Filtering Through the Smoke Legalizing Marijuana Would Slash Its Price, but the Effects on Use and Revenues Are Hazy

by Beau Kilmer and Jonathan P. Caulkins

Rand Review
Summer 2010

Californians are considering two proposals that would make the state the only jurisdiction in the world to fully legalize marijuana, including its commercial production for nonmedical purposes.

The first proposal is state Assembly Bill 2254, often called the Ammiano bill after its sponsor, Assemblyman Tom Ammiano (D-San Francisco). The bill would legalize marijuana for those 21 and older, reduce marijuana possession from a misdemeanor to just an infraction for those under 21, allow home cultivation of up to six plants, and require the state’s Department of Alcoholic Beverage Control to regulate marijuana possession, sale, and cultivation in ways similar to the laws now regulating alcohol. The bill would initially impose a statewide excise tax of $50 per ounce on marijuana sales and require the funds to be spent “exclusively for drug education, awareness, and rehabilitation programs.” This $50-per-ounce excise tax may be reduced if revenues exceed spending on these programs.

The second proposal is Proposition 19, which will appear on the state’s November ballot. Proposition 19 would legalize marijuana use for those 21 and over and allow adults to cultivate marijuana plants for personal consumption in an area of up to 25 square feet. In contrast to the Ammiano bill, which would establish a state regulatory regime, the ballot proposition would empower each of the state’s more than 500 cities and counties to choose whether and how to regulate and tax commercial production and distribution within its jurisdiction.

California Governor Arnold Schwarzenegger has suggested that it is “time for a debate” about legalization. While such a debate is indeed taking place in the run-up to the November election, the debate is occurring mostly in the absence of impartial information about the effect of marijuana legalization on price, consumption, and tax revenues.

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