and Washington on November 6th. As both states await lawsuits to be filed by the federal government, it seems that now is an appropriate time to perform a basic cost-benefit analysis of legalization. Gallup polls suggest that public opinion is gradually shifting towards greater acceptance of marijuana, and therefore it is likely that further legalization propositions will pass in the near future.
From a health care perspective, the favorability of legalization is dependent on the ratio of revenues that can be gained through cannabis taxation to the potential increases in health care costs associated with legalization. The latter of these two figures necessitates some knowledge of the adverse effects that increased marijuana use could inflict on public health.
Studies on the chronic effects of marijuana have proven highly inconclusive. In a paper written for The American Society for Pharmacology and Experimental Therapeutics, Stanford University professors cite studies in Jamaica, Costa Rica, and Greece that found no significant physical abnormalities in groups of heavy marijuana smokers as compared to groups of non-smokers. However, critics of these types of studies point to small sample sizes — the Jamaica study consisted of only sixty male workers — and questionable sampling techniques as reasons for the inconclusive data. Still, more specific studies yield inconclusive results as well. For example, studies that rely on blood samples, like those that attempt to gauge how marijuana use affects chromosomes, are hampered by the fact that cell-processing techniques are different in almost every testing laboratory. This means that results from one blood specimen can ultimately be interpreted in a variety of different ways, and are therefore highly subjective.
A more tangible sense of how legalization might affect health care costs can be drawn from a 1989 study sponsored by the Department of Health and Human Services. The study estimated that smoking one marijuana cigarette could add roughly $0.02 to an individual’s health care costs while adding an additional $0.40 — $0.93 in costs resulting from intoxication related accidents. To give some perspective, the same study estimated that ingesting 1 ounce of alcohol could result in an additional $0.26 in health care costs and $0.93 in accident related costs.
This data seems to suggest that only by levying an excise tax greater than $1 per marijuana cigarette could the federal government make legalization worthwhile. Unfortunately, an excise tax of this magnitude is highly implausible. For comparison, note that the federal excise tax on an entire pack of tobacco cigarettes is $2.21. However, I argue that despite the heavy tax that would be needed to offset marijuana related costs, legalization is still a favorable policy option.
Since a large portion of the population already uses marijuana despite its illegality, the drug only contributes to health care costs without helping to offset those costs through tax revenue. Even though legalization would likely result in an excise tax far lower than the $0.42 to $0.95 per marijuana cigarette necessary to completely offset costs, an excise tax of any amount would bring in more revenue than is currently generated under marijuana’s prohibition. Therefore the only way legalization could result in a greater divide between the costs and tax revenues related to marijuana would be if usage increased following legalization.
But I believe there is substantial evidence to support the claim that legalization does not cause increased usage. A 2004 study by professors at the University of California Santa Cruz found that, on average, residents of San Francisco used marijuana for the first time at age 16.95, while residents of Amsterdam — where marijuana is legal — first used at age 16.43. Furthermore, the study estimates that approximately 14% of Americans use marijuana, compared to only 5% of the Dutch.
So if we accept the premise that legalization will not bring about a long-term increase in marijuana use, it only makes sense to convert illicit marijuana sales into a legal, revenue-generating process. If the Federal Government decides to take action against Colorado and Washington, it will be fighting against its own fiscal interests and preventing a potentially beneficial economic experiment.