Legalizing Marijuana in California Would Sharply Lower Prices Says Rand Corp.

Legalizing the production and distribution of marijuana in California could cut the price of the drug by as much as 80 percent and increase consumption, according to a new study by the nonprofit RAND Corporation that examines many issues raised by proposals to legalize marijuana in the state.


While the state Board of Equalization has estimated taxing legal marijuana could raise more than $1 billion in revenue, the RAND study cautions that any potential revenue could be dramatically higher or lower based on a number of factors, including the level of taxation, the amount of tax evasion and the response by the federal government.

Past research provides solid evidence that marijuana consumption goes up when prices go down, but the magnitude of the consumption increase cannot be predicted because prices will fall to levels below those ever studied, researchers say. Consumption also might rise because of non-price effects such as advertising or a reduction in stigma, researchers say.

In addition to uncertainty about the taxes levied and evaded, researchers do not know how users will respond to such a large drop in price. Even under a scenario with high taxes ($50 per ounce) and a moderate rate of tax evasion (25 percent), researchers cannot rule out consumption increases of 50 percent to 100 percent, and possibly even larger. If prevalence increased by 100 percent, marijuana use in California would be close to the prevalence levels recorded in the late 1970s.

The analysis, prepared by the RAND Drug Policy Research Center, was conducted in an effort to objectively outline the key issues that voters and legislators should consider as California weighs marijuana legalization.

“There is considerable uncertainty about the impact that legalizing marijuana in California will have on consumption and public budgets,” said Beau Kilmer, the study’s lead author and a policy researcher at RAND. “No government has legalized the production and distribution of marijuana for general use, so there is little evidence on which to base any predictions about how this might work in California,”

The analysis also suggests that the annual cost of enforcing current marijuana laws is smaller than suggested by others. The RAND study estimates that the cost of enforcing the current laws probably totals less than $300 million.

“It is critical that legislators and the public understand what is known and unknown as the state weighs this unprecedented step,” said Rosalie Liccardo Pacula, a study co-author and co-director with Kilmer of the RAND Drug Policy Research Center.

Two proposals are pending that would legalize the production and sale of marijuana in California. Assembly Bill 2254 authored by Assemblyman Tom Ammiano (D-San Francisco) would legalize marijuana for those aged 21 and older and task the state Department of Alcoholic Beverage Control with regulating its possession, sale and cultivation. The bill would create a $50 per ounce excise tax and these funds would be used to fund drug education, awareness, and rehabilitation programs under the jurisdiction of the State Department of Alcohol and Drug Programs.

In November, California voters will consider a ballot measure titled the Regulate, Control and Tax Cannabis Act of 2010 that would make it legal for those aged 21 and older to cultivate marijuana on a 5-foot-by-5-foot plot, and possess, process, share or transport up to one ounce of marijuana. In addition, the initiative would authorize cities or counties to allow, regulate and tax the commercial cultivation and sales of marijuana. Such activities would remain illegal in jurisdictions that do not opt in.

In only two countries have there been changes in the criminal status of supplying marijuana. The Netherlands allows for sale of small amounts of marijuana (5 grams) in licensed coffee shops and in Australia four jurisdictions have reduced the penalties for cultivation of a small number of marijuana plants to confiscation and a fine. Neither has legalized larger-scale commercial cultivation of the sort California is considering.

In 1975, California was one of the first states to reduce the maximum penalty for possessing less than an ounce of marijuana from incarceration to a misdemeanor with a $100 fine. In 1996, California became the first state to allow marijuana to be grown and consumed for medical purposes.

RAND researchers say one effect of legalizing marijuana would be to dramatically drop the price as growers move from clandestine operations to legal production. Based on an analysis of known production costs and surveys of the current price of marijuana, researchers suggest the untaxed retail price of high-quality marijuana could drop to as low as $38 per ounce compared to about $375 per ounce today.

