Marijuana: The New Cigarette (to be marked)

15 05 2011

Marijuana use is currently illegal in Canada except for medical purposes. However, this has not prevented the development of a black market for marijuana that is worth billions of dollars, the existence of tens of thousands of grow ops in British Columbia, and the fact that 4.5 million Canadians (about 14% of the entire population) used marijuana in 2004. With the prevalence of marijuana in Canadian society, it is obvious that its prohibition is ineffective and that the legal battle against marijuana has been lost. It is time that the government introduce market based policies to influence the use of marijuana and benefit from its market. In other words, it is time for the government to legalize marijuana.

The Externalities of Marijuana Being Illegal

Governments can control for the negative externalities of marijuana use by applying command and control policies or market based policies. Command and control policies are usually regulations that prohibit or require certain behaviours, whereas market based policies involve the use of taxes (taking away money) or subsidies (giving money) to encourage a desired behaviour.

By criminalizing marijuana possession, the Canadian government is using only a command and control policy in its attempt to reduce the use of marijuana. The problem with this is that, unlike market based policies, it offers little economic incentive for people to comply with the law, and as a result causes many negative externalities to develop as people try to dodge around the law. For example, criminalizing marijuana possession has caused the formation of a black market for marijuana, where people operate grow ops and sell marijuana to each other in secret. This market is worth billions of dollars, but the government does not profit from it because the market is not regulated. Also, the money gained from the marijuana market often ends up in the hands of criminals, who use the money to perform more illicit activities.

Another negative externality of criminalizing marijuana is the high cost of running the judicial system involved in court trials for marijuana trafficking, putting criminals in jail and policing for marijuana possession and growing. According to Canadian Alliance MP Keith Martin, $150 million dollars would be saved in court costs every year if marijuana possession was legalized. The financial resources going into enforcing the law would not be a huge matter, if it were not for the fact that it has not reduced marijuana consumption. Of the millions of marijuana users in Canada, less than 1% of them are caught and more than half of that is let off with only a warning.

Criminalizing marijuana has not reduced the supply or the demand for marijuana to yield a socially desirable equilibrium quantity.

The Benefits of Legalizing Marijuana

To eliminate the negative externalities of using command and control policies to regulate marijuana, the government should use more market based policies. For example, cigarettes are regulated using both kinds of policies. The government uses command and control policies through the regulation of the legal smoking age, and through advertisements printed on cigarette packs detailing the negative health effects of using marijuana. On top of that, the government also uses a market based policy by imposing an excise tax on cigarettes, which raises the prices paid by consumers and thus decreases demand for cigarettes. This places the supply and demand of cigarettes at a healthy level.

The government can use similar strategies to regulate the marijuana market, for example by placing similar advertisements in shops where marijuana is sold and on packages of marijuana. The government can also impose excise taxes on marijuana. Using this strategy, legalizing marijuana possession can actually reduce its usage more than criminalizing it. Based on the principles of supply and demand, if marijuana was legalized, there would be an increased number of grow operations as people flood the now legalized market in an attempt to make money. This would shift the supply curve to the right. The equilibrium point for the market would then be shifted to a lower price, increasing the quantity used. However, if excise taxes are applied to marijuana, like they are to cigarettes, the supply curve would shift towards the left. The amount of tax can be adjusted to such a level that the equilibrium point of the marijuana market actually yields a lower quantity consumed than at first, thus meaning that marijuana use has decreased.

There is the possibility that a black market for marijuana will still exist even after it is legalized. This can happen if the excise tax on marijuana is too high. Suppliers may decide not to comply with the regulations in the legal marijuana market, and instead sell marijuana at a lower price to willing buyers to make a higher profit. This will increase costs for the government because the government must then spend money on policing and regulation to ensure that sellers pay their taxes. To reduce the possibility of this happening, the government can ask marijuana retailers to list their suppliers and then search for the suppliers to impose taxes on.

Legalizing and applying excise taxes to marijuana can decrease the quantity demanded and supplied to a more socially desirable level.

Legalization is the Right Way to Go

The government should treat marijuana with a more market based approach. Just like how cigarettes are regulated through command and control policies and market based policies, marijuana should be regulated the same way. The combination of command and control policies and market based policies would be most effective in reducing marijuana use while at the same time benefiting the Canadian economy.

Maybe this isn't such a bad idea.



2 responses

18 06 2011

I thought this was a good journal, and I especially liked your analysis of the supply and demand quantities concerning prohibition and legalization. What I also liked was that you addressed a potential problem in your solution, the excise tax being too high and promoting the black market again. You explained your points very well and it was a good journal.

18 06 2011

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