Decriminalizing Marijuana and the Effects on the United States

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Running Head: Decriminalizing Marijuana and the Effects on the U.S.

Decriminalizing Marijuana and the Effects on the United States

Joseph L. Lawton IV

MGT 8800, Integrative Independent Study Project B

Wilmington University

July, 2013

Thesis Submitted in Partial Fulfillment

of the Requirements for the Degree of

Master of Science

Management in Public Administration




PROPOSED MGT 8800 PROJECT APPROVAL

NAME: Joseph L. Lawton IV

SSN: xxx-xx-6875

DEGREE PROGRAM: Master of Science Management of Public Administration

PROJECT TITLE: Decriminalizing Marijuana and the Effects on the United States

MENTOR: Dr. James K. McFadden

SITE: Wilson Graduate Center

I have approved the above student’s MGT 8800 Project proposal.

MENTOR’S SIGNATURE: _______________________________________________




Acknowledgments

I would like to thank the faculty at Wilmington University for the knowledge that

I gained through my journey to complete a Master's Degree. I would also like to thank

my family for being there for me in my educational pursuits.



Running Head: Decriminalizing Marijuana and the Effects on the U.S.5

Abstract

The Effects of Decriminalizing Marijuana could have a major economic impact on

the United States of America. The economic impact could see a positive gain since taxes

collected as a result of legalization and to savings in expenditures for enforcement of the

current laws. The savings will not only be on enforcement of the prohibition in the United

States, secondly a savings on enforcement from the Mexican Drug Trafficking

organizations as a vast amount of illicit Marijuana currently comes from Mexico.




Table of Contents

Introduction ..........................................................................................................................8

Problem Statement ...............................................................................................................9

Research Questions ............................................................................................................10

Hypothesis..........................................................................................................................10

Rationale ............................................................................................................................10

History and Relevant Information to the Problem .............................................................11

Literature Review...............................................................................................................12

Gateway Hypothesis ....................................................................................................11

Addiction......................................................................................................................15

II. Economics .....................................................................................................................17

Criminal Justice System ...............................................................................................17

Tax Benefits .................................................................................................................20

Additional Sources of Revenue ...................................................................................25

Drug Trafficking Organizations in Mexico .................................................................25

Mexican Drug Trafficking Organizations- Illicit Drug Smuggling....................................27

Effect of Legalizing Marijuana on the Mexican Drug Trafficking Organizations..............28

Price: Will a Legal Marijuana Compete.............................................................................29

Methodology ......................................................................................................................30

Limitations of Research .....................................................................................................31

Conclusions ........................................................................................................................31

References ..........................................................................................................................33

Appendix A: Marijuana Tax Structure Possibilities .........................................................36

Appendix B: Estimated Tax Revenue by State ..................................................................38




Appendix C: Estimates of Export Revenues from other Drugs .........................................42

Appendix D: Estimates of Wholesale Marijuana Prices......................................................43




Introduction

The drug Marijuana has been in the forefront of mainstream politics since late 2012,

as two states, Colorado and Washington decriminalized the possession and use of the

substance. However, what Colorado and Washington has done is tricky since federal law

supersedes state law and federal law still considers the drug to be a class I controlled

substance. This also applies to the other 16 states that decriminalized the drug for use in

medicinal treatments.

A "Gallup poll showed that 50 percent of the public now favors decriminalizing the

use and possession of the drug. The Gallup poll found that most of the opposed to the

decriminalization of the drug were 65 or older and this is to be expected as people of that

era do not have much education on the drug (Newport, 2011)." Therefore, the idea of

decriminalizing Marijuana for recreational use deserves another look under Federal Law.

Secondly, the United States debt has risen to unprecedented levels never seen before

to the sum of "16.7 trillion dollars (Bentley, 2013)." Given the high burden of debt, the

United States Government has to figure out creative ways to lower the debt burden.

Therefore, things such as taxation of recreational Marijuana could create tax revenues that

could help ease some of the burden on the debt level.

Thirdly, the criminal justice system in the United States spends "7.6 billion per year

(Mirron, 2005)" on the arrest and prosecution of Marijuana, whether it be users or sellers.

This also contributes to the national debt running at such high levels. By recreational

Marijuana given a legal stature, this would also produce significant savings to the already

overburdened criminal justice system. Also the criminal justice system could use these new

savings to pursue other avenues of crime that couldn't previously have been pursued before.




Fourthly the drug trafficking organizations are the only people benefiting from the

current United States Marijuana policies are the by procuring 70 percent of their profits in

the United States from marijuana sales alone. (Reuteman, 2010)" Currently it is estimated

the drug trafficking organizations annual marijuana profits is up to $1.37 billion. (Driscoll,

2012)" As of 2012, the drug trafficking organizations are responsible for the murders of

60,000 people (Grillo, 2012)." The United States Government is aware of the Mexican drug

trafficking organizations presenting major criminal problem, but with their current levels of

profits, cannot gain a foothold against them in order to thwart their activities in the United

States.

Problem Statement

The current problem with the United States Marijuana policy is that the thinking

behind it is outdated and there is no hard scientific data to back it up. This could also be

argued that the policy is setup to keep people safe from becoming addicted to the currently

illegal drug Marijuana. Unfortunately, this is not backed up by scientific evidence to prove

that recreational Marijuana use is of any more danger to a person than for instance Alcohol

use is. When evaluating the benefits of something such as Marijuana, every aspect of it

should be evaluated such as current trends, addiction, benefit to society, and monetary

revenues as a result of recreational legalization. If all of these factors outweigh the cons of

recreational Marijuana use then policy should be changed in order for the American people

and the United States Government to benefit with positive results.




Research Questions

1. If Marijuana is legalized under Federal Law, would the United States create a new drug

problem or epidemic related to addiction.

2. If Marijuana is legalized under Federal Law, would the Criminal Justice system in the

United States benefit from the legalization

3.If Marijuana is legalized in the United States, would the Federal Government increase

revenues in the form of taxes to the newly legalized substance.

4. If Marijuana is legalized how would this play out with the Mexican drug trafficking

organizations and would this policy reduce the current hold that the Mexican drug

trafficking organizations have on the trade of black market Marijuana sales.

