Marijuana Legalization and Economic Pros and Cons

Marijuana, which is known around the world for thousands of years, was used in medical practice and sold freely until the end of XIX century in the United States. However, since the Marijuana Tax Act of 1937, the question of legalizing cannabis has been a matter of constant debate, due to its prominent influence on economics, businesses, and industries. This particular paper will examine the microeconomic impact of marijuana legalization. The matter of question is complicated and debatable due to the contradiction between many positive consequences of the legalization and the remaining opinion about cannabis as the gateway drug. The opposing opinions will be compared in order to provide a detailed description of the current situation and its possible outcomes.

First, it is necessary to give a brief historical overlook of policies on cannabis to put it in proper context. Before its criminalization in 1937, marijuana was sold and used in the United States without any restrictions. It was relatively known and accessible as a sort of medical treatment because doctors considered it to have sanative features. However, the drug policy strengthened during the next several decades after the Marijuana Tax Act. Among many historians and researchers, this period is often designated as the “war on drugs.”

Some changes in the political climate took place in the late 1970s, but it was not until November 1996, when Proposition 215 was enacted into law. This act of the legislature allowed the use of medical cannabis in the state of California, and, as Engman (2014) observes, “the wave of current cannabis legalization in the United States began with the implementation” of the mentioned law (p. 3). It brought the path to the ongoing discussion of marijuana’s legality in the United States.

By this day, there are only three states in the US, where the possession and sales of marijuana for any purpose are prohibited entirely. However, the questions of legalization and its possible outcomes are still open for intense debates. The first argument in favor of it that should be considered is that the legalization allows bringing marijuana out of the “black market.” Gettman observes that “marijuana is by far the most commonly sold drug in America” with the estimated number of 4,6 million illegal drug sellers (as cited in Kovic, 2014, p. 40). Given that vast proportions of the “black market,” which respectively leads to the high crime rates, it would a sensible step for the federal government to exclude the cannabis from the illegal drug trade. Therefore, if the marijuana retail was in the government’s control, this situation could immensely change in the positive direction.

Additionally, according to Larson, Rusko, & Secor (2015), the legalization of marijuana “allows the police to concentrate on drugs and crime that arguably have higher social costs” (p. 14). This argument is closely connected with the previous one. The “black market” of illegal drug retaliation is vastly growing and expanding; thus the act of legitimizing marijuana would make a significant cut in government’s expenditure on the drug’s prosecution and maintaining the law enforcement. Also, the amount of police work which is connected with the illegal drug trade would be diminished. In overall effect, it would help the government to distribute its resources more productively.

Another critical argument in favor of legalization is the possible growth of government’s income from the additional taxation. This point of view is well-approved by the example of Colorado. As it is stated by Larson et al. (2015), “by bringing marijuana up from the underground economy into the “white market” of legally accepted transactions,” the Colorado government “raised an estimated $70 million in tax revenue” (p. 13). This example confirms the possibility of successful drug policy held by the state, and, what is also important, the evidence of the significant financial benefits of such decision.

Howsoever the issues of legalizing marijuana are debatable; the fact that it is now the political, economic, and social reality is undeniable. The primary objective of the federal government is to take control of this reality. In order to do so, the Colorado State policy might be one of the better examples. They designed an amplitudinous conception and succeeded, even though it took them several years to achieve the positive outcomes. According to the article by Blake and Finlaw (2014), the main aim was to give the Colorado State an opportunity to have “the financial resources for a robust regulatory and enforcement regime, for an effective education and prevention program to protect youth from the harmful effects of marijuana, and for the health and public safety costs” (p. 373). Their experience should be considered as an instance of successful drug policy in the modern day America.

On the contrary, some researchers observe that the influence of the legalization of marijuana on the economics and businesses is vague and unpredictable. They usually stress the point that the possible positive and productive outcomes of the marijuana legalization are only the theoretical projections. For example, such negative consequences as “increased hard drug use, increased cost of tax enforcement, increased self-diagnosis/self-medication” are mentioned by the opponents of the legalization (Engman, 2014, p. 4). Of course, it is possible that the introduction of the new taxation system would cost some additional expenses. However, as it was shown by the example of Colorado state, the enforcement of such policy brings significant financial benefits which would cover the costs.

The opponents of the legalization also usually emphasize the fact that the cannabis is a gateway drug to the harder substances. The gateway theory, as Engman (2014) describes it, “is defined as a drug use sequence in which abuse patterns begin with legal intoxicants (alcohol and tobacco), followed by cannabis use, then leading to addiction issues involving harder drugs” (p. 38). Therefore, the proponents of that theory assume that the marijuana legalization would immensely increase the exposure of the youth to hard drugs. However, the further research by Engman (2014) reveals that there is no direct dependency on marijuana use in developing the addiction to the substances like heroin or cocaine (p. 39). He also gives the example of Uruguay’s drug policy, which allowed the use of marijuana as a less harmful intoxication substance in order to prevent citizens from consuming the local cocaine-based drug named “paco” (Engman, 2014, p. 40).

In the last two decades, we witness the significant changes in the perception of legalizing marijuana. The example of Colorado state policy shows that the regulation of the marijuana trade benefits the government in many ways. Indeed, some public figures still perceive cannabis as the substance to be banned. Nevertheless, there are many of those who understand the necessity of its regulation rather than restriction. Creating the tools for regulating the use of cannabis is obviously a challenging objective, but the positive outcomes might be noticeably rewarding.


Blake, David, and Jack Finlaw. (2014). Marijuana legalization in Colorado: Learned lessons. Harvard Law & Policy Review, 8, 359-380.

Engman, H. (2014). The repercussions of cannabis legalization. Web.

Kovic, N. (2014). Economic benefits of marijuana legalization. Web.

Larson, R., Rusko, C. & Secor, A. (2015). A Blunt Analysis: Marijuana Policy Liberalization and Market Prices in Colorado and Washington. Web.

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