If marijuana were legalized in California, prices could drop dramatically, consumption would increase (although how much is anyone's guess), and tax revenues could either wildly exceed published estimates or come in much lower, according to which sets of assumptions hold true, the RAND Drug Policy Research Center [15] said in a report released Wednesday.
The report, Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets [16], assumes the cost of indoor marijuana production at no more than $300 to $400 a pound. Under legalization, the retail ounce price could drop to as low as $38 pre-tax, the researchers found.
"There are several reasons to anticipate such a sharp decline," the report said. "First, we anticipate that workers' wages will fall because employers will not have to pay a risk premium to employees for participating in an illegal activity. Second, there will be greater ability to use labor-saving automation, especially in the manicuring stage. Third, production at the level of an entire grow house, or several houses operated together, permits economies of scale not available to grows kept small enough to avoid attracting the attention of not just federal but also local law enforcement. Fourth, assuming that growers avoid attracting federal law-enforcement attention, they will face minimal risk of arrest and forfeiture."
The authors caution that pricing estimates depend on a number of variables, including whether an excise tax is imposed, the degree to which it is collected or evaded, and the degree to which regulatory burdens impose economic costs on producers.
Current retail pot prices in California are from $250 to $400 an ounce for high grade weed, so a $38 ounce is about an 80% price reduction. Such a reduction is assumed to increase the rate of consumption, but as the authors note, "the magnitude of the consumption increase cannot be predicted because prices will fall to levels below those ever studied."
Consumption could also increase because of non-price factors, such as loss of stigma or advertising campaigns. The authors said they "could not rule out" consumption increases of 50% to 100%, which would bring consumption to levels not seen since the late 1970s, the heyday of pot smoking in America.
The state Board of Equalization estimated that legalization could generate $1.4 billion a year in tax revenues, based on the $50 an ounce tax envisioned in legislation sponsored by Assemblyman Tom Ammiano (D-San Francisco). The marijuana legalization initiative, Proposition 19 [17], however, does not include provisions for taxation at the state level, only at the local level, and only if those localities decide to allow taxed and regulated marijuana production and sales.
Those considerations, as well the abovementioned factors of level of taxation and tax evasion and the response of the federal government mean revenue estimates vary wildly and could be dramatically lower or higher than the board's $1.4 billion a year estimate.
"There is considerable uncertainty about the impact that legalizing marijuana in California will have on consumption and public budgets," said Beau Kilmer, the study's lead author and a policy researcher at RAND. "No government has legalized the production and distribution of marijuana for general use, so there is little evidence on which to base any predictions about how this might work in California."
But a fella can dream, can't he?