Economic Effects of Legalizing Marijuana


Marijuana is a type of drug that is produced from the cannabis plant. It is actually the dried leaves and the flowers of the plant. Cannabis plant is easily grown in most parts of the world and is also a wild plant that grows in most parts of the United States. It is also a plant that is grown and sold in many parts of the world due to its expanded use all over the world. It is possible to grow the plant indoors and also outdoors since it has very simple farming techniques. The drug has been used by individuals for many ages. However the use of the plant took a new root as people started using the plant for other purposes. This includes uses such as medicinal purposes, religious purposes and also for recreation.

“It has been estimated that close to 5% of the world’s population uses the drug annually with a daily consumption of about 0.8%,” (Rubin, p116). The product is consumed by either smoking or oral consumption. The use of the drug has faced a lot of controversies due to its effects. Most states and countries across the world have restricted the growth, selling, distribution and also the use of the drug. However it is important to note that the use and growth of the drug is very easy such that it is challenging for the authorities to tract it down. This calls for the legalization of the drug since it would result to economic benefits which are lost by its transactions in the black market. The paper will concentrate on looking at the economic benefits of legalizing the drug and also the possible negative effects that may result. It also analyses the current laws on prohibition of marijuana and the cost of enforcing them. Finally the paper will take a look at the regions where the drug has been legalized.

Economic benefits

Reduced enforcement cost

The cost of enforcing the laws on the use of marijuana are very high as discussed in this document. This cost do very little to reduce or curb the total usage of the drug. It is actually very easy for the users, sellers and also growers of the plant not to face prosecution since there are very easy ways of evading the law. “Even with the existence of the laws, the drug is still transacted in the black market,” (Timothy, p56). It is unreasonable for the state to be spending all this resources on an expense that is bearing no fruit. Most of the arrests are actually very petty and they spend so much on prosecution, and also punishments of the offenders besides their maintenance in jail. “Legalization of the drug in most states would be of economic benefit since the large amounts of cash that is used in the judicial process would be reduced,” (Mark, p16). The total budget of the judicial expenditure would be greatly reduced and the resources would be used in other sectors of the economy.

Tax revenue

The existence of prohibition on marijuana has not been able to curb the sale or even cultivation of the plant in the United States. Since the sale and the cultivation of the plant is illegal, most individuals transact in the black market. The volume of sales from the plant is very high and the illegal traders fetch a lot of income from the trade. However, since the trade of the plant is illegal it exists in the black market and therefore it is considered a free market. “The state losses a lot of tax revenue that would have however been collected if the trade of the drug was made legal,” (Roy, p41).

The money that the government spends on prohibiting the use of marijuana could actually be redirected and used to control the use, cultivation and also sales of marijuana through taxation. The efforts should actually be directed to ensure that the trading of the drug has been taxed. The funds spent by the government would then be recovered through taxation of the businesses. The taxes would be on the income generated by the farmers, the sellers and the buyers of the commodity. Other incomes for the state would be derived from fees that are charged on the business such as licensing fees. It has been estimated that if the government was to legalize the usage of the drug it would collect close to $11 billion per year net income from the trade of marijuana. This does not include the tax income that is generated from the sellers, the distributors and also the producers. This indicates how much the government is losing as income tax from the prohibition of marijuana.

Industrial development

“Legalizing marijuana would lead to the development of new industries within the economy,” (Roy, p38). Marijuana is considered a cheaper drug than alcohol and tobacco which are some of the legalized drugs. This means that if marijuana was legalized, most individuals would switch to its use as opposed to alcohol and tobacco. The use of the drug would have higher demand. This would stimulate the economy to have more industries for the production of the drug. More industries would then translate to more growth within the economy. The rise of such industries would also stimulate the development of other related industries such as tobacco and alcohol industries. This is because it would come in as a competitor for the customers who use this substance in the market. This would have an overall effect of ensuring industrial growth within the economy. Legalizing marijuana will face out the black market and promote the creation of industries.