RAND researchers caution there are many factors that make it difficult to accurately estimate revenue that might be generated by any tax on legal marijuana. The higher the tax, the greater the incentives would be for a gray market in marijuana to develop, researchers say.

“A fixed excise tax per ounce may give producers and users an incentive to shift to smaller quantities of higher-potency forms of marijuana,” said study co-author Jonathan P. Caulkins, the H. Guyford Stever Professor of Operations Research at Carnegie Mellon University’s Heinz College and Qatar campus. Such a shift is another factor that could lower revenues collected from marijuana taxes.

In addition, since the November ballot initiative leaves it to local governments to set tax rates, the size of any levy could vary broadly. A jurisdiction with a low tax rate might attract marijuana buyers from elsewhere in the state or even other states, further complicating efforts to predict government revenues from the sale of legal marijuana, according to researchers.

The RAND report also investigates some of the costs to the state and society in general, such as drug treatment and other health expenses, that may change if marijuana is legalized in California.

It’s unclear whether legalizing marijuana may increase or decrease drug treatment costs, according to the study. More than half of the 32,000 admissions for treatment of marijuana abuse in California during in 2009 resulted from criminal justice referrals, which could drop if legalization is approved. However, an increase in marijuana use could cause a spike in those who voluntarily seek treatment for marijuana abuse, researchers say.

The report, “Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets,” can be found at Funding for this study was provided by RAND’s Investment in People and Ideas program, which combines philanthropic contributions from individuals, foundations, and private-sector firms with earnings from RAND’s endowment and operations to support research on issues that reach beyond the scope of traditional client sponsorship.

Other authors of the study are Robert J. MacCoun of the University of California, Berkeley, and Peter H. Reuter of the University of Maryland.

The RAND Drug Policy Research Center is a joint project of RAND Health and the RAND Safety and Justice program within RAND Infrastructure, Safety, and Environment. The goal of the RAND Drug Policy Research Center is to provide a firm, empirical foundation upon which sound drug policies can be built.

Press release from the Rand Corporation.



  1. Anonymous on

    and the might get high thing is a ridiculous analogy. they have been given the future for the last 13,000 years, told everything that would happen. and down to the last minute AS OF RIGHT NOW, they can not tell. exactly how the shift in consciousness happens and when they’ve narrowed it down to definately before 2015, but sometime after the red star comes which heralds the day of purification. it’s not a might get high. it’s a you’ll be mega baked off your ass except we don’t know if it’s a creeper high or if it’ll crush you immediately. that’s the analogy brother.

  2. Anonymous on

    the mayans went down… umm what about the 440 mayan tribes living in mexico, belize, honduras, and guatemala? oh man… the mayan council of elders of guatemala has just broken there silence of over 527 years. this should be of significance to you. too bad you won’t hear their important messages finally coming out because they don’t exist and have no memory. just so you know, they remember what has been happening on earth for 26,000 years, and muccch longer. then again, i wouldn’t expect you to know any of this, it’s very recent news and a lot of ppl are not thaat up to date on the indigenous world

  3. Anonymous on

    the very _hour weed is legal in California, the third world will be trying to supply that gold rush marketplace..a starving world would be waiting to flood you with imported pot= and you will pay what… hundreds of dollars an ounce for weed- even discounted down to a fraction of that price, the hungry world out there wants to grow & sell weed to you.

    And if the US coast Guard tries to stop the boom of offshore weed smugglers,, their machine gun barrels will glow red hot from shooting at the flotillas of weed rafts arriving from all over the world ” the US Feds can;t get them all so they will float up like an pol slick and kick over your little dream of nice guy California pot for happy Californians..

    hungry offshore grower/smugglers will jump on any softening up of US pot laws & never give up trying to bring their starving world weed to your rich market.. You are privileged and they are starving ..

    do the math.. instant massive drug war escalation — there goes all your pot taxes,

  4. Castklearr on

    “A fixed excise tax per ounce may give producers and users an incentive to shift to smaller quantities of higher-potency forms of marijuana,” said study co-author Jonathan P. Caulkins………………HUH!