Hypothesis

By legalizing Marijuana use in the United States for recreational use, the Federal

Government would be justified because the rate of addiction, the tax benefits and the

benefits to the criminal justice system in the form of savings.

Rationale

The findings of this study can be used to influence public policy and to show the effects of

legalizing Marijuana for recreational use. Mirron (2005) suggests that by legalizing

Marijuana for recreational use, the taxation of the drug would produce revenues from 2

billion to 6 billion dollars depending on the type of tax imposed on recreational Marijuana.

Furthermore, Shepard and Blackley, (2007) show that a savings of 7.7 billion dollars to the

United States criminal justice system could be expected if Marijuana laws did not have to

be enforced.




History and Relevant Information to the Problem

Since the early 1900's, Marijuana has been criminalized as a drug that was illegal to

possess and to use. In "2005, the Supreme Court has ruled Marijuana a class one substance.

Under this ruling, Marijuana has no benefit even as a therapeutic drug used in the medical

field (Mears, 2005)." Even with this ruling handed down by the Supreme Court, it hasn't

stopped 18 states from decriminalizing the drug for medical use. As of yet the Supreme

Court has not yet chosen to hear a case based on the States decriminalizing the drug for

medical use and this leaves open ended questions to whether the sale and possession of

Marijuana is even legal under Federal Law for medical use. The only clarification from the

Federal Government to States decriminalizing Marijuana came from the "Attorney General

in 2009, in the form of a memorandum to Prosecutors. The memorandum basically states

that prosecutors should use discretion when people are using marijuana under a

recommended treatment guideline as prescribed by a doctor in a state where medical

marijuana use is legal (N.A., 2009)."

During the 1930's, Marijuana was associated with "black Jazz musicians and due to

racism being a major factor in American culture, this would eventually lead to the

criminalization of the drug. The following was written in 1934 in a prominent newspaper,

“Marijuana influences Negroes to look at white people in the eye, step on white men’s

shadows and look at a white woman twice (Guither, N.D.).” Then came along Harry

Anslinger, the head of a relatively new agency called the Bureau of Narcotics and he

quickly realized the importance of "Marijuana as a platform to build his agency because

there were more Marijuana user as opposed to Cocaine or Opiate users. Anslinger's next

move was to push for federal legislation to make the possession or use illegal (Guither,

N.D.)". He accomplished this by spreading false racist information such as “There are




100,000 total marijuana smokers in the US, and most are Negroes, Hispanics, Filipinos, and

entertainers. Or their Satanic music, jazz, and swing, were the result from marijuana use. Or

this marijuana use causes white women to seek sexual relations with Negroes, entertainers,

and any others (Guither, N.D.).” Or "You smoke a joint your likely to kill your brother

(Guither, N.D.)." Soon Mr. Anslinger had help from newspapers across the country

including William Randolph Hearst. These papers would print things such as, “Users of

marijuana become stimulated as they inhale the drug and are likely to do anything. Most

crimes of violence in the United States, especially in country districts are laid to users of

that drug (Guither, N.D.).” This led to the Marijuana Tax Act of 1937 and eventually the

criminalization of the drug even though no scientific evidence had ever been introduced

that this drug would lead a person down a degenerate road.

Literature Review

Gateway Hypothesis

To fully understand the ramifications if any, should the Federal Government

decriminalize the use of recreational Marijuana, several studies should be looked at in order

to find guidance. The idea that Marijuana has been a stepping stone to other harder illicit

drugs has been an issue that has been brought up time and time again. This idea originated

as the Gateway Hypothesis and in order to better understand the theory, it is key to look at

the original study done in 1975.

The Gateway Hypothesis has been prevalent in deciding that Marijuana should be

an illegal substance that has no medical benefit, nor should be used recreationally in current

United States society.




This hypothesis that there are developmental stages and sequences involvement in

drugs was first advanced a quarter century ago in 1975. According to this notion

there is a progressive and hierarchical sequence of stages of drug use that begins with

alcohol and tobacco. This then continues to Marijuana use and from Marijuana use to other

illicit drug use such as Cocaine or Heroin (Kandel, 2002).

The gateway hypothesis also believes in stages of drug use and that each drug

equals a stage that the user will progress to the next stage. It does however, show that not

everyone will fall into the gateway hypothesis and that some users will stop at a certain

stage and never move beyond that stage into the further progression of harder illicit drug

use. For instance, a user might only try alcohol and Marijuana, but not move into the use of

Cocaine or Heroin. This can also be seen in a survey conducted in "1998 and the results

were that 90 percent of young adults 20 to 30 years old in the United States had followed

the assumed sequence. Of those that used Alcohol or Tobacco, 49 percent proceeded to use

more illicit drugs (Kandel, 2002)." Unfortunately for the idea of legalizing recreational

Marijuana use, the Gateway Hypothesis has some flaws as of those 49 percent of young

adults, it is not clear if these individuals stopped their gateway progression with the use of

Marijuana or did the participants delve further into illicit drug use.

Yet another problem of the Gateway Hypothesis is that it is hard to predict who will

end up using illicit drugs. "there has been much work to identify the stages, but not enough

work to identify the risk factors associated with the Gateway Hypothesis (Kandel, 2002)."

"To evaluate the Gateway Hypothesis thoroughly, several important issues have to be

resolved. These include not only the conceptual issues, but also issues of substance,

methods, underlying mechanisms, and policy (Kandel, 2002)."




Finally, "the notion of a gateway drug is vague, what makes a drug a gateway drug?

Is it any lower ranked drug whose use precedes the rank of higher ranked substance? The

most common hierarchy establishes Alcohol and Tobacco as the intitial stage followed by

Marijuana and then into harder illicit drugs, but even this has been questioned (Kandel,

2002)."

On the other hand, a study conducted by Tarter, Vanyukov, Kirisci, Reynolds, &

Clark, (2006), investigated whether the transition from licit drug use to marijuana use is

determined by particular risk factors, as specified by the gateway hypothesis. They also

evaluated the accuracy of the gateway sequence. The methodology consisted of:

1. boys who consumed illicit drugs only

2. boys who consumed illicit drugs and then transitioned to Marijuana use

3. boys who used Marijuana before using illicit substances

The boys were prospectively studied from ages 10–12 and through 22 years of age

to determine whether specific factors were associated with each drug use pattern.

