Should Regulate, Control and Tax Cannabis Act of 2010 Be Implemented in the State of California?

Anirudh Kapur

Economics 348

Prof. Mark Moore

Due Date: 21st April 2011

Should Regulate, Control and Tax Cannabis Act of 2010 be implemented in the State of California?

Introduction

On November 2nd, 2010 over 4.6 million people voted in favor of legalization of marijuana in the state of California. The ballot was rejected with 53.5% of the electorate voting against and 46.5% of the electorate voting in favor of the proposition. Although the act was not passed, such a close result shows that a large number of people in the state of California are not opposed to legalizing marijuana. Proposition 19 or formally known as Regulate, Control and Tax Cannabis act of 2010 allows people 21 years old or older to possess, cultivate, or transport marijuana for personal use. Proposition 19 permits local government to tax the sale of marijuana but at the same time it prohibits the use or marijuana on school grounds, use in public, smoking in the presence of minors and providing it to anyone under 21 years old. It also maintains the current prohibition against driving while under the influence of marijuana.

History of Marijuana

Medical marijuana was legalized in 1996 after a marijuana activist named Dennis Peron started a grass root movement in San Francisco. Another bill passed by Governor Arnold Schwarzenegger; SB 1449 decriminalized the possession of up to an ounce of marijuana maintained the maximum penalty at $100 and no arrest record. Surveys conducted nationwide have shown that 100 million people have tried medical marijuana out of which 15 million have used it in the last month. These figures reveal the fact that smoking medical marijuana is a fact of life like drinking alcohol and smoking cigarettes for a large percentage of the American population. Although legalization of marijuana is a way bigger step than decriminalization, the ballot in 2010 reveals that the question is not whether marijuana will be legalized or no but when will it be legalized. The current laws leave the consumers and the producers in a legal grey area. Therefore, I believe that proposition 19 should be passed in the state of California as it will bring the marijuana industry above the ground and help the government regulate it.

Alcohol consumption was illegal and prohibited in the United States between 1920 and 1923. Jeffrey A. Miron in his paper discusses the effects of alcohol prohibition on alcohol consumption. With a framework of analysis, he shows that the demand for alcohol is inelastic. Therefore, there was no effect of prohibition on demand of alcohol. He also states that prohibition of alcohol creates a forbidden fruit effect that results in an increase in the consumption of alcohol when it is consumed. Thirdly, he also assumed that there was no increase in the price of alcohol as market suppliers face marginal costs of evading government regulations and taxes. The study of affects of alcohol prohibition on alcohol consumption has been used to derive policy for other prohibited substances and drugs. 5

If we use the study by Jeffrey A. Miron on the effects of alcohol prohibition on alcohol consumption, we can conclude that it will be better to legalize marijuana in the state of California as it creates a forbidden fruit effect and the demand for marijuana is also inelastic. This is true because a person who wants to consumer marijuana will consume marijuana whether it is legal or not.

Financial Benefits

Legalization would also result in bringing the industry above ground, just as the prohibition restored the legal alcohol industry. A small share of the market would still remain illicit but if the regulation and taxes were moderate, most of the producers and consumers would choose to be under the legal umbrella as it happened with alcohol. If majority of the consumers and producers adopt to be under the legal umbrella, this will make it very easy