    You ever met a marijuana smoker looking fore weak pot?

    The better it is the less you smoke. I think the brand with the best high will rise to the top…..all pot is not good pot….its time to legalize amd WEED out the crappy pot….send it back to Mexico.

    It will be real exciting to smoke Columbian gold and Thai Stick again. I’ll be glad to have real farmers growing this shit…..see ya!

  5. Sparkky McPuff on

    You guys are crazy to vote for this one! That $50 an ounce thing is a scam!! Say I have my 5×5 producing 5 LBS every 3 months and I want to sell it to a retail outlet, first I am going to have to charge a distribution centre $3000 in taxes plus my earning of say 12.50 per oz to produce and in a perfect world I can “double my money” in any investment I make, and charge another 12.50 per oz. Making my total profit $750 for three months of labourious work! Now of course the distribution centre will have to charge the retail a $50 oz tax charging a minimum, for your 5 lbs $7500! That’s hoping it is a non profit establishment that has the responsibility of making sure there is no pathogens or mold on the product and possibly testing the thc, cbd content. Now if the government insists there would probably be one lab for each making the transfer of product go through three stages, each time collecting a $50 oz tax! The taxes alone that you are paying at the dispensary could be as high )no pun intended( as $250 per ounce. Now let have the total for the five pounds again: $20000 just tax. Add the 1500 you collected( half of which was spent on production) the 3000 collected by the middle men and the 6000 collected by the dispensary in profits) you are looking at worse than prohibition pricing! No one will follow a taxation regime like the ones mentioned above. Making a huge new black market and more people will end up in jail that there are now!

    Well hopefully not!

    Pot smokers in California, you have to make a decision, legalize it thru 219 and be allowed to make changes yearly until it stops putting people behind bars, or don’t legalize it and get these propositions on the ballot yearly until one works that everyone could agree on while keeping the same or even MORE severe penalties (¿thru the Feds?) while waiting for your next chance that might never come!

    I say go for it! Flood the land with the healing of the plant! Do it now and do it fast! Grow like the wind plant clones everywhere for everyone!

  6. MOTFA on

    With gov’t regulation on tobacco, alcohol and mj (all being equal under the law) would mean ok, i could “buy a pack of weed” for lets say $12.50. Since tobacco, mj ect are so cheap to produce, no one would be growing weed in their house anymore. I don’t see anyone growing tobacco in their house do you? Or how about brewing beer or potato vodka in your barn? There are not very many people that are doing this. For one, it’s highly regulated and if mj was grown like tobacco I wouldn’t have some guy living beside me who puts my property at risk of fire because he has a 10,000hps setup or something. You just wouldn’t see it anymore. So when i say tax it, TAX IT just like booze and smokes.

  7. Anonymous on

    How many Mayans does it take to change a lightbulb ?

  8. Anonymous on

    dude, the mayans went down a long time ago. so in this they had gotten something very crucial to their survival, incorrect.
    we will be no different. i like the significant predictive power of the change in consciousness coming before during or after the pole shift. that would be like saying someone might get high. maybe the mayans actually meant that instead.