The groups were compared on 35 variables measuring psychological, family, peer,

school, and neighborhood characteristics. In addition, the utility of the gateway and

alternative sequences in predicting substance use disorder was compared to assess

their clinical in-formativeness (Tarter, et al., 2006).

"Twenty-eight (22.4%) of the participants who used marijuana did not exhibit the gateway

sequence, thereby demonstrating that this pattern is not invariant in drug-using youths

(Tarter, et al., 2006)."

Among youths who did exhibit the gateway pattern, only delinquency was more

strongly related to marijuana use than licit drug use. Specific risk factors associated

with transition from licit to illicit drugs were not revealed. The alternative sequence




had the same accuracy for predicting substance use disorder as the gateway

sequence. The conclusions were that proneness to deviancy and drug availability in

the neighborhood promote marijuana use. These findings support the common

liability model of substance use behavior and substance use disorder

(Clark, et al.,2006)

Another study done in 2003, by the RAND Drug Policy Research center also

attempted to test the validity of the Gateway Hypothesis and "the study demonstrates that

associations between marijuana and hard drug use could be expected even if marijuana use

has no gateway effect (Morral, McCaffrey & Paddock, 2003)." The methodology consisted

of

researchers testing the marijuana gateway Hypothesis by creating a mathematical

model simulating adolescent drug use. Rates of marijuana and hard drug use in

the model matched those observed in survey data collected from representative

samples of youths from across the United States. Without assuming any

gateway effect, the model produced patterns of drug use and abuse remarkably

similar to what is experienced across the nation, showing that a marijuana

gateway effect is not needed to explain the observed behavior. (Morral, McCaffrey

& Paddock, 2003)

Furthermore, "The people who are predisposed to use drugs and

have the opportunity to use drugs are more likely than others to use both marijuana

and harder drugs (Morral, McCaffrey & Paddock, 2003)." " "Marijuana typically comes

first because it is more available. Once we incorporated these facts into our mathematical

model of adoles-cent drug use, we could explain all of the drug use associations that have




been cited as evidence of marijuana's gateway effect Morral, McCaffrey & Paddock,

2003)."

The Gateway Hypothesis is currently what the United States Government uses in

order to keep Marijuana prohibition in place as the United States Government doesn't want

young adults to be subdued by drug use. Hence the Federal Government doesn't want

young adults using Marijuana and becoming addicted to hard illicit drugs. To make more

sense of this it is important to evaluate the United States drug policies with those of the

Netherlands. "Netherlands Soft drugs, such as cannabis (hash and weed) and sedatives are

less harmful to health and to society than hard drugs (MacCoun, 2011)." "Marijuana and

Hash (a derivative of Marijuana) can be sold in coffee shops (MacCoun, 2011)." According

to Dana Graham (2001), in the Netherlands, marijuana is legal and minimal

experimentation by teenagers illustrates that legalization does not necessarily cause

increased use. Also "when the Dutch government legalized marijuana for personal

consumption while maintaining laws against possession and sale of large quantities, the

level of marijuana use declined (Graham, 2001)." The Netherlands system believes that

separating the markets would weaken the statistical gateway association between cannabis

and hard drug use (MacCoun, 2011)." Furthermore,

"European national surveys over the decade 1998–2008. All suggest that cocaine

and amphetamine use are below what one would predict for the Netherlands.

Although hardly conclusive, this data is consistent with the notion that the

Netherlands system might weaken the gateway (MacCoun, 2011)."

Addiction

The addictiveness factor has to be looked at thoroughly as the idea of

decriminalization will result with putting a financial burden on the taxpayer for




rehabilitation treatment due to addiction. Studies have shown that Marijuana does have

addictive qualities putting those who become addicted at 9 percent, but "compared to other

substances, marijuana is not very addicting. It is estimated that 32 percent of tobacco users

will become addicted, 23 percent of heroin users, 17 percent of cocaine users, and 15

percent of alcohol users (Gumbiner, 2010)." Therefore, addictiveness should not be an issue

as Marijuana is less addictive than alcohol.

II. Economics

Criminal Justice System

A study done by Shepherd and Blackley (2007) took an extensive look into the costs

of enforcing Marijuana prohibition in the United States and found that "U.S. law

enforcement against the sale and possession of marijuana has been estimated to cost close

to $8 billion a year in criminal justice resources (Shepard & Blackley, 2007)." Secondly, "

the study estimates the size of the marijuana market to exceed $10 billion a year and

estimates the annual cost of marijuana law enforcement to be about $7.7 billion (Shepard &

Blackley, 2007). " "At the federal level, spending for drug enforcement, including

interdiction and intelligence, rose from about $1.5 billion in 1981 to over $12 billion by

2002 (Shepard & Blackley, 2007). "

In 2003, there were over 750,000 arrests for marijuana, 88 percent of which were

for possession only (Shepard & Blackley, 2007)." In 2011, the numbers seem to stay

around 750,000 for Marijuana enforcement, According to the FBI's Uniform Crime

Reporting Data (Ferner, 2012)." To put this into further perspective, there were a total of

1.5 million arrests total made for drug enforcement, but Marijuana arrests accounted for

49.5 percent or a little under half of all drug arrests (Ferner, 2012)."

Shepard & Blackley, (2007) explain that




microeconomic theory holds that resources should be allocated to law enforcement

up to the level where their marginal benefit is equal to their marginal cost, and when

enforcement is cost effective compared with alternative approaches. It is therefore

efficient for society to tolerate some positive level of crime, including some illicit

drug use if the additional cost of achieving a drug free society exceeds the benefit

(Shepard & Blackley, 2007).

The current objective of drug control policies in the United States is to

reduce both supply and demand by achieving a higher risk of arrest and

incarceration for buyers and sellers as well as disruptions in supply. Benefits

commonly cited for current policies are improvements in health, safety and the

quality of life, higher productivity in the workplace, and reductions in drug-related

crime. In the case of marijuana, special priority is often placed on adolescents and

young adults, since it is viewed as a gateway to further drug use that may initiate

long-term problems with dependence and addiction, including joblessness and

involvement in crime (Shepard & Blackley, 2007)

a report by the Drug Enforcement Agency states that “most violent crime are

committed not because people want to buy drugs, but because people are on drugs. Past

research has documented positive correlations between illicit drugs and other crimes

(Shepard & Blackley, 2007) ”

Next Shepard and Blackley (2007), " use an analysis whether marijuana arrests are

significantly related to rates of property crime involving burglary, larceny, and motor

vehicle theft. The analysis then provides estimates of the impact of arrests for the sale of

marijuana on a violent crime, murder, and the incidence of arrests for hard drug possession.

