A new Rand corporation study, “Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets,” estimates revenue from the California proposals. http://www.rand.org/pubs/occasional_papers/2010/RAND_OP315.pdf
It’s quite elaborate. I’m working through it, but it seems to do a good job of spotting the issues.
A couple of quick reactions:
The uncertainty in Rand’s conclusions makes the case for having the State be the sole retailer (and maybe having the State own the whole supply chain). Rand finds it hard to estimate elasticities and can’t pin down bootleggers’ reactions or even current price. Setting a tax rate too firmly fixes a probably incorrect rate in place. So following the lottery model, where the State can adjust prices quickly, looks appealing.
Their analysis makes the case for measuring potency and taxing on the basis of it. First, they note the incentive, long noted on this blog, that a per-ounce tax gives to produce more intoxicating cannabis. But second, there’s more to it. Measuring potency officially by the State will give consumers certainty about what they are getting. Bootleggers can’t supply that certainty. Folks will pay a premium for it.
The imprecise statement that potency testing will cost $100 per test needs elaboration. The cost must include fixed and variable costs, and they need to be stated.
Still, this is the most thorough and serious look at revenue I’ve seen. And I’ve just started to study it.