Marijuana, Budget Deficits, and the Wars on Drugs and Terror

As President Obama prepares to announce his plan for the War in Afghanistan and measures to stabilize the economy increase the federal budget deficit to historic levels, perhaps it is time to rethink our nation’s fight against marijuana. With numerous states having passed medical marijuana statutes and the federal government opting not to prosecute those individuals operating within the strictures of such laws, the so-called “War on Drugs” seems to be a money-losing and ill-fated proposition where cannabis is concerned.

Shortly after taking office, Mr. Obama directed his attorney general, Eric Holder, to cease the Bush Administration policy of prosecuting individuals complying with state medical marijuana laws. This decision, formalized in a Justice Department memo released in October, characterized such prosecutions as a “waste of federal resources” where the individuals prosecuted were “clear[ly] and unambigious[ly]” complying with state regulations. As Fortune Magazine noted in its article, “How Marijuana Became Legal,” “prohibition-related law enforcement costs” for cannabis alone amount to $13.5 billion annually. At a time when our nation is fighting two wars and an economic recession, such an expenditure seems to be an unwise use of our ever-decreasing fiscal resources.

Beyond the costs incurred annually to prosecute marijuana production and sale, both states and the federal government are missing out on potential sales and income tax revenues that legalized marijuana would generate. By one estimate, roughly $7 billion could be made by taxing an existing market of $13 billion in sales. Combined with the $13.5 billion saved on law-enforcement costs, a legal market for marijuana could generate approximately $20.5 billion in revenue and cost savings for state and federal governments. Considering that all but two states are experiencing budget deficits, continuing the current approach to cannabis seems illogical. Some California locales have already recognized the potential windfall cannabis represents. Earlier this year, Oakland voters approved a 1,400% increase in its tax on medicinal marijuana, bringing the rate from $1.20 to $18 per $1,000 in sales. For the rest of the country to benefit as California has, the Food and Drug Administration (FDA) and Congress must act.

Ironically, decriminalizing medical marijuana would be a fairly simple task. Its current status as a Schedule I controlled substance is based on the assertion that it has no accepted medical use, even though a judge adjudicating a lawsuit filed against the predecessor to the Drug Enforcement Agency determined cannabis to be “one of the safest therapeutically active substances known to man.” Were the FDA to agree with its own studies (see the Fortune article) and the thirteen states that currently permit medicinal marijuana, cannabis would be rescheduled as a Schedule II controlled substance, permitting its prescription usage. To allow recreational use, Congress must enact legislation to legalize marijuana, allowing states to regulate at what age it could be purchased, how it would be taxed, and at what threshold a user is considered to be “under the influence” for purposes of driving and related activities, in much the same way alcohol is currently regulated. States could then impose special taxes on the production and sale of cannabis, or subject it only to existing sales taxes. Producers and sellers, already technically subject to income taxes, could also begin to properly report their income from this now-illicit source.

While the legalization and taxation of marijuana alone will not resolve state and federal budget deficits, such a move certainly cannot worsen the current situation.

Update: During his speech this evening, President Obama committed to sending 30,000 more troops beginning in 2010. He also noted that the costs of both wars approaches $1 trillion, and this new approach will likely cost an additional $30 billion this year.