(Shepard & Blackley, 2007)."




Firstly, Increases in current period arrests for marijuana possession are associated

with increases in reported rates of larceny and motor vehicle theft. These results

support the view that arrests for possession may significantly harm the employment

or educational status of those involved, leading to a greater likelihood of stealing to

get by. Because of the illegality of participating in marijuana transactions, prices

may be higher when sellers perceive a greater risk of being caught due to the

information provided by detained buyers. This implies that users may also turn to

stealing in order to finance their purchases of marijuana at higher prices. In

addition, increases in these types of crimes may result from an emphasis by police

on marijuana arrests, since the likelihood of arrests for other crimes may be lower

when resources are applied to enforcing marijuana laws (Shepard & Blackley,

2007).

Secondly property crimes were affected with only the rate of burglaries adversely

affected by an increase in marijuana sales arrests. Several effects may be at work.

First, arrests for sales can be expected to disrupt supply and lead to price increases.

Other sellers, or perhaps even users, may resort to burglary to cope with these

increases. Second, if the risks of selling become too great for some, they may switch

to burglary as an alternative criminal activity that has the potential to be more

economically rewarding and to have less risk than is typical of larceny and motor

vehicle theft. this outcome may result from the shift in use of scarce police

resources from enforcement of laws related to nondrug crimes to enforcement of

drug laws, drug investigations and drug arrests (Shepard & Blackley, 2007).

Thirdly, the "impact of arrests for marijuana sales on reported rates of homicide and

arrests for the possession of hard drugs are analyzed (Shepard & Blackley, 2007)."




when counties increase their arrests for selling marijuana, they experience a

significant increase in homicides during that time period. There is an insignificant

decrease in the following period. For the county of 100,000 persons, a one-standard

deviation increase in arrests for marijuana sales would be associated with 0.35

additional homicides.19 While this incremental impact is small in absolute terms; it

represents a 9 percent increase over the mean homicide rate of four per 100,000

persons (Shepard & Blackley, 2007).

These increases can be also be attributed with a supply chain interruption by law

enforcement in "which the arrest of sellers may disrupt established supply channels and

lead to violent confrontations between rival groups seeking to replace those recently

arrested. While this process is underway, homicides may increase, and not decline to

previous levels until stable geographical supply relationships are reestablished (Shepard &

Blackley, 2007)."

Finally, Shepard and Blackley's findings suggest that the recent focus on marijuana

law enforcement has been counterproductive for addressing non-drug crime. If it is the

illegality and arrests for these drug market activities, rather than the usage of marijuana per

se, that is the root cause of other crimes, then our results provide evidence that crime will

not be adversely affected by a relaxation of laws against marijuana (Shepard & Blackley,

2007)."

A report by the National Research Council in 2001, indicated that because of “a

lack of investment in data and research,” the nation is in no better position to perform a

comprehensive assessment than it was 20 years ago, on the enforcement of drug related

crimes (Shepard & Blackley, 2007)." Currently " the objective of current drug control

policies is to reduce both supply and demand by achieving a higher risk of arrest and




incarceration for buyers and sellers as well as disruptions in supply (Shepard & Blackley,

2007). " In the case of marijuana, special priority is often placed on adolescents and young

adults, since it is viewed as a gateway to further drug use that may initiate long-term

problems with dependence and addiction, including joblessness and involvement in crime

(Shepard & Blackley, 2007)." "A series of recent studies has found that drug prohibitions

and drug arrests are associated with increases, not decreases, in non-drug crime (Shepard &

Blackley, 2007)." Another study "showed that enforcement of drug prohibitions has led to

increased violence in the United States and the degree of enforcement of drug prohibitions

across counties has positively been associated with increased violence (Shepard &

Blackley, 2007)." A partial reasoning for this is that reported that increases in drug

prisoners have led to reductions in expected time served for other offenses, increasing other

crimes as a result (Shepard & Blackley, 2007)." " In addition, increases in drug

enforcement in Florida were associated with increases in property crime (Shepard &

Blackley, 2007)."

Currently, "under prohibition some marijuana offenders pay fines, which partially

offsets the expenditure required to arrest, convict and incarcerate these offenders. however,

offsetting revenue has been at most $100 million per year in recent years at the state and

local level (Mirron, 2005)." "Even with 100 million taken into account, the Federal and

local governments pay 7.6 billion dollars for prohibition (Mirron, 2005)."

Tax Benefits

To first look at taxation of Marijuana, the question of what is the optimal excise tax.

Caulkins, Hawken, Kilmer, Kleiman, Pfrommer, Pruess & Shaw (2013), proposes the

following:




"Any tax structure will have to balance the various sometimes conflicting goals of

legalization, including:

1. Maximizing tax revenues.

2. Battling the black market and violence by those involved in

the drug trade.

3. Limiting the increase in marijuana abuse and dependency,

4. Minimizing the use of particularly risky and unhealthy forms

of marijuana.

5. Limiting gray-market tax evasion.

6. Minimizing the cost and complication of enforcing the

marijuana tax structure. (Caulkins et al., 2013), "

In order to achieve this optimization of the excise tax Caulkins et al., (2013) has set

up some hypothesized analysis tables in order to find the best strategy for taxation. See

Appendix A. Caulkins et al., (2013) This is done by comparing taxing methods into three

different categories; by weight, taxing by ad-valorem and lastly by THC content. To tax

THC content would mean taxing higher rates to product that has higher THC contents than

other product. Each of these categories have their pro's and con's. For instance, by taxing by

weight, higher THC content product has an incentive and edible's such as brownies mixed

with Marijuana are going to be a higher weight which makes this tax structure even trickier.

