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Legalizing Pot Won't Close Any Budget Gaps

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Legalizing pot is a tough one for politicians. After having waged a fruitless "War on Drugs" for 40 years, politicians require face-saving cover as terms of their surrender. The victory that political busybodies hope to extract from their defeat is, of course, a big pile of new tax money for them to use to amass more power. This pile of money, even if it materializes for a while, will ultimately disappear. I, of course, find this hilarious and lovely that politicians will be foiled in their attempt to squeeze more money out of taxpayers.

So how big will that pile of money actually be? You have to make a few assumptions, but you can figure it out pretty quick.


Pot costs something like $5000 a pound or more in places where it is completely illegal. However, according to the auspiciously-named "theweedblog.com", prices in Oregon for top-shelf material have fallen into the $2000 per pound area. Recreational pot remains somewhat illegal in Oregon, but clearly the 50% drop in price isn't just coincidental with greater supply and lower penalties. If it were perfectly legal and mass-produced, the price would be much, much lower than that.


Ultimately, if pot can be row-cropped like corn or soybeans, the dollar-yield per acre will approach the market rate. That is to say, if more money can be made growing pot than celery or carrots, then some farmers will switch to pot. Then, supply will increase, prices will fall and revenue per acre of pot will eventually become comparable to other crops.

So what is the market rate? A vegetable farmer should expect his crops to be worth roughly $30,000 per acre at the grocery store, and this is remarkably true for almost every crop. From pecans to potatoes, $30k is roughly correct. Given that pot yields about 625 pounds of product per acre, $50 dollars a pound is all a farmer could reasonably expect at the point of sale. If prices were consistently higher, farmers would grow more and more until prices fell.


Furthermore, the amount of pot demanded isn't all that great. Far from potatoes or corn, even a hardcore pot smoker would have a tough time making his way through a single pound of marijuana in a year. Assuming there are 4 million hardcore smokers each consuming half a pound of weed a year, demand could be satisfied with 3200 acres of marijuana, just five square miles.


With relatively conservative estimation, the entire market is worth $100 million. Using high rates for farmland, and a wild estimate of pot consumption nationally, the whole market doesn't even touch $1 billion. How, exactly, politicians plan to extract $20 billion in taxes from a $100 million market hasn't yet been explained. Sure, Colorado approved a 25% tax on recreational pot, but would anyone go along with a 20,000% percent tax. Even if such a law were passed, this would create a monstrous profit incentive for people to grow their own.


In the end, legalizing pot will shrink the dollar size of the market, even if it balloons by a factor of fifty in terms of pounds per year. The revenues that have likely already been promised by over-eager politicians may never materialize as the wages of drug lords, smugglers and small time dealers will no longer be factored in to the price of weed. Thankfully, the people that will actually profit will be ordinary (pot smoking) Americans.

Richard is an engineer by day, and a political activist by night, fighting would-be totalitarians and government busybodies everywhere.