Reduced unemployment rate

The industries that are created from the legalizing of marijuana would open a lot of job opportunities for the unemployed in the economy. This would improve the state of the economy by reducing the number of the unemployed and thus the unemployment rates. This is a great improvement in the growth of the economy. The presence of the industries would stimulate other sectors related to the marijuana business such as farming, whole sale distribution and also small scale business. Such sectors would require people to work in them which is another way of reducing unemployment rates. As the demand rises with the legalization, more people will farm the crop and this would require laborers. Other related sectors would employ a multitude of people. “Having created such job opportunities, more people within the economy will be able to earn a living and improve the standards of living within the economy,” (Mark, p24). The income earned by these individuals is also taxed which is a source of revenue for the government.

Economic growth

The income generated from the legal use of marijuana would help to stimulate the economic growth. “The resources that are wasted in its prohibition would be redirected to more economical use thus creating income for the state,” (Timothy, p67). Such income can then be used to settle the national debts within the economy. It can also be used to improve the state of the economy in other sectors such as improving on the infrastructures of the economy. The regions that grow the plant for example would greatly benefit from such infrastructure through creation of markets. Regions that grow high amounts of the plant can also export the plant to other regions which in another way will create more income. Total effect of legalizing the plant including the jobs created would move increase the total GDP (Gross Domestic Product) of the country which is used to measure the economic growth.

Medicinal Value

Legalizing of the usage of the plant would have a positive effect on the health sector of the economy. Some of the in toxic substances that are found in the plant have medicinal value and used to cure various diseases. This includes substances such as tetrahyrocannabinol (THC) which is used to cure a variety of diseases. “The drug is used to cure diseases such as cancer and reduce effects of HIV. It also helps to reduce nausea, vomiting, weight loss and anorexia”, (Randall, p48). It has been proven to cure spasticity and other painful conditions especially those related to the neurons. Other medical conditions treated by the drug include asthma and glaucoma. Legalizing the drug would therefore be of great benefit to the economy since it would help to improve the health conditions of many people and maintain a healthy nation.

Indirect positive effects

Marijuana has an effect of increasing the appetite of the individuals. This would be of economic benefit since it would induce people to consume products from other sectors of the economy. “This would raise demand for food products and thus promoting the performance of food industries in the economy,” (Roy, p46). On the other hand it would have positive effects on the society. Marijuana has a relaxing effect and this would result to reduced conflicts and crimes within the economy. It would help to have more stable societies which can be able to work hard to improve their lifestyle and improve the economy. However excessive use may lead to over relaxing and thus wastage of labor within the economy.

Negative effects

The legalization of the drug would not be without negative effects. One of the major effects would be on the health of individuals who use the drug excessively. “Some of the conditions that are related to use of marijuana include liver cirrhosis, heart attack, high blood pressure, depression, lung cancer, anxiety and respiratory problems”, (Randall, p65). This is mainly brought by the high amounts of ammonia, nitrogen oxide and hydrogen cyanide that is present in the plant. Such health effects would add a cost on the medical sector of the economy. The relaxing effect that is found in marijuana if used excessively may affect the active labor of the economy and this may result to reduced output within the economy. Other effects may include increase in criminal charges due to crimes that are committed by individuals under the influence of marijuana.

Laws on marijuana

There are various laws that exist in different states regarding the possession, selling and buying of marijuana. In a state like Washington the charges on the possession of the drug differs. If one is in possession of marijuana that is less than 40grams one is deemed to have a mandatory minimum sentence of one day and a maximum of 90 days or a fine between $250 and $500. “Possession of marijuana of more than 40 grams has a maximum imprisonment of 5 years and a fine of $10, 000,” (Robert, p15). The sale or cultivation of marijuana that is less than 40 grams attracts a sentence of not more than 6 months and a fine of $10000. If more than 40 grams it will attract a maximum sentence of 5 years or a penalty of $10,000. Selling marijuana to the minors attracts a double penalty of the former. The manufacture or delivery of the drug attracts a sentence of 90 days and a fine of $1,000. In other states such as California, “possession of the drug less than 28.5 grams only attracts a fine of $100 and 6 months maximum sentence and a fine of $ 500 if more than 28.5 grams,” (Robert, p22).

