Legal Weed's Strange Economics in Colorado

This is a blazing moment for American stoners. Colorado has just legalized the commercial production, sale, and recreational use of marijuana, while Washington State will begin its own pot liberalization initiative at the end of February. On Jan. 8, New York Governor Andrew Cuomo said his state would join 20 others and the District of Columbia in allowing the drug for medical purposes.

Libertarians and progressives are thrilled. Addiction specialists are anxious. And economists, well, they’re a little like undergrads lost in a bong-induced thought experiment: One moment the economics of pot seem beautifully elegant, then the real-world implications suddenly become bewilderingly complex.

The champions of marijuana’s legalization have long argued that regulated sale of the drug would drive down production costs and the retail price. The availability of cheaper, legal cannabis would generate precious tax revenue and refocus drug enforcement efforts on more socially harmful narcotics such as cocaine, heroin, and crystal meth. “On the black market, a lot of folks are compensating drug dealers and everyone else in the supply chain for the risk of arrest and incarceration,” says Beau Kilmer, co-director of the RAND Drug Policy Research Center. “If marijuana were fully legalized and you could grow it outdoors like any other commodity, the production costs would plummet over 90 percent.”

http://www.businessweek.com/articles/2014-01-09/colorado-legal-marijuanas-strange-economics