Legalize it? Economic Implications of Drug Liberalization

Legalize it? Economic Implications of Drug Liberalization

by Florian Casagrande, January 4 2022

In many western countries, “light drugs”, such as Cannabis, are very popular, despite the fact that they are illegal. According to the European drug report 2022, roughly 9 million Europeans consumed Cannabis in the last year. Over the last years, more and more governments decided to liberalize their drug policies. One of the most famous examples is Colorado, which was the first US state to end the prohibition of Cannabis for recreational use. These differences open the possibility to compare different legal drug frameworks not only, but also from an economic perspective.

The most obvious economic argument in favour of liberalizing drug policies is the increase in tax revenues. Since 2014, when Colorado and Washington were the first US states to legalize marijuana, the state of Colorado reported an estimated tax revenue of almost $ 2.3 billion. All 18 states in which recreational marijuana usage is legal estimate $11.2 billion in additional tax revenues combined (excluding medical marijuana). This additional revenue can be used to build infrastructure, renewable energies or, probably even more appealing, conduct more science-based anti-drug policies such as drug education. Besides the additional revenue, Cannabis prohibition has the downside of being very costly as well. It is estimated that between $600 million and $3 billion of public funds are necessary to arrest recreational marijuana users alone in the US in 2018.

Apart from the cost benefits on the macro-level, young individuals would not be criminalized for possession or usage of marijuana. On the micro-level, this will likely benefit their education and career paths. Of course, from a medical perspective, drugs hinder the development of young individuals. However, a science-based anti-drug policy, combined with a decriminalization of “light-drugs” is likely the lesser of two evils, especially taking into account how harmful a criminal record is for young individuals.

The idea of legalizing an illicit drug is not to turn it into an unregulated market overnight. Rather, it is the state’s task to put the consumption and the provision of it in regulated terms. Therefore, it is reasonable to demand the government to be a strong actor in this market in order to limit consumption, THC proportions and regulate prices. Additionally, the argument of portraying Cannabis as a potential gateway drug, a popular argument of opponents of a more liberal drug policy, has largely been neglected by recent research.

Compared to most other European countries, Portugal has a very liberal drug policy. Since 2001, drugs are decriminalized. Dealing drugs, however, is illegal. This approach differs tremendously from most other European countries but is often regarded successful in alleviating the heavy drug problems of the 1990s. The Portuguese approach is that the eradication of drugs is impossible and so the idea is to offer education, therapy and substitutes, rather than criminalizing the users.

This policy has the potential to serve other European governments as a role model. The legalization of “mild drugs” offers the possibility to regulate the market, gain tax revenues and keep people away from shady drug dealers. Of course, the danger of drugs should not be underestimated. Nonetheless, if people do mild drugs when they are illegal, the way to go is not to deteriorate the punishment, but to put the consumption in regulated terms.

Florian Casagrande