One of the arguments for legalizing of marijuana is that it is suppose to save a significant amount of money spent in enforcing laws against the crime. Some of the cited supposed savings are:

  • Not spending 'War on Drugs' money on enforcing marijuana laws
  • Savings of not having to pay the incarceration costs of all the individuals currently in jail for marijuana related offenses (the supposed big savings).
  • Money earned from taxing marijuana sales
  • Less tangible indirect savings, such as decreasing crimes caused by illegal marijuana sale lowering burden on police, or increased econmic strength that comes from not creating a criminal record for people smoking marijuana allowing them to work better jobs then those with records can get and thus strength economy etc.

There would be some expenses to legalizing marijuana as well, such as cost to the FDA to monitor marijuana sales and enforce any appropriate safety procedures, and possible some other law enforcement costs caused by people acting under the influence of marijuana, but generally marijuana proponents claim a net savings of expenses.

Has any report or study been done that attempted to properly identify these theoretical savings, and costs, of legalization and put a dollar amount on total savings that legalization of marijuana may provide (or increased costs, if marijuana legalization increases total spending instead of saving money)?

  • To make the question more answerable, it might be best to focus on savings for the Federal government only. – divibisan Nov 7 '19 at 18:47
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    @divibisan: But much of the spending is at state level, as is all the real-world data on savings from states that have legalized it. – jamesqf Nov 8 '19 at 17:05

According to CATO (page 5), the "State-Level Expenditures" of marijuana prohibition in the US was $5,386,753,000 annually, as of 2008, a figure encompassing judicial, incarceration, treatment, and other costs.

On the federal level specifically, according to the U.S. Sentencing Commission's 2018 numbers, there were 2,118 federal inmates incarcerated for marijuana offenses. According to the Federal Register, each inmate costs an average of $36,299.25 (in 2017, the latest figure available). That math implies a $76,881,811 annual cost to taxpayers for federal marijuana inmate incarceration.

To estimate potential tax revenue, I added the amounts collected in WA, CA, and CO, as reported by Forbes:

Washington made the most in taxes last year with an estimated $319 million. California was close behind with $300 million while Colorado recorded the third-highest estimated tax revenue with $266 million.

Which sums to $885,000,000. Dividing that by the population of all three states, 52,788,200, we arrive at an average of $16.76 per resident of revenue. Multiplying that by the US population of 327,200,000, we get $5,485,544,117 of potential revenue.

  $5,386,753,000 of current expendatures
+ $5,485,544,117 of potential revenue
+ $76,881,811  of federal inmate costs
$10,949,178,928 of annual savings

I will not try to estimate your part about "Less tangible indirect savings", because that's probably less objective, but If anyone has some figures for that, please share.

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    Are you sure your premise that legalization would reduce legal expenses is even sound? ‘Getting Worse, Not Better’: Illegal Pot Market Booming in California Despite Legalization: "... It’s been a little more than a year since California legalized marijuana — the largest such experiment in the United States — but law enforcement officials say the unlicensed, illegal market is still thriving and in some areas has even expanded." – Just Me Nov 7 '19 at 20:56
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    @JustMe: I suspect you're right in that it's not a 100% savings, at least not right away, but i'm just trying to address OP's question. That article also claims "no other state has an illegal market on the scale of California", so it might not be a typical result. It's also quite early to be calling a final outcome. Lastly, the large black market is undoubtedly due to it's illegality elsewhere and thus exports; a problem that wouldn't appear if the law were federalized. – dandavis Nov 7 '19 at 21:33
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    @JustMe, California is an unusual situation. It's not only because of the unreasonably high legal prices that make the black market more attractive, in 75% of its cities it's not even possible to make legal purchases, as they have banned legal outlets. I.e. cannabis is legally allowed to be bought and consumed, but it's not legally possible to be purchased. – Ray Butterworth Nov 8 '19 at 1:33
  • @Just Me: It still would be a savings, or could be if law enforcement simply ignored the "illegal" market. Even if they didn't, there'd be some savings since no one could be arrested for simple possession. You also have a fundamental problem with "law enforcement officials say", since they have a vested interest in making & keeping it illegal. – jamesqf Nov 8 '19 at 3:21
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    @Caleth Ending drug prohibition would make using the police power to engage in civil asset forfeiture mostly unjustifiable. Police departments make a lot of money from civil asset forfeiture. – Joe Nov 8 '19 at 21:37

This is a difficult question because calculating a net benefit involves subtracting from the taxes on marijuana losses on other things. I don't know of a federal estimate, but some state-level data exists:

In 2018, Colorado legal pot sales topped $1.2 billion, with the state pulling in about $270 million in taxes. Compare that to the approximately $45 million that the state collected in tax on alcohol that same year.

A study from Georgia State University found that alcohol sales fell by 15% in states where only medical marijuana had been legalized and by 20% in counties where recreational marijuana is sold legally. However, the states made more than enough back from marijuana sales, since marijuana taxes are typically greater than alcohol taxes. [...]

However, there are a lot of questions about how much tax revenue states will actually earn, especially considering that some states have missed their projections by a long shot.

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While projections for other types of goods are typically more reliable, this is an entirely new market and therefore prone to error. Why? Well, the jury is still out. Some researchers and pundits have guessed that in California taxes are too high, that the black market is too strong or that the red tape of bureaucracy is just too much.

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