A hundred years ago, cannabis was a major cash crop in this state. Now, the unmistakeable shift toward re-legalization promises a new economic windfall for the future.
Setting up a medical marijuana system would reduce criminality, sure. But eliminating it entirely? Well, that could be achieved by a bill state Sen. Daylin Leach introduced last April: Senate Bill 528, which would legalize marijuana for recreational purposes. It’s an unexpectedly intriguing proposal now that two states—Colorado and Washington—are actually preparing to put their own legalization plans into effect.
Leach’s legislation, co-sponsored by state senators Larry Farnese (D-Philadelphia) and Jim Ferlo (D-Allegheny), is pretty simple: legalize it, tax it and regulate it. The bill doesn’t set any of the details in stone, though. “We didn’t want to bite off more than we could chew,” he says, “so we didn’t mention tax rates specifically.” He says he’s looking at how Colorado and Washington pan out before deciding whether they have operational models worth emulating. “I think there’s a good idea out there,” he says, “which is that you want to marijuana to be sort of competitive with alcohol in terms of the tax rate, so you don’t adversely affect the alcohol industry.”
That suggests the taxes might be the same. According to the Montgomery County state senator, Pennsylvania could impose a per-joint tax similar to one beer, wine or mixed drink. In Philadelphia, there’s a 10 percent tax on alcohol in addition to the state’s 8 percent rate. So if a joint sold for, say, $5, and both state and city tax were the same, that joint would cost $5.90 in Philadelphia, while in Anytown, Pa., it might cost $5.40.
Another feasible scenario, Leach told the Journal Register, might be a one-dollar tax per joint. Using estimates from the Dept. of Health and Human Services that 1 million people in Pennsylvania smoke pot, and assuming an average smoker might smoke four joints a week, that would mean $200 per smoker per year, and $200 million in tax revenue on top of the $350 million the state would be saving in law enforcement costs. Not too shabby.
But Leach purposely didn’t specify a tax rate—or a way to spend that new revenue—so as not to eliminate any potential supporters around the state. “What a tax rate should be and where tax money goes are big policy questions,” he says, “and we didn’t want to add too many big policy questions onto what is already a big policy question.” Given the opportunity to suggest what the potential cash might possibly fund, however, he mentions our most obvious financial crises: schools and transportation.
Taxation alone, though, doesn’t begin to paint the picture of how Pennsylvania’s economy would change in a new era of legal weed. With a new industry comes the need for new infrastructure—for a means of getting the product to consumers.
Leach assumes the product could be sold—at first—through the state liquor store system. “They’re a good infrastructure that can at least begin the process,” he notes, “in that they’re used to collecting taxes, they’re used to checking if someone is intoxicated, they’re used to checking ID for age—all the things that would be relevant to deal with marijuana.”
If that worked out, the state could subsequently begin licensing some corner stores and food shops to sell smaller amounts of ganja, just as, currently, liquor licenses enable some small shops to sell beer if they meet certain standards. That’s a step that would wait, Leach says, until we have a chance to observe how Colorado and Washington maintain their recreational marijuana system. But he envisions coffee shops someday allowing Pennsylvanians to acquire their vice, maybe purchase a Rice Krispies treat or six, and be on their way.
Aside from such licensing and sales revenue, though—and on top of the aforementioned $550 million in likely taxes and law-enforcement savings—there’s also an economic boon to be found in the ancillary costs associated with denying this industry’s existence. Those costs are harder to figure out. They include the amount of people who get arrested, then lose their job, go on unemployment and no longer pay taxes to the state or their local municipality. They also include the number of new jobs generated from new businesses opening that could potentially sell product to locals. For instance, if the state were to sanction weed-friendly coffee shops, that alone would be a whole industry. Leach points out: “There’d be distributors, there’d be drug paraphernalia, like, places that sell rolling papers”—or however you like to smoke your pot—“and that would create jobs. There would be a lot of new income and activity generated.”
Between the enforcement stand-down, the taxation, the job-keeping and the infrastructure, then, the senator rounds up his estimate to about $1 billion per year the state could generate by legalizing pot.
BUT WHAT DOES THAT MEAN to you? Right now, of course, there’s no industry or infrastructure to speak of. There are street and home-based illegal dealers in Philly, sure, but for one average casual smoker—a late-20s professional living in the Graduate Hospital area—obtaining enough pot locally can be a problem.
“An eighth is about $60,” says the smoker, who asked to remain anonymous for obvious reasons. “Crappy weed can be $40; it’s about $20 for a gram; and an ounce can really range anywhere, from about $300 to $400 or more.” Meanwhile, the smoker says, their dealer recently lost a Northeast-Philadelphia-by-way-of-Denver connection, and their source has been completely dry since then.
“I think the general consensus is, dealers don’t necessarily want it to be legal,” the smoker says, “but casual smokers are all about it, because it makes it a lot easier for everybody. For someone like me, it would make life a lot more simple.”
And cheaper. A 1994 NORML study titled “The Economics of Cannabis Prohibition” found that in an untaxed, 100-percent free market, bulk marijuana “might reasonably retail at the price of other medicinal herbs, around $.75-$1.50 an ounce.” There’d be no such market, of course, and that same study noted that when putting a value on selling cannabis at the retail level, it’d help—like Leach suggests—to use alcohol as a benchmark, pricing a single joint around $1.25 to $2.50. (That’s $75 to $150 per ounce.)
NORML also suggests computing a “harmfulness tax” into marijuana to make up for the societal impact of legalization. A study conducted in 1994 found that daily pot users report a 30 percent higher risk of “injuries” than non-users, and the cost of those accidents would need to be accounted for; among other harmfulness factors, marijuana contains more tar than cigarettes on a per-weight basis, though a joint typically weighs less than a cigarette, and users smoke less of it. With risk factors weighed in, NORML concluded, a $.50 to $1.00 tax per joint would make sense; in 2013 dollars, that’s $.79 to $1.58. (American healthcare is changing, too, of course, and asking 10 different people what Obamacare will do yields 10 different answers, so that could also affect how much a joint might be taxed in Pennsylvania.)
“Everyone is agreed that the price of marijuana is inflated because of the illegal status of the market and so forth,” says Jon Gettman, a senior fellow at George Mason University and leader of the Coalition for Rescheduling Cannabis, “but we don’t know what the price is going to be, we don’t know what the tax is going to be to add to that natural price of the sale, and we don’t know what the usage patterns are going to be.”
Ultimately, amid all the scenarios, likely and unlikely, that could arise from legalizing pot and letting the government regulate it—or even sell it themselves—Pennsylvanians seem to be inexorably moving toward the conclusion that’s slowly making its way across America: Prohibiting the plant from human consumption has been a total economic and sociological failure. With the state’s school funding dried up and vital transportation projects being decimated in the state Capitol, even just the state’s $350 million annual expenditure to arrest between 20,000 and 26,000 people each year looks increasingly like a war of choice we simply can no longer afford to fight.
PW's Summer Guide 2015