  9. Anonymous on

    on top of that, don alejandro, the president of the mayan council of elders of Guatemala, where the oldest and most knowledgeable Maya live, announced to residents of Arizona in July of 2007, that within the end of time window, which we are all now within, there will be a physical pole shift of the Earth’s Axis. the shift in consciousness however, happens either during, before or after the pole shift, which is what is the important part to focus on here, Don Alejandro states that if you are within your pure loving heart for all life everywhere and have a real connection to mother earth, father sky, and all life, you will survive and go up in awareness and consciousness. the kogi mamos from the sierra nevada mountains of columbia, who use to live with the maya on atlantis 13,000 years ago, who just met for the first time in 13,000 years and both perfectly remember the events that seperated them, believe that there are 9 worlds and that we are in the 4th world (void = world, so 4th world = 3rd dimension) and within the end of time window we will enter the 5th world. when asked if we have to wait 5 more worlds to reach the highest level of consciousness, they said that no no no, you do not understand, all of life is to achieve balance, the 5th world has 4 worlds on either side, it is the perfect balance in the universe, there is no higher level of consciousness, we were there in atlantis and lost the consciousness grid that focused that level of consciousness, because we reached it before naturally we are being given a 2nd chance and so thousands of years of evolution will be done within minutes. welcome to the essence of the end of time window folks. also the maya predict that the quarentine to our solar system will be lifted once we reach the other side, and as it is lifted we will realize that all life everywhere is interconnected in pure consciousness.

  10. Anonymous on

    let’s all grow our best plants in our backyards, then organize and meet in one mega trade show run by the ppl, for the ppl!

    all i want to do is to grow the ladies without fear! I do however have a very very big spidey sense tingling feeling that we are about to inherit something way beyond the benefits of cannabis legalization… the indigenous prophecies. culminating right now. within the end of time window beginning oct 24 2007 with comet holmes predicted by the hopi 200 years ago(use to be mayan) of the 4 corners area. the window is 7-8 years long. the window is called THE END OF TIME we are now all waiting for the RED STAR. the prophecies that have been handed down for generations and generations will begin shortly after the red star comes within the end of time window. forget everything I said and if you are priveledged enough to remember that the hopi and the indigenous are now waiting for the RED STAR to come(2nd part of blue and red star prophecy) you are light years ahead of the game. one more time. RED STAR

  11. knowyerself on

    If we “tax the shit out of it” as you so colorfully suggest, a black market will be able to undercut legal prices and still thrive. The idea here, or one of them, is to eliminate the violence and lack of regulation that currently exists under prohibition. That means keeping prices and taxes realistic, based on the actual costs of producing and marketing the product.

    There will certainly be a range of quality and potency in a legal market just as there is for alcohol and tobacco products. We will have the freedom to buy our favorite kind of pot for a price similar to what tobacco users might pay for their favorite tobacco. Or those of us with a yard can grow our weed for next to nothing. Go ahead and pay $150/oz for something that cost a dollar or two to produce if you want. To me that’s hardly a bargain.

  12. Bob Bulkie on

    I dunno if they’re talking about new users or existing users. I’m not a person who likes to be dishonest with myself. I hafta admit I would probably increase my consumption if I could afford an ounce a week instead of the current 1/8 – 1/4 oz – that my budget allows.

  13. Anonymous on

    Anybody currently in prison for drug crimes
    will stay there if legalization occurs,
    to serve out their sentences. Thats how law operates.
    No discounts or sale specials

  14. plink on

    A couple of corrections.

    The paper is available for free download, and the other thing the legislation will do is shift money from the dealers to the government.

  15. plink on

    What use are findings without telling us how RAND arrived at them?

    If you wanted to buy marijuana, could you? The answer is yes, so there is a healthy supply market. Therefore prices won’t go down. There is no ‘danger pay’ rate for dealers.

    Also if there is a healthy supply market then consumption won’t go up, people can get it if they want it. Stigma based on pure illegality is a myth.

    There might be some variability switching the channels from blackmarket to regulated market, but one would think they’d be in the opposite directions to what this paper predicts. There’ll be more room for retailer monopolies and less fun in obtaining it.

    This (RAND) press release offers no reasons and neither does the page it links to. You’d have to buy the (RAND funded) book to find out if there are any. Probably a bestseller among those with reservations on the upcoming ballot.

    The only thing this legislature will do is get innocent people out of prison.

