The Dark Side of Prop 19

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Proposition 19 is estimated to bring in $1.4 billion for California on an annual basis if a $50 per ounce tax were levied on marijuana. Prop 19 is so popular among California’s youth that some analysts predict it will conjure a higher youth turnout rate and swing the election to the Democrats – and it doesn’t take a rocket scientist to see why. For many members of Generation Y, voting for Prop 19 embodies at the same time the spirit of the May 1968-ish rebellion and political realism, rebellion and responsibility. Through conventional legal means, a “yes” vote on Prop 19 would symbolically bring down “the Man” and help prop up the state welfare system, thereby helping the poor, and now everyone can win. If only life was that simple.

U.S. Attorney General Eric Holder announced last Friday that the Department of Justice would continue to enforce federal marijuana laws. Prop 19 would stop local and state cops from prosecuting private 25-square-foot gardens, but this decision renders the tax and regulation portion of Prop 19 futile, as the Department of Justice will probably issue an injunction to stop any state official from issuing sale licenses. Filing taxes on marijuana revenue would be a confession to a federal felony. If (a small if) state authorities enforce these federal laws, nothing will change for the casual user.

Suppose by some bizarre chance – and California is known for being eccentric legislatively – state authorities stand up to the feds and refuse to prosecute. Will Amsterdam-style “coffee shops” spring up across the Golden State? Unlikely, as these centers would be too prominent to escape the eyes of the feds; consumers are liberated and suppliers remain in the shade. Of course, Schwarzenegger signed a bill last month that reduced the possession of one ounce to a mere infraction, down from a misdemeanor, attached with a petite $100 fine (cheaper than most speeding tickets), already setting the stage for a large demand jump. Medical prescriptions are plentiful.

Functionally, Prop 19 will cut down a source of ancillary income for the state and, of course, greatly increase marijuana demand, as well as throw its supply up for grabs in the hitherto greatest legal showdown between Sacramento and Washington. Let’s sketch the two possible post-Prop 19 scenarios.

California wins, Californians profit from locally-grown greens and suppliers profit from having an easier distribution center. At $40 (as opposed to $300 imported) per ounce, California weed will be exported to the rest of the U.S. and will cause a significant dip in the $2 billion annual marijuana revenue that makes up one-fourth of Mexican cartel profits. Not only will this dry up their marijuana profits, but other drug revenue too, since marijuana is a market substitute for other types of inebriation; we need no further proof than the beer industry taking ads out against Prop 19.
With cheap, potent weed, many junkies will cut their usage of heroine, cocaine and the like, since the only way to increase expenditure in a market where the demand is relatively inelastic is to decrease supply. Desperate cartels will up the ante in their rivalry against each other, since the only way to make up for these losses is to expand in other drug markets, and that means killing off competitors. In the short run, violence will spike south of the border; in the long run, we are all dead. Since income taxes are filed to the federal government, weed growers will still stay underground, unless pot growers suddenly become naïve enough to confess to felonies directly to the authorities. The $1.4 billion figure will never fly, and California probably won’t even make up for the revenue it will lose discontinuing those $100 fines that aren’t in place yet.

More likely, however, Washington wins, and bullies the state authorities into enforcing the pre-Prop 19 laws with regard to suppliers. Making the reckless, optimistic assumption that all California users will grow their own weed, cartel revenue will only face a 2 to 4 percent dent. According to a recent RAND survey, this is hardly an existential market threat.

What California will lose, however, is the revenue it makes from the $100 fines it used to slap onto users. The de facto effect of Prop 19 is cheaper weed in California at the expense of its taxpayers. The symbolic effect of a smaller marijuana market however, will agitate cartels all the same; there’s no chance that they will grow more complacent because of this. It signals to them that legalization laws might spread, making competition elimination a higher priority than it is currently.

Either option, with the drug wars in Mexico, is fueled by a demand issue; any sudden shifts in the market will aggravate the equilibrium and exacerbate the drug war. Anything short of a monumental national legalization of both consumption and production of marijuana in the U.S. (and Mexico) will not suffocate the cartels, but only make them more violent. If you consider yourself an enlightened humanitarian, and you are genuinely concerned about gang violence over drugs, vote against Prop 19 this November and donate to the United States Marijuana Party (yes, it’s real) so that they can elect a congressman to push for national legalization. Better yet, research and take a stance on the eight other Propositions that California has on the ballot this year, all of which have been overshadowed by Prop 19. This includes Prop 25 — if passed, it will require the state legislature to pass budgets on time, which translates into a better-funded state police, and a safer national border.

Yichao Hao is a first-year economics major. He can be reached at haoy1@uci.edu.