5 Ways Marijuana Would Boost Our Economy


When my editor approached me about doing a piece on the economic impact of marijuana, I was hesitant. I have never had much interest on the subject, to be honest (making my blog title, “Typical East Coast College Kid,” a complete lie). I usually prefer to write about things like drone killings and the international recognition of pseudo-states. But then I realized I had a neat opportunity here. Most cannabis opinion articles I see are by biased authors, whereas I am neutral on the issue.

Without further ado, the effects of the legalization of marijuana on our economy:

1. Lower prices for marijuana products and increased use

This one seems obvious. One economic impact of cannabis legalization would be the lowering of prices, due to greater availability, or supply. Marijuana has an elastic demand, meaning that the amount of demand is price-sensitive. Therefore, with lowered prices, use will increase – especially with the particularly price-sensitive youth population.

2. Limited impact on drug cartels but fewer Americans in jail

It is unclear how much legalization would cut into cartel profits. Marijuana provides anywhere between 9-17% of cartel revenues. So, even if legalization completely stripped that revenue stream from the cartels (it wouldn’t), it would not be anywhere near a crippling blow to the much more cocaine-dependent criminal groups. The cartels would survive and would likely just find other, possibly even more sordid, means to make up the lost revenue.

On the petty crime side, almost 800,000 people were arrested for possession or sale of marijuana in 2011. That is a lot of empty jail cells if those laws are overturned. And while the private prisons would suffer from this (which is fine with me), only 8% of the prisons in the country are privatized, meaning the lower costs to taxpayers would exceed the lower revenues from the private prison companies.

3. More jobs

While it is tough to find exact numbers of jobs created by legal marijuana, many jobs are supported by the budding (get it?) industry, including: recommending physicians and physician’s assistants, private security, delivery drivers, and dispensary operators. Plus, those with records of using and dealing marijuana may find an easier time getting a job.

On the other hand, productivity may decrease and industries supporting the drug war (including private prisons) will suffer. The productivity loss, called morbidity, cost $97 billion annually for tobacco in the early 2000s. Since usage of marijuana is lower than tobacco, that number would probably be smaller as well. Would new jobs and revenues outweigh that productivity?

4. New tax revenue

For an estimation of revenues, we can look at a similar (legal) substance: tobacco. According to the White House page I linked above, the social costs of tobacco outweigh the increased revenue. Not wanting to take an anti-marijuana White House document purely at its word, I investigated further. First revenue:

The percentage of Americans over 18 who smoke tobacco was 17.9% in 2010. In the same year, cigarette taxes brought over $17.2 billion in additional revenue to the states. Marijuana is used by about 6.9% of the population, expected to rise drastically if legalized. Assuming current usage stays steady, however, and similar rates of taxation for tobacco and pot, that would be approximately $6.6 billion dollars in new revenue for the states.

5. Economic benefits but some negative social impacts

Will societal costs from marijuana exceed those revenues? According to the National Institutes of Health, “While cannabis smoke has been implicated in respiratory dysfunction … it has not been causally linked with tobacco related cancers such as lung, colon or rectal cancers.” Therefore, though inhaling smoke is never healthy, whatever costs or savings smoking causes will be less extreme for marijuana than tobacco. Still, looking at tobacco will at least give us an idea at the types of costs and savings we’re looking at.

Though tobacco-related healthcare costs and lost production account for almost $200 billion per year nationwide, smoking tobacco is actually profitable for society – to the tune of about $0.32 per pack! Why? People die sooner, costing pensions, Social Security, Medicare, and other programs less. Healthier activities, which lead to longer lives past a static retirement age, actually cost society money.

Unless the White House is better able to back up its claim of costs to society exceeding revenues and savings, I am forced to say that the facts do not seem to match up on their side. However, if we look past money, I think we can all agree earlier death is not a good thing, regardless of its effect on the economy; so, maybe the societal costs argument is truer on a qualitative level than a quantitative one.

My Conclusion:

My jury is still out on the health or social ramifications of marijuana legislation. I don’t know whether the increased use of marijuana is a good, bad, or neutral thing, and I am still pretty neutral on the health front of this debate.

However, purely on the economic side, I see no reason legalization would harm the economy. If anything, it would improve the economy. Any lost production from smoking pot it seems to me would be more than made up for in new jobs, and getting 800,000 potentially productive citizens out of prison. Healthy people actually end up costing more to the system than unhealthy ones, making the whole cost to society through medical bills argument somewhat irrelevant. Finally, tax revenues from the sale and reduced costs of prosecution and policing would provide a fiscal net gain.