How Would Legal Weed Change Australia’s Economy?

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If anything will convince the Australian government to decriminalise weed, it's economics. You can't picture Malcolm Turnbull passing a joint in cabinet, but you can picture him on The 7:30 Report talking up a recreational cannabis industry in terms of jobs and growth.

It would have the potential to create both: in the US state of Colorado, where recreational use was legalised in 2012, cannabis adds billions to the economy each year. And given Australians love to smoke—marijuana is our most widely-used illicit drug—there's certainly a market for legal weed here as much as in the States.

It's not quite so simple, though. Naturally, legalising recreational use would mean addressing a series of public health concerns and imposing tight restrictions to protect consumers. Presumably, cannabis would be heavily taxed in the same way alcohol and cigarettes are, and distribution is an issue too. Just how readily available should it be? Should you be able to buy weed at Coles?

In her doctoral thesis, Dr Marian Shanahan of the University of New South Wales Drug and Alcohol Research Centre sought to understand what the impact, cost and benefits of legalised cannabis would be in Australia. She explains that it's difficult to weigh up benefits to the consumer versus benefits to the distributor, and when devising a national legal cannabis strategy politicians would have to take this into account.

"In a very free, open market of cannabis where there's no price control and taxes aren't very high, where you can consume it anywhere you want, the harms could be quite high in some ways," she says. "Whereas if you have a very restricted model then the harms to the individual might be lower, but the harms to the firms or the organisations who might be growing it may face higher costs."

What makes a legal weed market so appealing to many is its potential to minimise black market activity. But if taxes and restrictions make cannabis difficult to obtain, then consumers may still turn to their local dealers rather than going through official channels. "So if the price is low and the market is open, it might be easier to get rid of the black market. But if you've got a tight, highly controlled retail market, the black market might still exist in a significant way, especially if the prices are higher in the legalised market rather than the black market."

What makes all this even more difficult is that we don't have any real examples to follow. While cannabis has been legalised for a short while in a handful of US states and in the Netherlands, we don't have any long term evidence of its benefits or detriments. "We simply don't have the evidence on this because no one's legalised [cannabis] for long enough to actually understand what's really happening."

Dr Shanahan tends to lean towards a more restrictive model of legalising recreational cannabis, despite the potential downsides. "The longer people delay taking substances the better, so I'd prefer a model that raises the age of consumption over and above 18, because we know that the brain continues to develop into the mid-twenties. I also think we shouldn't advertise it, and I'd also say that when you walk into a store to purchase cannabis you should know what you're buying. So, how much THC is in it, or the potency."

She'd also prefer that cannabis stay out of the private sector. "I think it should be in a non-governmental or arms-length non-profit organisation. But that's just my personal view."

One of the few Australian economists to rigorously address the cannabis legalisation question is the University of Melbourne's Liana Jacobi. Published in the journal American Economic Review, her 2016 study "Marijuana on Main Street? Estimating Demand in Markets with Limited Access" attempts to paint a picture of what an Australian weed economy would look like, by analysing national drug behaviour statistics.

Jacobi argues legal weed wouldn't turn us into a nation of stoners—far from it. "Our results indicate that overall use would increase from 13 percent to 19 percent of the population," she says. "We also found higher projected use among people who currently have access to illegal cannabis than those who don't."

According to Jacobi's model, cannabis use would increase among all age groups, but the highest increase would be among people in their thirties and older. Young people have plenty of access to illegal weed right now and they'll continue to smoke it at about the same rate regardless of how the laws change.

She's also confident that Australia's economy would benefit from legalising cannabis. "Conservative estimates based on our analysis are that Australia could raise a minimum of
$70 million to $220 million in taxes," she says."And it could potentially raise an amount far beyond that depending on the tax scheme employed, and how much marijuana users will smoke after legalisation." Should governments really be profiting from the national consumption of a drug that has been proven to have harmful side effects? That's another question. But Jacobi does point out that the money raised from legalised cannabis could be used to fund education programs or other social programs. "For example, in the first year of legalisation, Colorado's tax office reported that it collected $56.1 million in taxes from the sale of [non-medicinal] marijuana, most of which was used for school construction."

While Australian lawmakers have embraced medicinal marijuana over the past couple of years, recreational cannabis legalisation remains a low priority on the national agenda. But with Canada now considering it, there's a chance we'll follow suit in coming years. Given the complexity, here's hoping politicians make like stoners and give the issue some deep, deep thought.

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