California Assemblymember Tom Ammiano has introduced a bill to legalize cannabis in California. The bill quite sensibly recognizes that California can’t have a legal market while the drug remains banned under federal law, so in the meantime it defaults to a policy I prefer on other grounds: permission for individuals to produce cannabis for their own use and to consume it.
But of course doing it that way wouldn’t produce any revenue for the state, and it’s the prospect of revenue that is getting people interested. If cannabis were legalized at the federal level, the Ammiano bill would impose a tax of $50 per ounce. The article quotes the Board of Equalization as estimating that such a tax would produce $1.3 billion in annual revenue for the state.
Hmmmmmmmm.
So a $50/oz. tax is supposed to produce $1.3B/yr.
That implies $1.3B/$50 = 26m oz./yr.
The population of California over the age of 12 is about 27M.
That gives 6.8% x 27M = 1.9M monthly users.
Consumption of 27M ounces per year shared among 1.9M monthly users works out to 14 oz./user/year. An ounce is 28.3 grams, so that’s 400 grams per year, or something more than a gram per day, for everyone in California who smokes at least monthly.
The World Drug Report estimates average the average U.S. joint at about half a gram. (I recall seeing smaller numbers; for comparison, a tobacco cigarette weighs about a gram.)
Assuming half a gram per joint, a gram a day would make something more than two joints.
Per day. Average.
Can you say “bullsh*t”? Can you say “What have these people been smoking”?
I was sure that you could.
Updated to correct an arithmetic error several arithmetic errors.
Second update The Board of Equalization has not in fact published a formal analysis of the Ammiano bill; the figure being reported is an informal staff estimate, and includes sales tax as well as excise tax. That would reduce the volume required to generate any given amount of revenue by about one-third.
If I had to guess the revenue potential of California’s current cannabis consumption, I’d do it this way:
The national cannabis market is about $10B at about $300/oz, suggesting something like 33M oz. nationally. Give California 11% of that, which would be roughly pro rata to population, and you’ve got 3.5M oz/yr @ $50 = $175M/yr. Sales of 8.75% of 11% of $10B would add roughly another $100M, which gets to roughly $275M, or about a quarter of the number in the news story. (There’s no reason to think that California could tax exports; if the stuff is legalized nationally, other states will get their share.)
Now of course full commercial legalization would be expected to increase consumption, so the actual revenue could be higher. On the other hand, much of today’s consumption comes from people under 21; it’s not clear how much of that market would be served through legal channels.
But the increase in consumption is precisely the problem. Increasing the number of casual users wouldn’t do much for volume; if the cannabis-using population of California went from 1.9M to 4M by adding 2.1M one joint (half-gram) per week smokers, that would add 1M g/wk., or 52M g/yr., to the total. That’s an extra 2M ounces; at at tax of $50/oz. that would be an additional $100M in excise tax revenues and another $55M in sales tax revenues (8.75% of $300 is $27/oz.) That would get us to $425M/yr. in potential revenue. To get to the billion-dollar level — still a fairly trivial number in a state budget two orders of magnitude larger — we’d have to more than double the number of very heavy smokers.
So the advocates of legalizing cannabis can argue, as they do, that legalization wouldn’t substantially increase the level of drug abuse, or they can argue that it could bring in noticeable amounts of revenue. But not both.
Third update Two more corrections, working in opposite directions. Insofar as the wages and profits of a licit cannabis industry would be subject to income tax, that would increase the potential revenue gain. Insofar as some of the “dispensaries” are now collecting sales tax, that would decrease the potential revenue gain.