The clear advantage of taxing by weight is that it is the simple way to structure a tax

around. Even simpler is Ad-Valorem as the government is now taxing on a percentage, but

this too has its drawbacks. Caulkins et al., (2013) hypothesizes that this will favor low cost

production methods and Creates incentives focusing marijuana's a loss-leader if imposed at

the retail level. Again this is a simple method for imposing tax and that is why Caulkins et




al., (2013) used it in his hypothesis. On the other hand, Caulkins et al., (2013) proposes

taxing the THC content of the product and its hypothesized that this method will Requires

quality control and labeling, but can incentivize less potent and potentially less risky forms

of marijuana. This is also Complex, particularly if distinguish by type of cannabinoid;

testing may not be accurate enough. Also it should be noted that all of these proposed tax

strategies were introduced as bills in the State level for Colorado, Massachusetts, Hawaii

and Washington.

According to Earlywine (2006), it is estimated that if Marijuana were legalized, a

tax by the Federal government would yield 2 billion annually if Marijuana were taxed as

general merchandise. On the other hand, the government could make 6 billion annually if

Marijuana were taxed similar to Alcohol and Tobacco (Earleywine, 2006)." To estimate the

tax revenue, "first the current expenditures are estimated on the national level. Secondly, it

estimates expenditures likely to occur under legalization. Thirdly, it estimates the tax

revenue that would result from this expenditure based on assumptions about the kinds of

taxes that would apply to legalized Marijuana. Fourth, it provides calculations of the

portion of revenue that would accrue in each state (Earleywine, 2006)."

To estimate the tax revenue upon ending prohibition, Egan suggests using data from

the Office of National Drug Control Policy and in 2000, United States residents spent 10.5

billion on the purchase of illegal Marijuana. Secondly, Egan and Mirron assume that the

demand for Marijuana will be unchanged and therefore use the illegal purchase number of

10.5 billion as a baseline for their calculations. Thirdly Egan and Mirron believe that costs

for the purchase of Marijuana would drop as their would now be no legal ramifications that

are currently in place due to the prohibition. "This can be assumed since the penalties for

possession potentially deter some persons from consuming. But any increase in demand




from legalization would plausibly come from casual users, whose marijuana use would

likely be modest (Earleywine, 2006)." Next it can be assumed that under the assumption

that demand does not shift due to legalization, any change in the quantity and price

would result from changes in supply conditions (Earleywine, 2006)."

On one hand, marijuana suppliers in a legal market would not incur the costs

imposed by prohibition, such as the threat of arrest, incarceration, fines, asset

seizure, and the like. This means, other things equal, that costs and therefore

prices would be lower under legalization. On the other hand, marijuana suppliers

in a legal market would bear the costs of tax and regulatory policies that apply to

legal goods but that black market suppliers normally avoid. This implies an offset

to the cost reductions resulting from legalization. Further, changes in competition

and advertising under legalization can potentially yield higher prices than under

prohibition. (Earleywine, 2006)

With this in mind, the best way to understand the Marijuana price structure is to

look compare the United States with the Netherlands price structure. In the Netherlands,

Although marijuana is still technically illegal in the Netherlands, the degree of enforcement

is substantially below that in the U.S., and the sale of marijuana in coffee shops is officially

tolerated. The regime thus approximates de facto legalization. Existing data suggest that

retail prices in the Netherlands are roughly 50-100 percent of U.S. prices (Earleywine,

2006)." Therefore, any price elasticity can be attributed to the demand in the Marijuana

market. "Since the decline in price is unlikely to exceed 50% and the demand elasticity is

likely at least -0.5, the plausible decline in expenditure is approximately 25%. Given the

estimate of $10.5 billion in expenditure on marijuana under current prohibition, this implies

expenditure under legalization of about $7.9 billion (Earleywine, 2006)."




"The first assumption is that tax policy treats legalized marijuana identically to

other goods. In that case tax revenue as a fraction of expenditure would be approximately

30 percent, implying tax revenue from legalized marijuana of $2.4 billion (Earleywine,

2006)." "The second assumption is that tax policy treats legalized marijuana similarly to

alcohol or tobacco, imposing a “sin tax” in excess of any tax applicable to other goods

(Earleywine, 2006)." With a sin tax in place, Marijuana could attain revenue as high as 9.5

billion dollars, but would be taxed at 80 percent (Earleywine, 2006)." Although

Earleywine, (2006) does agree that 9.5 billion is on the upper limits of attainment and

therefore proposes a "more modest tax of 50 percent, which would generate 6.2 billion

dollars a year (Earleywine, 2006)."

The next piece is to realize that 9.5 billion dollars would be accrued by all forms of

government and that In practice this total would be divided between state and federal

governments. "It is therefore useful to estimate how much revenue would accrue to each

state, and to state governments versus the federal government, under plausible assumptions

(Earleywine, 2006)." Appendix B indicates the tax revenue that would accrue to each state

and to the federal government under the assumption that each state collected revenue equal

to 10 percent of the income generated by legalized marijuana and the federal government

collected income equal to 20 percent (Earleywine, 2006)."

Something not to be overlooked is the creation of new jobs that will lead to the

Federal Government collecting taxes on the employees. "Since the FICA rate is 15.3%,

counting the employer’s half, it would produce essentially the same revenue as a fifteen

percent excise tax on the wholesale value (Caulkins et al., 2013)." "States could also collect

income taxes on marijuana-industry wages; for example, 4.63% in Colorado (Caulkins et




al., 2013)." Unfortunately to the amount of jobs created in the Marijuana industry, there is

not enough data to support any assumptions on how many jobs could possibly be created.

Therefore it is safe to assume that taking the safe 6.2 billion dollar figure with the

taxation of Marijuana and the reduced expenditures in the criminal justice system of 12

billion dollars a year, that a new figure can be established for legalizing the substance for

recreational use. The new figure would therefore be representative of 16.2 billion dollars

that the Federal Government is now saving and earning as a result of legalizing the use of

Marijuana for recreational use. On the other hand, if the high end of the taxation figure is

taken into account and by other studies is attainable, the Federal Government would now

have 21.5 billion dollars as a result of revenue and savings.

Additional Sources of Revenue

Caulkins et al., (2013) shows that most proposals to regulate the marijuana industry

include some form of licensing of producers, manufacturers, and stores, with associated

licensing fees. This could also be another potential way of revenue for the State and Federal

Government. Caulkins et al., (2013) also shows that if the licenses were limited, it would

drive up the demand and a New York cab type scenario would take effect. In New York a

bidding effect takes place when a cab license becomes available and recently one sold for

700,000 dollars.

