RAND Review News for Spring 2012
Regulatory Regime Key in Shaping Impact of Marijuana Legalization
A New Nonpartisan Primer on Marijuana Legalization
Marijuana legalization will be on the ballot in at least two U.S. states in November 2012, and it is the subject of serious debate in a growing number of countries. When it comes to understanding the consequences of legalizing marijuana, the “devil is in the details of how the regulatory regime is designed,” according to a RAND study published in the journal Addiction.
Based on the analysis of two California proposals to legalize the production, distribution, and sale of marijuana to recreational users, researchers reached two principal insights: Marijuana legalization will dramatically reduce wholesale prices and lead to greater consumption; however, no one knows how much consumption will increase.
An effort to restrict advertising to minimize marijuana use would be a challenge in the United States, where courts are often reluctant to limit corporate free speech.
In the context of those insights, some key issues emerged regarding the design of regulatory regimes. “Most legalization proposals include a tax on marijuana to cover the costs of regulation and to raise revenue for more general purposes,” said Beau Kilmer, co-director of the RAND Drug Policy Research Center and a study co-author. “But given the large drop in wholesale prices, it is unrealistic to assume that excise taxes could keep marijuana prices at their current levels. If the tax is set too high, a black market for marijuana will still exist.”
Another issue to consider is marketing. An effort to restrict advertising to minimize marijuana use would be a challenge in the United States, where courts are often reluctant to limit corporate free speech. This makes it difficult to allow commercial marijuana enterprises to operate legally without also permitting promotion.
Another design issue is the ability to amend whatever regulatory regime is put in place. “There is enough uncertainty about the demand curve for cannabis and how much tax evasion will occur, that predictions of the consequences of any specific regime will have large error bands,” said Jonathan Caulkins of Carnegie Mellon University, a study co-author. “If legalization happens, there will be surprises and unintended consequences, which argue for building in an ability to make corrections.”