Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets

Abstract

To learn more about the possible outcomes of marijuana legalization in California, RAND researchers constructed a model based on a series of estimates of current consumption, current and future prices, how responsive use is to price changes, taxes levied and possibly evaded, and the aggregation of nonprice effects (such as a change in stigma). Key findings include the following: (1) the pretax retail price of marijuana will substantially decline, likely by more than 80 percent. The price the consumers face will depend heavily on taxes, the structure of the regulatory regime, and how taxes and regulations are enforced; (2) consumption will increase, but it is unclear how much, because we know neither the shape of the demand curve nor the level of tax evasion (which reduces revenues and prices that consumers face); (3) tax revenues could be dramatically lower or higher than the $1.4 billion estimate provided by the California Board of Equalization (BOE); for example, uncertainty about the federal response to California legalization can swing estimates in either direction; (4) previous studies find that the annual costs of enforcing marijuana laws in California range from around $200 million to nearly $1.9 billion; our estimates show that the costs are probably less than $300 million; and (5) there is considerable uncertainty about the impact of legalizing marijuana in California on public budgets and consumption, with even minor changes in assumptions leading to major differences in outcomes.