Freedom in the 50 States

Marijuana freedom has been on the rise in the states for many years now, and states continue to legalize adult recreational possession and sale every year. As mentioned earlier in the section “Incarceration and Arrests for Victimless Crimes,” we consider here only the lost consumer and producer surplus due to prohibition, not the costs of arrests and incarceration.

Recent work has yielded inconsistent findings on marijuana policy and consumption. Rand Corporation economist Rosalie Liccardo Pacula and her coauthors found that marijuana penalties have a small impact on marijuana use among youth (a one-standard-deviation increase in minimum jail time is associated with a 1.2 percent decline in annual risk of use),¹ but “decriminalization” or “depenalization” as such retains a small (about 2 to 3 percent) effect even when these penalty variables are controlled for, which the authors cannot explain. In a different study, Pacula and others found that reduced penalties for users increase consumption and therefore price, resulting in higher profits for sellers.² They also calculate that prohibition probably doubles the price of a pound of marijuana, at least (adding $200 to $300 to the cost).

A reasonable estimate of the amount of marijuana sold in the United States in a year is 50 million pounds.³ Unfortunately, absolutely no evidence exists on the consequences of supplier penalties. We conservatively assume total seller profits of $200 per pound (including compensation for risk). We estimate the new consumer surplus conservatively, assuming a price elasticity of demand of −0.2 (like alcohol) and unit elasticity of supply.

Looking at decriminalization of small-scale possession first, we assume this policy boosts consumption by 3 percent, which implies a transaction-cost tax of roughly 15 percent. We then calculate the deadweight loss and the forgone producer surplus, assuming a free-market price per pound of $330. This underestimate is small because decriminalization also correlates with strength of criminal penalties, which Pacula and others found affect consumption.⁴ Moving from criminalization to decriminalization nationwide should then increase consumer and producer welfare by about $2.3 billion. Our coding of this variable assumes that the benefits of full legalization of possession are about five times as large.

The most important variable in the marijuana freedom category is our index of medical marijuana laws, which takes into account the scope of qualifying conditions, the maximum amount permitted, whether home cultivation is permitted, and whether dispensaries are permitted. Pacula and others found that some features of medical marijuana laws, such as home cultivation and (especially) dispensaries, may increase overall consumption, but their results are not easily interpretable in a supply-and-demand model, nor are they generally statistically significant.⁵ Other research has found no effect on consumption.⁶ But several studies now seem to show that legal dispensaries result in lower prices by shifting out the supply curve. Emory University health policy researchers Hefei Wen, Jason M. Hockenberry, and Janet R. Cummings found that allowing nonspecific pain as a reason for medical marijuana recommendations increases use by those over age 21 significantly.⁷ The bottom line is that the total effect of medical marijuana laws on consumption is modest, probably a bit more than decriminalization, but much is unknown. We choose a weight for this variable of 1.5 times that for decriminalization.

The next most important variable is whether some recreational cannabis sales are legal. Recreational sales of marijuana in Colorado—the first state to implement legal recreational sales—have not decreased medical marijuana sales.⁸ It is unclear what the effect has been on total sales—that is, whether legalization simply reduces the black market or also increases total consumption. Even under the former scenario, the big increase in recreational sales over time suggests that many consumers benefit by buying on the legal market rather than the black market. In the 12 months through June 2015, legal recreational sales amounted to about $450 million in Colorado. Assume 20 percent of that reflects producer costs (a common statistic is that in the absence of prohibition and any taxes, the price of marijuana would fall by 80 percent). The remainder reflects producer and consumer surplus. We assume one-quarter of that surplus is due to the legalization of sales specifically, rather than to possession and cultivation. After adjusting to national population, we estimate that legalizing some marijuana sales would create $5.4 billion of benefit nationally.

The next most important variable is the maximum penalty for a single marijuana offense not involving a minor, which in some states is life in prison. Such penalties depress supply and raise price. We also include whether high-level possession or cultivation of cannabis is a misdemeanor or felony and any mandatory minimum sentence for “low-level” cultivation or sale. All these variables are assumed together to have a similar effect on decriminalization of possession.

Finally, we consider the effect of Salvia divinorum bans within this category. A 2006 study found that 750,000 people used salvia that year, compared with 26 million marijuana users per year.⁹ Therefore, we add together all the marijuana weights and multiply by 0.75/26. An objection to this strategy is that the variance among states is greater on salvia policy, so this weight understates the importance of the policy (in no state is marijuana completely unregulated). On the other hand, the per-user quantity of salvia consumed is surely much lower than that for marijuana, so this weight may overstate the importance of the policy. Because we cannot assess the relative magnitudes of these biases, we simply assume that they cancel out. Salvia bans are therefore worth less than 0.1 percent of the index.

Since the closing date of our study, Delaware, Maryland, and Minnesota legalized recreational marijuana, while Kentucky legalized medical marijuana.

In subsequent editions, we look forward to including marijuana taxes, which explain why black markets are still large in states like California.¹⁰ If we were able to include these figures, California would probably not be number one for marijuana freedom.