Drug Trafficking Organizations in Mexico

According to Kilmer, Caulkins, Bond and Reuter, (2010), believe that it is

noncontroversial to claim that at least 50 percent of the commercial-grade marijuana

consumed in the United States comes from Mexico, especially because a number of law

enforcement officials claim that the majority of marijuana consumed in their jurisdictions is

from Mexico or is supplied by the Mexican drug trafficking organizations. Next to calculate




how much money the Mexican drug trafficking organizations or cartels were making,

"gross revenue from exporting marijuana to the border wholesale markets is simply total

U.S. consumption multiplied by Mexican marijuana’s market share multiplied by the

wholesale price in border states (Kilmer, et al., 2010)." Furthermore, "This yields an 80-

percent confidence interval of $1.1 billion to $2 billion, with a best estimate close to $1.5

billion (Kilmer, et al., 2010)."

Secondly, The United States Government estimates that Mexican traffickers receive

more than $13.8 billion in revenue from illicit-drug sales to the United States; 61 percent of

that revenue, or $8.5 billion, is directly tied to marijuana export sales. Marijuana has

become the primary revenue source for Mexican drug trafficking organizations, eclipsing

the potential revenue from cocaine, heroin, and methamphetamine combined (Kilmer, et al.,

2010)." This claim can be dissolved as un-credible by using calculations;

$8.57 billion figure indirectly implies that the United States consumed at least

14,500 Metric tons. Allowing for 20-percent underreporting in the household

survey and recognizing that past-month users account for 88 percent of

reported past-year days of marijuana use, that combination suggests that, on

average, those 14.6 million past-month users in the United States were each

consuming about 700 grams of marijuana per year: That is almost 4.5 joints

per day for every past-month user for every day of the year. Since some of

this marijuana is seized after it gets past the southwestern U.S. border, the actual

figure would be lower than 4.5 joints per day every day; however, the seizure rate

would have to be unrealistically high to make these numbers credible. (Kilmer, et

al., 2010)




According to Shirk (2011), since 2008, the United States has been releasing 400

million dollars in aid to the Mexican Government to combat the Mexican drug trafficking

organizations.

Shirk (2011) suggests that by legalizing Marijuana in the United States that the 1

billion to 2 billion in losses would drive them out of business requiring the drug trafficking

organizations to move into trafficking harder illicit drugs which in turn could let law

enforcement focus on these movements of harder illicit drugs coming over the border. What

Shirk fails to imply is that the demand for the harder illicit drugs will increase and therefore

the need for enforcement will rise. On the other hand, Shirk (2011) does acknowledge that

criminal activity such as extortion, kidnapping, robbery and other forms of organized crime

will rise as a result of the loss of revenue from drug trafficking Marijuana.

Mexican Drug Trafficking Organizations- Illicit Drug Smuggling

Again According to Kilmer, Caulkins, Bond and Reuter, (2010), the Mexican Drug

trafficking organizations play a key role in drug trafficking illicit drugs over the United

States border and they estimate that these organizations hold 30 percent of the market share

for Cocaine, 20 percent for heroine, and 5 percent for methamphetamines.(see Appendix C)

"There is also evidence to suggest that the Drug Trafficking Organizations from Mexico are

setup domestically to produce methamphetamines in the United States, but the data is

limited to see how much of the market the Drug Trafficking Organizations control (Bond,

et al., 2010)."

Effect of Legalizing Marijuana on the Mexican Drug Trafficking Organizations

Kilmer, Caulkins, Bond and Reuter, (2010), look at several events in United States history

to show what would happen if Marijuana was decriminalized in the United States. Firstly,

they use the Mafia and Prohibition. During Prohibition, the Mafia made a vast amount of




wealth similarly to what is going on with the Drug Trafficking Organizations in Mexico.

After Prohibition was repealed, the Mafia did lose strength, but since the organization had

branched out into other illegal activity such as Racketeering, Gambling and Prostitution

they were able to stay in business. Then gambling became their largest share of revenue,

but due to gambling becoming decriminalized in more states across the country, the

organization has fallen to its lowest point of decline and no other organization has stepped

up to take its place. Using the Mafia as a model for the Drug Trafficking Organizations in

Mexico, shows that a likely decline of the organizations power will occur due to the

decreased revenues from the sale of trafficking Marijuana over the United States border.

Furthermore, the Mexican Drug Trafficking Organizations will have to rely on their other

illegal activities in Mexico and the trafficking of illicit drugs. With the decriminalization of

Marijuana, the Federal and local enforcement agencies in the United States have a chance

to strengthen enforcement on these harder illicit drugs coming over the border as smaller

amounts will be flowing due to a lower market share.

Price: Will a Legal Marijuana Compete

Kilmer, Caulkins, Bond and Reuter, (2010), assess "California produced Marijuana at the

wholesale level, after a $25-per-ounce excise and a 9-percent sales tax had been collected,

raising the price from $400 to $836 per pound (Bond, et al., 2010)." The Drug Trafficking

Organizations due come in "1.5 times lower per pound, but the trade off is that the

California produced product would be 2–3.6 times more potent (Bond, et al., 2010)." (See

Appendix D for wholesale prices) Therefore it is hard to compare on an Apple to Apple

type scale, but by assuming that legal Marijuana will be easier to attain and potency matters

more than anything else, the legal Marijuana will carry a higher demand over illegal

trafficked Marijuana from Mexico.




Methodology

The first method of methodology is to review current data on the use of Marijuana

in a recreational format in order to see if there is a need to lift the current prohibition. The

review of this data is in the form of surveys done by the United States Government and by

the organization known as Gallup.

Secondly, reviewing studies that others have done in the subject of Marijuana as

gateway drug. These studies use methods such as surveys, interviews, and statistical

research in the field to come up with their conclusions in to whether or not the use of

Marijuana is a gateway drug.

Thirdly, in order to find the addictiveness of Marijuana, reviewing studies done in

the field of Marijuana addictiveness were reviewed. These studies were conducted in

clinical fashion and the results are in the form of statistical data.

