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By Robert H. Scott, III
On the ballot in New Jersey this Nov. 3 is Public Question 1 asking if you support a state constitutional amendment to legalize possession and use of marijuana for people who are at least 21 years old. It also legalizes growing and selling marijuana. If passed, the amendment would become effective Jan. 1, 2021. There are many questions about whether legalizing marijuana for recreational use is a sensible policy but I’ll just focus on economics.
Probably the most common economic argument people make about fully legalizing marijuana is the boost to state tax revenue. The amendment will limit the tax on marijuana to the state’s current rate of 6.625% with a provision that local governments can add up to an additional 2%. Many municipalities will likely implement this increase since they will have additional expenses associated with accommodating marijuana businesses. For residents of towns with marijuana dispensaries, there is evidence from Colorado and Washington that house values increased more in towns with dispensaries. Also, the closer the houses were to dispensaries the greater the increase in prices. As expected, commercial real estate saw the most significant gains.
Some people might argue that marijuana is a substitute for alcohol, so any increase in marijuana tax revenue will be offset by a reduction in alcohol tax revenue. The Distilled Spirits Council studied alcohol sales in Colorado, Washington and Oregon for several years before and after legalization and found no reduction in sales across all alcohol types. Beer showed a modest decline but followed national trends.
Fully legalizing marijuana will create jobs. Using Colorado as a proxy, employment in the marijuana industry was responsible for over 5% of employment growth from the time of legalization in 2014 to 2018, but marijuana industry jobs represented only 0.7% of total employment in the state. In New Jersey, this would equate to roughly 28,000 jobs. Many ancillary industries such as construction will benefit from legalization, which will likely add to job growth.
New Jersey will have a first-mover advantage in the region. No states surrounding New Jersey have fully legalized marijuana. New Jersey and all its surrounding states have legalized medical marijuana, but accessibility varies. In addition, none of these neighboring states have medical marijuana reciprocity, which means if someone has a medical marijuana card in New Jersey that person cannot travel to a bordering state and buy marijuana. Even if there was reciprocity you could not take it back home because it is illegal to transport marijuana across state lines — even if both states are fully legalized. Nonetheless, New Jersey would gain significant interstate travel from bordering states. It is also likely that marijuana-based travel will increase, producing additional economic activity.
When Colorado legalized marijuana the University of Colorado saw a 43% increase in applications from out-of-state students. It is not inconceivable that New Jersey, currently a net exporter of college students, becomes a draw for some out-of-state college-seeking students. While marijuana use among college students is higher in fully legal states, one study found binge drinking fell 6% in fully legal states. Also, there was no evidence that the use of other drugs among college students increased in fully legal states compared to non-legal states.
In 2015, New Jersey spent over $1.3 billion on its prison system, which was an average of $61,603 per prisoner. Roughly one-third of those in prison in New Jersey are incarcerated for non-violent drug-related crimes. Two bills were proposed this year to decriminalize marijuana in New Jersey. One passed and the other is under consideration — likely waiting for results from the vote on Nov. 3. Ignoring the deeply concerning sociological implications of marijuana crime enforcement, the state spends considerable amounts of money policing, trying and imprisoning people who are recreational marijuana users.
Many economic effects of legalization are unknown — added healthcare costs, crime, vehicular accidents and so on. Some of these costs might have occurred without legalization. For example, in Colorado marijuana-related crime increased a little after legalization, but then fell below pre-legalization rates. Regardless, there will be costs associated with legalization that would not have occurred otherwise, so while the economic benefits are appealing they are a best-case scenario.
As a father, a professor and a New Jersey citizen, I have concerns about legalization for my children, students and society. As an economist, there are many compelling reasons to support legalization. After all, New Jersey is the Garden State.
Robert H. Scott, III is a professor of economics at Monmouth University.
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