The Price of Legalization
Published on 11/30/12
Just as Prohibition bore Al Capones and strengthened the Frank Costellos and "Lucky" Lucianos, American drug prohibition has spawned a host of cartels south of its border. They wage war against each other for the rights to the most lucrative illegal drug market on Earth -- the United States -- which by some estimates, consumes two-thirds of all the illegal drugs in the world.
Yet there is a major difference between Capone's henchmen and the Mexican cartels: "The violence is not to the scale of what's going on in Mexico," Peck said.
The St. Valentine's Day Massacre of 1929, one of the most heinous crimes of the era, left seven dead. That many could be murdered in a Mexican border town on your average Wednesday.
How big a hit the cartels would take if the United States legalized pot is a matter of debate, and conclusions vary widely. While U.S. officials said in 2009 that 60% of cartel revenue came from weed, the RAND Corporation said the following year that "15-26 percent is a more credible range."
A report this month by the Mexican Competitive Institute predicted Mexican drug organizations, namely the Sinaloa Cartel, could lose almost $2.8 billion just with the legalization votes in Colorado and Washington.
When Prohibition was repealed in 1933, states saw two immediate benefits aside from neutering the criminal gangs, the first being that they could regulate the product.
Under Prohibition, unscrupulous bootleggers had manufactured moonshines and bathtub gins that could render tipplers blind or dead. Once alcohol was legal, you had a return to quality control, Peck said.
The second immediate benefit? They could also tax the hooch.
"It was a huge consideration. The Great Depression was going on at that point," Peck said. "FDR pays for the New Deal with excise taxes on alcohol and tobacco."
In President Franklin Roosevelt's first two terms, federal taxes jumped from $1.6 billion in 1933 to $5.3 billion in 1940.
How that might translate to marijuana taxation today is debatable, and the ends of the gamut are nowhere near middle ground.
"Medical marijuana helped save the economy in California ... The counties north of San Francisco survived the recession through marijuana," said Aldrich, the marijuana historian.
He was referring to the Emerald Triangle, which is known for producing and exporting some of the country's highest-grade cannabis.
On the other side, you have President Barack Obama's drug czar, Gil Kerlikowske, who emphatically denied that marijuana legalization would prove a boon to state coffers. Taxes on alcohol, he told CNN in 2010, amount to $14.5 billion a year, where as the social costs are closer to $185 billion.
Ahead of the recent ballot initiatives in Colorado and Washington, the Colorado Center on Law & Policy estimated that legalization would yield $60 million in state and local revenue and savings by 2017, and perhaps double thereafter. And Washington's Office of Financial Management estimated that a "fully functioning" marijuana industry could bring in nearly $2 billion in revenue over the next five years.
"Fully functioning." Therein lies the rub.
Both the Colorado and Washington estimates came with caveats explaining the obvious: Any revenue projection is contingent on the federal government not enforcing the laws that still render possession of an ounce of marijuana illegal -- even in Colorado and Washington.
University of Virginia law professor Richard Bonnie, co-author of "Marijuana Conviction: A History of Marijuana Prohibition in the United States," said it's a tricky equation.
"There is something attractive about saying you've got this underground market that's not going away, that you're missing a tax opportunity," he said. "The amount of tax revenue you're going to derive from it is going to depend on what your regulatory approach is going to be."
Bonnie was part of the commission that futilely recommended marijuana decriminalization to President Richard Nixon in the 1970s, but he is quick to emphasize that states must step gingerly if marijuana is legalized.
There were many problems with regulating alcohol post-Prohibition, and there still are today. More than a third of eight-graders say they've used alcohol, and almost three-quarters of high schoolers have gotten drunk.
"You have to have a model that doesn't seem to actively encourage use in ways that are harmful to society and the individual," he said, noting the modern regulation of cigarettes provides an admirable model.
Though the Tax Policy Center reports state and local governments collected $17.3 billion in tobacco taxes in 2010, cigarette use, especially among youngsters, has dropped almost 33% since 2000, according to the Centers for Disease Control and Prevention.