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July 9, 2010

RAND study (foolishly?) tries to forecast impact of pot legalization in California

4W8RAND.xlgraphic.prod_affiliate.4 As detailed in this local newspaper article and this official press release, the RAND Corporation has produced this new study that examines many issues raised by proposals to legalize marijuana in California.  Here are the basics:

Legalizing pot may drop the price of a marijuana cigarette to as little as $1.50 in California, but taxing weed may create a whole new black market, according to a new RAND Corp. study.

The six-month study, released Wednesday by the renowned Santa Monica-based think tank, provides fuel for both sides of the debate over whether California should legalize marijuana for recreational use.

The study said legalizing marijuana in California would drop the price of pot by more than 80 percent and increase consumption. It also said California could generate annual tax revenues either far higher or much lower than a much-publicized $1.4 billion tax estimate by the state Board of Equalization last year.

For example, California tax revenues could swing upward if legalization leads to a surge of Amsterdam-style pot tourism or even lures 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. Potential tax revenues may be lower if an illicit, secondary market develops from people trafficking cheaper, non-taxed marijuana.

"One could hypothesize that people would be willing to pay that tax (on pot) 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 a black market to emerge."

The study didn'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.

Backers of the marijuana initiative said they were in accord with many of the study's findings. "This is what we've been saying all along: Legalization will lead to lower prices and some additional consumption," said Dale Gieringer, California director of the marijuana legalization group the National Organization for Reform of Marijuana Laws. "But the economic impact depends crucially on how you implement the taxation and regulations."...

"The RAND findings highlight the considerable uncertainty surrounding Proposition 19," said Roger Salazar, spokesman for Public Safety First, the campaign committee for initiative opponents. "This is a free-for-all. Tax revenues could go in all directions. And we could get sued by the federal government."

I am extremely pleased that the RAND folks are making a serious effort to assess and predict the potential impact of the pot legalization initiative in California.  And yet, as my post title is meant to hint, I think the impact of the passage of that initiative is quite unpredictable because there are so many institutional forces that can and will react in so many unpredictable ways. 

For instance, the federal government likely could (and perhaps would) bring litigation to try to prevent the implementation of the initiative (just as it has now brought suit to prevent Arizona from moving forward with its new immigration law).  Such a suit would directly alter and greatly complicate the impact and import of the legalization initiative.  Similarly, the California state legislature and/or its executive branch and/or public policy groups could seek to block the initiatives implementation in various (largely unpredictable) ways.  And so on.

In short, though I am sure passage of the California pot initiative would be a very big deal, I also think its short and long term practical impact is almost impossible to confidently predict right now.

Some related posts on pot policy and politics:

July 9, 2010 at 12:11 PM | Permalink

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Only government can be stupid enough to have marijuana sales lose money. That is because it is a wholly owned subsidiary of the CCE.

Posted by: Supremacy Claus | Jul 10, 2010 7:39:18 AM

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