  16. Anonymous on

    the new comers/users will be unlikley to want to buy the more powerful stuff. they will be sourcing from legal markets. the legal markets should be allowed to offer higher potency varieties. this would be the same as having hard liqour available. it is still safer than hard alcohol. not all people want 50 percent proof and it is labeled as such..
    this would avoid a black market of higher potency that goes untaxed. of course there will still be come black market but it will lower as prices settle down. 38 dollars an ounce must not take into account of the 50 dollar tax.
    grow area would be 5×5 not grow bed. once growers are licensed, say grown in green houses etc it would be very hard for black market growers or sellers to be competitive against the price in retail stores.

  17. Gary D. Erickson on

    You’re being much too pessimistic! Cannabis is safer and prohibitionists are the minority.

  18. Patruck on

    get out of here! it’s a known fact just because it’s made legal doesn’t mean millions of people are just going to start doing it….it will be the same people introducing themselves to the “drug” each year and the same people stopping because of free will and NO PHYSICAL ADDICTION….tobacco is legal, why is usage dropping? alcohol is legal…yet millions chose not to drink….idiots like you and the government, really are not giving enough credit to people.

    and greater access by children? lol, since when is it easier for a child to get regulated drugs that you need an ID to buy? it’s widely known children have an easier time getting illegal drugs on the street from a dealer who has no care about age, or their customer…

  19. Anonymous on

    the privilege to grow at home unregistered untaxed uninspected seems like a way too big stone for the prohibitionists to swallow first time through the legal keyhole, ..such cultivation would go against every treaty the USA ever signed nd here the US insists that drug cannabis cannot be cultivated elsewhere on the planet at all — I hope you are not placing too much hope on a legal green light to grow your own in 2010.. it seems a little unlikely to have private cultivation passed considering the many many baby steps still necessary to move ahead even one inch.

  20. Cremater on

    There is no taxes levied against those home growers that produce in thier 5×5 plot. The taxes are only applied to commercial growers and distributers (like the dispensaries now) if the thing passes in November.

    You are right though, prohibitionists will find every possible way to make that as complicated as possible. Will it be a 5×5 area of earth or will it be 5×5 area of canopy? Will commercial taxable sales be from ligit business or will they try to say that if you even share it with another person you are responsible for the taxes?

    You get my point I am sure.

  21. Mrs. Rat'sRectum on

    The competition would give rise to a range of cannabis products on a continuum of quality, according to potency and type of stone: couch lock, cerebral, medicinal, heavy, and so on. Maybe the shit bottom of the rung commercial might be that cheap–$38. And that $50 per ounce tax isn’t going to work for home growers, so you should be allowed to cultivate x amount before a tax or some government involvement shit kicks in like x amount of home brewed beer or homemade wine is allowed before the government shit kicks in, taxes and permits and shit, you know.

    Like I said. I’ll believe it when I see it.

  22. Anonymous on

    but they are stating what prohibitionists
    have been saying all along if cannabis legalized:

    1-lower production prices
    2- higher use rates
    3- greater access by children
    4- high rate of tax evasion
    5- low initial tax tarriff- but eventual high consumption tax
    6- govt is your dealer
    7- govt who be responsible for all things cannabis
    will come down very hard on the black market, public intoxication,
    8- employers may legally choose to not hire or retain cannabis users for safety, insurance purposes-
    9- Welfare & social benefits may be denied to cannabis users
    10_ cannabis may always be forbidden in education, the military, banking, civil service, and most corporate positions.
    11- cannabis use may negatively impact known cannabis users
    travel, employment, housing, health care and education opportunities- forever

    It will be no pic nic being a stoner under any form of legal cannabis
    will be a serious handicap

  23. MOTFA on

    I just love how they talk about drug treatment in this article. Of course less people are going to be in treatment for mj if it’s legal. 99% of the people in treatment are there because the judge ordered them!

    Only 50 dollars a ounce? Are we talking quality here?
    If we had a choice of what grade of mj we would want to buy, i would still
    gladly pay 150 bucks for preeemo stuff!

    Tax the shit out of it you morons and use the money for health and education.