The Economics of Marijuana

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One of the most socially charged arguments is that of the legal status of marijuana.  This topic sparks many debates in a social sense, such as the push by the D.A.R.E. program to warn adolescents of its dangers,  but is hardly ever analyzed from an economic point of view.   When looking at the reasons for either legalizing or maintaining a criminal status for marijuana, it would appear that the rationale for legalization holds more weight than the rationale for continued prohibition.  Given that this issue is quite complex as it involves the use of a known drug, the debate is far from being over and still will require a great deal of time before any sort of real, national law is either passed or rewritten.  Regardless, the benefits of the legalization of marijuana have distinct, apparent positives that would generate a great deal of revenue for the country’s economy.

Perhaps the greatest argument for the legalization of marijuana comes from the money that would be generated from the taxation of the product.  For example, a study showed that in a free-market model, a distributor of marijuana sold 0.5 grams of the substance for $8.60 while the cost of production was only $1.70, meaning that the producers generated $6.90 in profit for every 0.5 grams sold (Moffat).  If the government was to tax the sale of marijuana, they could generate a significant return on taxation as it is clearly shown that users of this substance are willing to pay a very high mark up price from the original amount it takes to produce the substance.  That means if the government wanted to place taxation on marijuana that was similar to that of the cigarette industry, it could “have revenue of $7 per unit,” (Moffat).  Based on the model similar to that of cigarettes, that generates over 2 billion dollars on the sales alone.

Another argument for the legalization of marijuana comes in the money that it would save both the government and the individual annually.  According to a Forbes report, “a 2007 study found that enforcing the marijuana prohibition costs tax payers $41.8 billion annually,” (Bradford).  If the substance was legalized, the taxpayers who could then put it back into the economy and help boost the areas that are currently in the largest deficits could save this money.  From a government point of view, a great deal of money is spent on the policing of the substance to keep it illegal.  It is reported that we spend roughly 150 billion dollars per year on policing and courts, and of all the drug arrests made, 47% are related to marijuana (Klein).

For all of the pros to the legalization arguments, there exist some cons as well, however, the vast majority of them are linked to social arguments instead of economical ones.  The film, Weed, addresses this topic. The major economic argument against the legalization of marijuana that is, at least, related stems from the legitimating of the drug through the taxation process.  The basis of this argument is that by taxing the drug, the nation is saying that drugs are all right and will lead to the use of stronger, more dangerous drugs such as cocaine or heroin (Erb).  Even this argument, though it appeals to economics in some sense because it deals with the taxation of the product, is mostly rooted in the morals and values side of the reasoning for the continued prohibition of the substance, however.

The major arguments against the legalization of marijuana all stem from a moral or social feeling of the perceived evils of the substance.  Many feel that the drug is a gateway drug and will lead people to try other, more dangerous substances.  Others feel that the use of the substance is just morally wrong. There are those that feel the legalization of the substance will tempt more people, both adults and children, to trying marijuana.  Others argue that the legalization of marijuana will lead to more criminals being on the street. And, some feel that the legalization will lead to more traffic accidents as more and more people are driving under the influence (Keel).  This last argument does have interesting economic implications.  If this idea were to be true, then the cost of dealing with an increase of vehicle accidents could be analyzed to see if the legalization of the substance is detrimental to society from an economic point of view by answering the question: does the amount spent on dealing with and preventing the potential traffic accidents that result from the use of marijuana warrant us to keep the drug illegal when compared to the benefits in revenue that the drug produces from being legal?  The answer to this question, however, seems rather apparent.

The benefits of the legalization of marijuana appear to completely outweigh the cons from an economical point of view.  It is of this author’s opinion that the substance should be entirely legalized because of two major reasons.  First, the economics behind the legalization of the substance would lead to a great amount of generated revenue for both the government, through taxation and regulation, and the individual, through businesses and money saved on policing the substance.  Secondly, the major arguments against the legalization are based almost entirely upon an old, outdated ideology that has no real economic substance today.  Marijuana was originally made illegal because it posed a threat to many industries because of the use of hemp, a by-product of growing marijuana that has no real relationship to the recreational use of marijuana as a drug.  Back when marijuana was deemed illegal, the hemp industry posed a significant danger to industries such as the paper industry, and today hemp could be used as a means of providing alternatives to many other industries.  So, not only does the recreational use of marijuana generate a great amount of return in a monetary sense, but the use of this other, related product, hemp, could also see a great amount of return to society in a monetary sense.  It is for these reasons that marijuana should be entirely legal in every sense on a national level; the benefits clearly outweigh the rational against and society should realize that marijuana is not an evil product.     

Works Cited

Bradford, Harry. "14 Ways Marijuana Legalization Could Boost The Economy." Huffington Post. 07 Nov 2012: n. page. Web. 16 Mar. 2013. <

Erb, Kelly Phillips. "Stirring the Pot: Could Legalizing Marijuana Save the Economy?." Forbes. 20 Apr 2012: n. page. Web. 16 Mar. 2013. <>.

Keel , Robert. "Pros & Cons of Legalizing Marijuana." UMSL . n.d. n. page. Web. 16 Mar. 2013. <>.

Klein, Joe. "Why Legalizing Marijuana Makes Sense." Time. 02 Apr 2009: n. page. Web. 16 Mar. 2013. <,9171,1889166,00.html>.

Moffatt, Mike. "Should Governments Legalize and Tax Marijuana?." About Economics. n.d. n. page. Web. 16 Mar. 2013. <>.