Fourthly, in order to find the effects on the criminal justice system, studies were

reviewed in order to find the impact that Marijuana enforcement has had on the United

States. Also in these studies contained the financial impact that Marijuana enforcement has

had on the United States. These studies contained data from the United States Government

and were statistical.

Fifthly, to find the potential tax revenue associated with decriminalizing the drug

Marijuana for recreational use, studies were looked at and the data was in the form of

mathematical equations done by using current government statistics in order to hypothesize

several scenarios for tax revenue

Lastly, drug trafficking studies were looked at for their impact on the United States

concerning the hypothesis that Marijuana be legalized for recreational use. The data comes

from the United States Government and also mathematical equations were formulated in




order to see how much of an impact the drug trafficking organizations have on the United

States.

Limitations of Research

There is a significant amount of United States citizens that are producing Marijuana

in the United States and how many is unknown, but if these numbers were accurate it could

give a better picture of how many jobs could possibly be created as these producers could

then be licensed to produce Marijuana legally. Also there is not enough accurate knowledge

on the drug trafficking organizations to produce significant numbers to how much product

that these organizations are producing inside the United States.

Conclusions

After reviewing the data, the United States would benefit from the recreational

legalization of Marijuana. Firstly, the gateway Hypothesis from 1975 doesn't hold water to

current research such as Kandel (2001) or (Tarter, et al., 2006), who proved that the

Gateway Hypothesis isn't likely to occur when someone uses Marijuana recreationally.

Therefore, Americans are not going to be using Marijuana and then evolving to harder

drugs which in turn could result in crime, violence, and other deviant behavior. Also the

addictiveness rate of Marijuana is less than Alcohol or Tobacco and therefore by legalizing

the drug Marijuana for recreational use, the United States would not be in a position of

creating an epidemic of addicts or addicts that will eventually need treatment for their

addiction that would substantially cost the American taxpayer.

Secondly, the United States criminal justice system would benefit from the initial

savings of 7.7 billion dollars a year. These savings can be used to do a lot of things with




and one could speculate even being used to enforce more serious laws such as illicit drug

trafficking.

Thirdly, the tax benefits to the United States outweigh the current prohibition of the

recreational use of Marijuana and at the proposed taxation revenue of 50 percent, would net

6.2 billion dollars a year for the United States. Given the current level of debt, just

legalizing recreational Marijuana isn't the complete answer, but can play a role in the

current level of debt.

Lastly, the drug trafficking organizations from Mexico are not making what the

United States Government stated at 13.8 billion dollars and really making 1.1 billion dollars

to 2 billion dollars a year from the drug trafficking in Mexico to the United States. Even

with a much lower market share than was previously thought, the legalization of

recreational Marijuana "would drive the drug trafficking organizations out of business

(Shirk, 2011)." Therefore, with the results being that the drug trafficking organizations

relying on other illegal ways of making profits. These other ways of making profits are not

centered on bringing illegal drugs into the United States and more centered on illegal

behavior in Mexico.

As can be seen, by legalizing the recreational use of the drug Marijuana would have

a positive impact on the United States as now billions from tax revenues will flow from the

sale of the product, the criminal justice system will save billions, the United States is in no

fear of creating Gateway addicts and the drug trafficking organizations will not have a

strong foothold in the United States.




References:

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gateway hypothesis. American Journal of Psychiatry, 163(12), Retrieved from

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Appendix A: Proposed Tax Revenue Structures

By Total Weight Ad Valorem By Amount of Intoxicant (e.g., THC,

or THC to CBD ratio)

Production Effects Favors highvalue-to-weight

productionmethods (e.g.,organic, hand-crafted)

Favors low-cost productionmethods

Requires quality control and labeling

Marijuana Type

Effects

Incentivizes high- potencymarijuana

Createsincentives for using marijuanaas a loss-leader if imposed at theretail level

Can incentivize less potent and potentially less risky forms of marijuana

Tax Structure

Complexity

Simple except for edibles and need to index for inflation

Simple Complex, particularly if distinguish bytype of cannabinoid; testing may not beaccurate enough

Examples CA Ammiano

Bill (2009)87

Proposed RhodeIsland Bill

(2013)88

ColoradoAmendment 64

Washington I-502

Hawaii’s Bill

(2013)89

Massachusetts House Bill 1371

Taken from Caulkins et al., (2013)




Appendix A (Cont.) HYPOTHESIZED CONSEQUENCES OF VARIOUSMARIJUANA TAX

STRATEGIES BY TAX TARGET

Growers/Producers Retailers

Revenue Effects Relatively less revenuesince marijuana is taxed early in the productionchain and does not taxadded value of marijuana-infused products

Potentially get to tax valueof other products sold in a“bundle” with themarijuana (e.g.,marijuana-infused edibles)

Black Market

Effects Fewer taxpayers tomonitor

Incentivizes tax evasion between grower/producer

and retailer (leakage) Transparency Generally hidden from

consumer Tax is transparent toconsumer

Marijuana Type

Effects May be harder to tax

based on potency Allows for cannabinoid-

based taxation

Tax Structure

Complexity Can be simple Can be complex,

particularly if distinguish by type of cannabinoid

Examples Colorado Amendment 64

Washington I-502 Washington I-502

Taken from Caulkins et al., (2013)




