The Economics of Cannabis Prohibition

Prohibition is first and foremost policy that protects and industry from competition, with unintended consequences including violent cartels that flourish because of the illicit trade. End the narco-cartel violence by ending prohibition through legalization and taxation.

The now 40-year-old organized effort to reform cannabis laws in America is on the cusp of major socio-political change. Approximately fifty percent of the population no longer supports the nation’s 74-year-old cannabis Prohibition. Reformers have made tremendous gains, notably at the state level, which have placed us at this crossroads, yet obstacles to full cannabis legalization are abundant and deep-seated in Congress and the federal government.

Incentives are powerful things, and in the effort to end ineffective public policies, taking advantage of the greed of politicians to monetize that market to add to the tax revenues would probably help to include those hold-out states that will not recognize reason. Black markets will always exist, but ending prohibition will make black market trading less of a risk, and effectively remove the criminal aspect from that market. Thinking that politicians would use that increased revenue to pay down the debt they lay at our children's and grandchildren's feet is optimism at best, naive at worst. Prohibition is little more than protectionism of industries that might not survive in the market otherwise, while at the same time enabling the violent cartelization of the prohibited goods.

With so many onerous institutional discriminations and restrictions—and the price of medical cannabis remaining inordinately high because of the existence of cannabis Prohibition—patients who genuinely need access to this low toxicity, naturally occurring herbal medicine would be far better served by ending cannabis Prohibition entirely than in trying to carve out special legal exemptions to the existing Prohibition.

Either way, this type of issue should always be on a public referendum, leaving the final decision to the population rather than to politicians. Giving concessions such as taxation to policymakers puts a foot in the door, and is a carrot at which many would be willing to take a bit. Once prohibition comes to an end in a majority of states, the federal government would be ignorant to resist, and then grey markets would displace the violent narco-cartels that monopolize the illicit trade and terrorize society at large. Take away profit incentives for the cartels and the violence fades away. Remember that economics is as much the study of sociology as it is a science of numbers and statistics.

More: Ending Cannabis Prohibition in America | Cato Unbound