Phillip Cappello (’16) is a dual major in economics and public policy with a minor in political science. His SMP is entitled “Legalized Marijuana: An Examination Of The Economics And Policy Implications Of Legalized Cannabis.” Professor Asif Dowla is his faculty mentor. Cappello’s research is intended to guide lawmakers through some of the cost-benefit analyses and other considerations to legalize recreational marijuana sensibly.
Cappello became interested in the topic while interning with the Police Executive Research Forum, where he was looking at the consequences of the War on Drugs on society, and analyzing crime statistics. He discovered that there were 1.6 million people arrested for marijuana last year, most of whom are members of minority communities. “These people just got caught up trying to make a living selling a product that is now legal in several states and they have suffered serious consequences,” Cappello explains. “For my research, I wanted to take a neutral stance on the issue of legalization, but offer guidelines for states that are considering it to make the transition more successful.”
To that end, Cappello used Colorado and Washington State as case studies, noting some of the benefits those states have received, and examining the implications of the choices they have made in terms of the market.
“One of the biggest benefits for the states that have legalized marijuana is the tax revenue,” Cappello notes. “In Colorado, the retail sales for marijuana last year reached $996 million, and the state took 25% of that in new taxes. If all 50 states had the same policy, it would yield $4.6 billion in state tax revenue and $1.6 billion in federal tax revenue annually.” Cappello goes on to explore different fee and tax structures that states can employ, including a per unit sales tax to be paid by the grower, a percentage excise tax, and a retail tax on non-medical sales. He also suggests that states follow the Marijuana Policy Project’s recommendations of indexing new taxes to inflation.
“Finding the right tax rate and structure is important, because if the taxes are too high, you bolster the black market, but if they are too low, the states are losing an important source of revenue,” Cappello notes. “Even with a 25% tax rate, which sounds high, most people will abandon the black market in favor of products that are regulated for purity and that are legal to acquire.” So, there is a lot of wiggle room for states looking to make money while reducing the number of people committing “victimless crimes,” who burden the criminal justice system by clogging up the courts, and taking up jail cells that are costly to maintain.
Cappello warns states that they need to proceed carefully before opening up the market, in order to reduce the negative economic impacts of legalization. “They’ll need to mitigate negative consequences of marijuana usage, which are similar to the consequences of alcohol and cigarette use,” Cappello explains. “For example, they can use some of the tax revenue for education programs aimed at reducing underage consumption, and investing in healthcare to offset increased costs associated with potential accidents caused by DUIs. In this way, legalization can pay its own way at the state level and also reduce its burden on society.”
Finally, Cappello explores some of the other policies that states may want to employ when creating the new recreational marijuana market, including banning vertical integration between growers, processors and retailers, to avoid marijuana monopolies and price fixing.
Cappello’s paper will be available this fall, when Massachusetts’s legislators take up the possibility of legalizing cannabis. He hopes they will consider his findings, and implement his proposals. In the meantime, he is looking forward to graduation and is seeking a job with the Drug Policy Alliance or in public advocacy trying to reform the criminal justice system. He hopes, one way or another, to lessen the impact our laws have on poor and minority communities.
Contributed by Kate L. Harrison