Appendix B: Estimated State Tax Revenue

Table 4a: State Marijuana Tax Revenue – Population Method

Population Proportion Tax Revenue

Alabama 4,447,100 0.016 12.6

Alaska 626,932 0.002 1.8

Arizona 5,130,632 0.018 14.6

Arkansas 2,673,400 0.009 7.6

California 33,871,648 0.120 96.3

Colorado 4,301,261 0.015 12.2

Connecticut 3,405,565 0.012 9.7

Delaware 783,600 0.003 2.2

Dist. Columbia 572,059 0.002 1.6

Florida 15,982,378 0.057 45.4

Georgia 8,186,453 0.029 23.3 Hawaii 1,211,537 0.004 3.4

Idaho 1,293,953 0.005 3.7

Illinois 12,419,293 0.044 35.3

Indiana 6,080,485 0.022 17.3

Iowa 2,926,324 0.010 8.3

Kansas 2,688,418 0.010 7.6

Kentucky 4,041,769 0.014 11.5

Louisiana 4,468,976 0.016 12.7

Maine 1,274,923 0.005 3.6

Maryland 5,296,486 0.019 15.1

Massachusetts 6,349,097 0.023 18.0

Michigan 9,938,444 0.035 28.3

Minnesota 4,919,479 0.017 14.0

Mississippi 2,844,658 0.010 8.1

Missouri 5,595,211 0.020 15.9

Montana 902,195 0.003 2.6

Nebraska 1,711,263 0.006 4.9

Nevada 1,998,257 0.007 5.7

New Hampshire 1,235,786 0.004 3.5

New Jersey 8,414,350 0.030 23.9

New Mexico 1,819,046 0.006 5.2

New York 18,976,457 0.067 53.9

North Carolina 8,049,313 0.029 22.9 North Dakota 642,200 0.002 1.8

Ohio 11,353,140 0.040 32.3

Oklahoma 3,450,654 0.012 9.8

Oregon 3,421,399 0.012 9.7

Pennsylvania 12,281,054 0.044 34.9

Rhode Island 1,048,319 0.004 3.0

South Carolina 4,012,012 0.014 11.4

South Dakota 754,844 0.003 2.1

Tennessee 5,689,283 0.020 16.2




Texas 20,851,820 0.074 59.3

Utah 2,233,169 0.008 6.3

Vermont 608,827 0.002 1.7

Virginia 7,078,515 0.025 20.1

Washington 5,894,121 0.021 16.8

West Virginia 1,808,344 0.006 5.1 Wisconsin 5,363,675 0.019 15.2

Wyoming 493,782 0.002

Taken From Mirron, (2005)




Table 4b: State Marijuana Tax Revenue – Consumption Method

Use Rate† User Population Use Proportion Tax Revenue

Alabama 0.044 193,449 0.011 8.9

Alaska 0.098 61,251 0.004 2.8

Arizona 0.055 284,237 0.016 13.0Arkansas 0.054 145,166 0.008 6.7

California 0.068 2,296,498 0.132 105.4

Colorado 0.089 383,672 0.022 17.6

Connecticut 0.063 213,529 0.012 9.8

Delaware 0.068 53,206 0.003 2.4

Dist. Columbia 0.108 61,897 0.004 2.8

Florida 0.066 1,051,640 0.060 48.2

Georgia 0.051 420,784 0.024 19.3

Hawaii 0.072 87,110 0.005 4.0

Idaho 0.056 72,461 0.004 3.3

Illinois 0.056 689,271 0.040 31.6

Indiana 0.064 388,543 0.022 17.8Iowa 0.046 135,489 0.008 6.2

Kansas 0.053 143,024 0.008 6.6

Kentucky 0.055 221,489 0.013 10.2

Louisiana 0.064 284,227 0.016 13.0

Maine 0.069 88,352 0.005 4.1

Maryland 0.057 302,959 0.017 13.9

Massachusetts 0.063 401,263 0.023 18.4

Michigan 0.071 705,630 0.040 32.4

Minnesota 0.063 311,403 0.018 14.3

Mississippi 0.050 142,802 0.008 6.6

Missouri 0.061 339,070 0.019 15.6

Montana 0.087 78,581 0.005 3.6 Nebraska 0.064 109,179 0.006 5.0

Nevada 0.086 172,450 0.010 7.9

New Hampshire 0.099 121,725 0.007 5.6

New Jersey 0.050 420,718 0.024 19.3

New Mexico 0.059 106,596 0.006 4.9

New York 0.075 1,427,030 0.082 65.5

North Carolina 0.056 448,347 0.026 20.6

North Dakota 0.056 35,771 0.002 1.6

Ohio 0.067 759,525 0.044 34.8

Oklahoma 0.052 180,469 0.010 8.3

Oregon 0.090 306,557 0.018 14.1

Pennsylvania 0.054 664,405 0.038 30.5Rhode Island 0.095 99,485 0.006 4.6

South Carolina 0.050 198,996 0.011 9.1

South Dakota 0.057 42,875 0.002 2.0

Tennessee 0.047 266,827 0.015 12.2

Texas 0.049 1,015,484 0.058 46.6

Utah 0.046 102,502 0.006 4.7

Vermont 0.100 61,126 0.004 2.8




Virginia 0.064 455,149 0.026 20.9

Washington 0.081 479,192 0.027 22.0

West Virginia 0.050 90,056 0.005 4.1

Wisconsin 0.054 291,784 0.017 13.4

Wyoming 0.052 25,578 0.001 1.2

Taken from Mirron (2005)




Appendix C: Estimates of Mexican Drug-Trafficking Organizations' Export

Revenues from other Drugs

Estimate Point Cocaine MexicanHeroin

Colombian Heroin Meth

Value of U.S. market at retail ($ billions) 30 10 10 5 Retail price per pure kilogram (1,000 ×price per pure gram)

145,000 450,000 450,000 260,000

Implied consumption in pure metric tons 207 22 22 19

purity at wholesale/import level (%) 82 35 60 75

Implied consumption at wholesale purity (MT) 252 64 37 26

Import price per kilogram (not adjusted for purity) ($) 17,000 22,500 60,000 30,865

Total export revenues of all traffickers ($ billions) 4.3 1.4 2.2 0.8

U.S. market share exported from Mexico (%) 80 30a 30b 77.5

export revenues of Mexican DTOs ($ billions)

3.4

0.4

0.7

0.6

Taken from Kilmer, Caulkins, Bond and Reuter, (2010)




Appendix D: Estimates of Wholesale Marijuana Prices

Estimates of Wholesale Marijuana Prices Along t he Southwestern U.S. Border, from Four Sources

Source Year Grade Point Estimate ($/lb) Range ($/lb) nDICa Mostly 2001–2002 Mexican 400 300–500

Narcotic Newsb 2010 Commercial grade 397 250–500

STRIDec 2005–2008 not specified 323 234–334

aDaMd 2000–2003 not specified 430 100–600

a nDIC (2001a, 2001b, 2002a, 2002b, 2007a, 2008a, 2008b, 2008c, 2008e).

b “wholesale Marijuana prices,” undated.

cSTRIDe =Drug enforcement administration, System to Retrieve Evidence from Drug Evidence, annual. d arrestee Drug abuse Monitoring program (2000, 2001, 2002, 2003).

Taken from Kilmer, Caulkins, Bond and Reuter, (2010)

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