The American weed experiment

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The debate around the legalisation of cannabis is far from new, and has occurred on a large scale in the west at least as far back as the hippy movements of the 1960s. To date in the UK there have been numerous movements seeking to legalise the drug, from political parties such as Cannabis Is Safer Than Alcohol (CISTA), which contested 32 constituencies in the 2015 general election, to pressure groups like Cannabis Law Reform (CLEAR), there is no shortage of opponents to the prohibition of marijuana.

Generally proponents of legalised cannabis argue that the drug has relatively few health risks when compared with other substances which are already legal, such as tobacco or alcohol, and that if it were legalised it could add to the GDP of the nation, and generate tax revenue. Legalising it would also a large source of revenue away from criminals, and would allow regulation to ensure quality and safety. Those who oppose the drug tend to argue that it is a ‘gateway drug’, or one which is used as a stepping stone towards harder, more harmful drugs. Opponents also claim that the health risks of cannabis are understated by its supporters, and that it can lead to serious psychotic illnesses.

The debate is currently at a stalemate in Britain, and despite the various pro-cannabis movements, it does not seem that the drug will be legal in the near future. While public opinion may gradually be shifting, a 2014 poll found that 49% of Britons were against legalising cannabis, while just 32% were in favour.

This contrasts the state of affairs on the other side of the Atlantic. In 2005 a Gallup poll found that 36% of Americans supported legalisation, and by 2009 between 46% and 56% supported it. Recent polling suggests even higher numbers, with one Gallup poll finding 64% of Americans were in favour of legalisation in 2017. While cannabis is still illegal under federal law, individual states are still able to legislate around this, and currently nine states have legalised it for recreational use, while twenty-nine others have legalised its use for medical treatment. This creates a situation in which the theoretical arguments around legalising cannabis can be held up to the light of real-world experience, which may in turn add weight to either side of the argument.

Unfortunately, the fledgling industry is currently hamstrung by the legal status of cannabis at the federal level, which somewhat hinders studying the US cannabis situation’s true economic effects. As it is still illegal, the federal government cannot collect tax from cannabis dispensaries. This has led to a convoluted tax system which makes many cannabis businesses have to pay much higher tax rates than standard businesses, while not being able to make standard deductions of routine business expenses such as salaries and rent. Some in the industry claim that this forces the price of their product up to the point where they cannot compete with the black market, potentially undermining the legal status of the drug from the get-go.  Another difficulty is that cannabis businesses have little access to credit, and cannot obtain bank-loans. A report from New Frontier suggested that should cannabis be legalised in all 50 states, the industry could generate $131.8b in federal tax revenue and add 1.1 million jobs by 2025, but unfortunately this remains in the realm of theory until further notice.

Despite this, many remain optimistic about the industry, and see the issues that it currently faces as mere speed bumps. Vivien Azer, an analyst at Cowen investment bank, claims that the cannabis market in California alone is worth around $5bn a year, and there are even venture capital firms aimed exclusively at promoting new businesses in the Cannabis industry, one such being Casa Verde Capital (CVC). Also, according to ArcView Market Research, the North American legal cannabis market grew by 33% to $10b in 2017, and is predicted to double in size by 2021. To date, the Cannabis market in Colorado has generated over $702m in tax revenue, a significant proportion of which has been spent on the state’s education system.

One extremely positive effect of legalisation is that it does seem to have drastically reduced crime in certain states. A study published in June 2017 showed that states that bordered Mexico saw a 13% fall on average in violent crime after legalising cannabis. The study claimed that the fall was due to Mexican cartels, who control a significant amount of the drug trade in border-states, losing a large portion of their business. While cartels also smuggle other drugs across the border, the market for marijuana is the largest in the US, and the one with the largest profit margins, which meant that cartels would compete with each other to gain more market power, often leading to violence. This lends credence to the claim that the legalisation of cannabis could have knock on effects in reducing other forms of crime, and if these trends continue this may influence policy makers further afield.

If the various US states’ legalisation of cannabis is taken to be a grand scale social experiment, it seems to have had very positive results. Large amounts of tax revenue have been collected, with much more promised as the industry continues to grow, and gang-related crime does appear to be in decline. While the experiment can still be said to be very much in progress, as it stands it is making a good case for the legalisation of cannabis to be expanded. It remains to be seen whether or not the British public and policy makers will be swayed by the results of the US experiment, and significant hard evidence in favour of legalisation may be required if the law is ever to change in the UK.