Weed Wars

Dispatches from the California Marijuana Front

July 7, 2010
RAND study: Legal pot will plummet prices, tax benefits hazy

Legalizing marijuana in California would dramatically drive down prices, dropping the cost of a joint to as little as $1.50, but state efforts to tax pot may create a whole new black market, according to RAND Corporation researchers.

The six-month study by the non-partisan, Santa Monica-based research institute said legalizing pot could generate revenues for California and state communities at far higher - or lower - rates than a much-publicized $1.4 billion marijuana tax estimate developed by the state Board of Equalization last year.

The authors of the study, released today, said California tax revenues could swing wildly depending on whether legalizing marijuana leads to a surge of Amsterdam-style pot tourism or even a lure for out-of-state drug traffickers wanting to buy cheap California weed to resell elsewhere.

"It may depend on whether dealers outside of California can access marijuana in California and bring it back to their states," said Jonathan Caulkins, a Carnegie Mellon University researcher and co-director of RAND's Drug Policy Research Center.

The study doesn't take a position on either the November ballot initiative - Proposition 19 - to legalize recreational marijuana use or proposed, separate state legislation to impose a $50-per-ounce pot tax.

But the authors of the report wrote that legalizing marijuana would bring "California law into direct conflict with federal law." They said that could result in federal lawsuits or action by Congress to cut state highway funds - similar to past federal moves used to pressure states to raise the drinking age to 21.

The study said legalizing marijuana would cause the price of marijuana to plummet by more than 80 percent.

Lead author Beau Kilmer, the other co-director of the RAND Drug Policy Research Center, said it could drop the cost to as little as $38 an ounce. He said that could mean "$1.50 a joint for high-quality marijuana."

Kilmer said the drug prices would drop dramatically because drug dealers in California "won't have to be compensated for their risks." And he said legalization will vastly expand indoor growing operations - which have proliferated under the current medical marijuana law -- to create a low cost, commercial networks.

The authors said legalization and resulting price drops will also also cause marijuana consumption to jump. But their estimates varied widely, from about 75 to 150 percent, over how much pot use will go up.

"We believe consumption is going to increase," Kilmer said. "But it is unclear how much. It (legalization) could change the stigma. There could be more promotion. There could be more advertising...There also will be a drop in the...price that can influence behavior."

Proposition 19 would legalize recreational marijuana use for California residents over 21, allow small residential cultivation and permit local governments to tax and regulate tax sales.

Meanwhile, Assembly Bill 2254, introduced by Assemblyman Tom Ammiano, would impose a $50 per ounce tax on pot sales and would license private marijuana cultivators and wholesalers. Ammiano has delayed the bill until after the vote on Proposition 19.

The RAND report warns that taxing marijuana in California could create a new illicit marijuana market trafficking cheaper, non-taxed pot.

"One could hypothesize that people would be willing to pay that tax because it would be a lot cheaper to what they're paying in an illegal market," said Rosalie Liccardo Pacula, a senior economist for the RAND Corp. "But there is room for the black market to emerge."

For a summary of the RAND study and a link to the full report, click here.

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