Pot’s Legal –The Pros and Cons

The US cannabis industry is expected to reach almost $40 billion in 2024. As of January 2024, the substance is legal in 24 states recreationally and 40 states for medicinal use. Is the social cost of legalizing pot too high compared to the benefits? This question is an ongoing debate. A comprehensive analysis by Jason P. Brown, Elior D. Cohen, and Alison Felix from the Federal Reserve Bank of Kansas City gives us an answer. The study reveals that pot provides moderate economic gains but significant social costs.

Economic Benefits

Legalizing marijuana for recreational use has led to four primary economic benefits for states:

Income Growth:

1. Income Growth: On average, states saw a 3% increase in per capita income post-legalization. What does this mean? The average citizen isn’t experiencing income growth due to pot. Though the numbers are not available, this suggests the increase is primarily driven by business owners and entrepreneurs in the industry, who are experiencing enormous income growth.
2. Housing Market: House prices increased by 6%, indicating a rise in property values in states where marijuana was legalized. This suggests that marijuana legalization positively affected housing prices, though other factors may have contributed to the increase.
3. Population Growth: States have experienced a 2% increase in population, a trend that could be attributed to the new industry attracting people to these states. The allure of living in states where pot is legal is a significant factor, but the recent influx of immigrants to sanctuary states may have also contributed to this increase. This potential for population growth presents intriguing societal changes.
4. Tax Revenues: Although overall tax revenues did not significantly increase, states collected substantial taxes directly from marijuana sales, which did not considerably offset declines in alcohol and tobacco tax revenues. In other words, people are switching to marijuana vs. alcohol and tobacco, which has led to a decrease in tax revenue from those products.

Social Costs:

The study also identifies several social costs associated with marijuana legalization:

1. Substance Use Disorders: There was a 17% increase in substance use disorders, highlighting the risk of addiction. Much research, including a recent study out of New Zealand, concluded that for those who begin to use marijuana regularly in their early teens, there can be long-term memory impairment with a lowering of IQ, poor job and academic performance, and greater risk of depression later on in adulthood.
2. Homelessness: Chronic homelessness rose by 35%, reflecting increased social issues tied to substance abuse.
3. Arrests: Arrest rates increased by 13%, particularly for violent and property crimes, suggesting more law enforcement activity rather than a rise in crime rates.
4. First-Mover Advantage: States that legalized marijuana earlier, such as Colorado and Washington, saw more significant economic benefits than those that legalized it later. These states experienced more substantial increases in GDP, job creation, and house prices. However, the social costs were consistent regardless of the timing of legalization.

Conclusion

The legalization of recreational marijuana brings moderate economic benefits but also substantial social costs. The financial gains are widespread, while the social costs are more concentrated among heavy users. Policymakers should carefully weigh these factors, considering that while early legalization states may reap more significant economic rewards, all states face similar social challenges.

In essence, while recreational marijuana legalization can boost the economy through income and population growth and housing market appreciation, it also demands robust social programs to mitigate the increased risks of substance abuse and homelessness. Balancing these benefits and costs is crucial for states considering this policy change.