In discussions about drug legalization, skeptics worry about addiction. I think that’s a legitimate concern, but the focus is too narrow.
Yes, legalization may lead a few more people to get hooked on drugs, but we also need to pay attention to the politicians who are so addicted to tax revenue that they are enabling black markets to continue.
In other words, voters are saying legalize and politicians are engaged in a grab for money.
In an article for the Wall Street Journal, Zusha Elinson and Jimmy Vielkind report on how New York and California have botched legalization.
The illegal marijuana trade is booming in California, seven years after the state legalized its possession, cultivation and distribution. Unlicensed sales totaled $8.1 billion last year, dwarfing legal sales of $5.4 billion… New York legalized cannabis possession in small amounts in 2021. Two years later, just five shops sell marijuana legally in New York City, while 1,400 bodegas, smoke shops and other outlets without licenses do, according to an estimate by the city sheriff. …The persistence of the illegal pot business in the face of state legalization reflects a variety of forces. …high taxes on legal sales fan the embers of illicit ones. “When you start seeing tax rates that are approaching 30 to 40 percent on products, it’s really going to be difficult to compete against the remnants of an illegal market,” said Mason Tvert… In California, the historic cannabis basket of America, many growers find it easier and more profitable to supply illegal shops or to ship their product elsewhere than to comply with licensing requirements. …Curaleaf Holdings Inc., a large, publicly held company, is shifting its focus to states where taxes and regulations are less onerous. …legal shops thought they could succeed… But they have to add a 10% city cannabis tax, a 15% state excise tax and a 9.5% sales tax not exclusive to cannabis.
California has been the poster child for bad policy on marijuana taxation, but the Empire State is trying to catch up.
J.D. Tuccille takes a closer look at New York’s mistakes in an article for Reason.
Empire State officialdom still hasn’t learned its lessons, as evidenced by the heavy regulatory hand stifling sort-of-legalized marijuana…the legislation intended to bring the booming underground market into the open was hobbled from day one. “New York’s law…is surprisingly permissive in some respects but includes high taxes and other provisions that compromise the interests of consumers,” Reason‘s Jacob Sullum warned… Last year, as taxes and regulations added up, and licenses were issued based on social justice grounds, it became increasingly obvious that the state was creating a “legal” market “so hobbled that it will offer uncompetitive prices to consumers and daunting barriers to vendors,” as I noted… Unsurprisingly, the “unlicensed and illicit sale of cannabis” has been barely challenged by tax- and rule-hampered legal-ish competitors. …New York officials might have learned from their own cigarette policies. Those so burdened tobacco with taxes and rules that they managed to (this sounds familiar!) hand the majority of the market for a legal product to illegal vendors.
I’ll add one final point, which is that the greed for tax revenue is not just a fiscal issue.
By propping up the black market, politicians are enabling greater levels of violent crime.
P.S. Portugal is a role model on drug policy.
P.P.S. Keep in mind that the War on Drugs has led to other bad policies such as anti-money laundering laws and civil asset forfeiture laws.