Selling of marijuana in school grounds attracts a sentence of 10 days and a fine of $500 if it’s less than 28.5 grams. If it’s more than that, the jail term is 6 months and a fine of $500. The cultivation of Marijuana in the state with an exception of patients and caregivers attracts a jail term of 16 to 36 months. Sale of the drug as a gift of 28.5 grams or less will be fined $500. Sales of any other amount attracts a jail term of 2 to 4 years. If the sale is by a minor it will attract a fine of $250. If sold to an individual over 14 years the jail term is 3 to 5 years while if sold to a minor below the age of 14 the penalty is 3 to 7 years in jail without any fine. In most of the states, the possession of little grams of marijuana is a petty offense punishable up to a maximum of 15 days. The jail terms and the fine penalties however increase with greater amounts of possession of the drug. “The jail terms and the fines on the sale of the drug also differ from state to state but lies between 3 years and 18 years depending on whether the drug was sold to a minor, on school grounds and also on the amount that was sold,” (David, p35). The larger the amounts and the risky the situation, the higher the charges and the penalties.

Cost of enforcing laws on marijuana

In the United States, the cost of enforcing laws on Marijuana is estimated at $7.5 billion per year. Very many arrests are made over the year mainly due to the possession of the drug. This has increased the cost of punishing the offenders of the laws on Marijuana. “It costs the tax payers around $10 million per year in the enforcement of the laws. Out of these cost, the police cost is estimated at $3.8 the cost of imprisoning the inmates is estimated at $3.3 and the cost of pressing for charges in the courts is estimated at $853 million,” (David, p29). The penalties that are evoked on the offenders have not been able to bring down the usage of the drug in the United States.

The cost of enforcing however has been increasing over the years and it is estimated that currently the annual cost has gone as high as $15 billion annually due to the increased use of the drug. In addition to this, the local and the states government spend roughly $16 billion per year to enforce laws on Marijuana. In over all it has been estimated that 25% to 40% of the total states costs which totals to $31 billion is related to marijuana prohibition. In a state like California, they managed to save a total of 95 million dollars from their move of decriminalization of the drug. “Researchers have indicated that most states spend more than 200 Million dollars annually in criminal justice trying to enforce laws on marijuana prohibition,” (Robert, p26). The research done on the cost of enforcing laws on marijuana indicate that such costs usually do very little to reduce the use of the drug. It is in fact considered as one of the most grown cash crop in America.

Legal use of marijuana

“In the United States there are about 10 states that have legalized the use of marijuana but this is only restricted to medical use,” (Randall, p67). These states include Alaska, California, Colorado, Hawaii, Nevada, Oregon Arizona and also Washington. The use of the drug by such patients must be approved by a doctor.


In conclusion, marijuana has more economic benefits than negative effects within the economy. The cost that the government undertakes in prohibiting its use cannot be justified since it is considered as the fourth most grown cash crop in America. The costs do very little to curb its trade and use within the economy. The resulting black market leads to a lot of revenue wasted from its prohibition since the black market is tax free. The traders and other people involved with the drug can easily evade the law and thus is transactions are still high. “It can therefore be recommended that the government legalizes the use of marijuana and save the wasted resources in prohibition to leap the economic benefits,” (Timothy, p74).

Work cited

David Lee. Analysis of Marijuana Policy. Overview of cost on law enforcement.Macgraw hill publishers, 2007, p26-39.

Mark Kleiman. Marijuana Legalization: The Time Is Now. Sage Publications, 2004, p15-48.

Randall, Blanchard. Medical use of marijuana policy and regulatory issues. Greenwood Press, 2001, p45-67.

Robert Kelleher. U.S Marijuana Laws and facts on cost effectiveness. Pfeiffer Publishers, 2001, p12-27.

Roy Jonassen. Positive and negative effects of marijuana. Sharpe Publishers, 2005, p33-46.

Rubin, Vera D. Cannabis and Culture. Prentice hall, 2006, p115-210.

Timothy Hampton. The Economic Benefits of the Legalizing use of Marijuana. Oxford university press, 2002, p56-74.

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