Nova workboard

a blog from young economists at Nova SBE

Colorado – The Cannabis Experiment

The use of marijuana for medical, recreational and spiritual purposes has been around for millennia(1), and recently its use for the treatment of diseases like cancer and epilepsy have been showing promising results(2). However, nowadays it is an outlawed substance almost everywhere. The War on Drugs, especially towards cannabis, has been harshly criticized by a lot of people, not only on the grounds of personal freedom and democratic values, but also for the money that is spent on law enforcement and the amount of money that could be used for public finance, by taxing the cannabis market.

As of November 6, 2012, Colorado passed the Amendment 64(3), which outlined a statewide drug policy for cannabis (also known as marijuana, among a variety of other names). The law addresses cannabis personal use and regulation for adults 21 and over, as well as cultivation and sale, among other things, effectively regulating cannabis in a manner similar to alcohol. The first stores were open to the public in the 1st of January, 2014, and by the 1st of July, over 200 marijuana shops were licensed(4). Buyers of recreational marijuana at such dispensaries are subject to a 12,9% in state sales taxes(5), plus a 15% excise tax(6).

Nine months after Colorado started retailing marijuana for recreational use, it’s time to look at some numbers. From the beginning of January to the end of May, retail sales at marijuana dispensaries summed up to $90 million(7). Just in June, the tax revenue from the marijuana industry topped $7 million(8). The first $40 million of excise taxes are targeted to school construction(9). Regarding law enforcement costs, the State expects to reduce its expenses by approximately $60 million(10).

Michael Elliott, executive director of Colorado’s Marijuana Industry Group Trade association estimated that around 10,000 Coloradans were working directly in the marijuana industry(11). On top of that, we should also bear in mind the work it provides to construction workers, attorneys, labeling and packaging companies, and testing labs, as well as the economic stimulus it puts in the tourism industry.
Colorado’s Governor John Hickenlooper, who was elected in 2010 and officially added the law that legalized the consumption of cannabis to Colorado’s constitution on December 10, 2012, estimates around $114 million in tax revenues(12) for the current fiscal year, which started in July.

On the other hand, in Europe, there are also Cannabis Social Clubs (non-profit organizations in the format put forward by the Coalition for Just and Effective Drug Policies, previously European NGO Council on Drugs – ENCOD(13)) which exist in several countries already (Spain, the Netherlands,…), and are often considered more adequate, given the subject. However, in Portugal none of these economic settings is possible due to legal constraints, which originate a market failure: individuals who want to engage in an economic transaction, will be committing a crime by doing so. This is definitely a topic that should be open to debate, as it could seriously improve Portugal’s economy and put it one step closer to a freer and more just society.

“The more effective prohibition is at raising costs, the greater are drug industry revenues. So, more effective prohibition means that drug sellers have more money to buy guns, pay bribes, fund the dealers, and even research and develop new technologies in drug delivery (like crack cocaine). It’s hard to beat an enemy that gets stronger the more you strike against him or her.”

Cowen and Tabarrok, Modern Principles of Economics, pg.60

1. Li, Hui-Lin (1974). “An Archaeological and Historical Account of Cannabis in China”,Economic Botany 28.4:437–448, p. 444

José Ricardo Sequeira – 729


Author: studentnovasbe

Master student in Nova Sbe

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