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RAND occasional papers may include an informed perspective on a timely policy issue, a discussion of new research methodologies, essays, a paper presented at a conference, a conference summary, or a summary of work in progress. All RAND occasional papers undergo rigorous peer review to ensure that they meet high standards for research quality and objectivity. Altered State? Assessing How Marijuana Legalization in California Could Influence Marijuana Consumption and Public Budgets Beau Kilmer, Jonathan P. Caulkins, Rosalie Liccardo Pacula, Robert J. MacCoun, Peter H. Reuter Drug Policy Research Center A JOINT ENDEAVOR OF RAND HEALTH AND RAND INFRASTRUCTURE, SAFETY, AND ENVIRONMENT Funding for this paper 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. This research was conducted under the auspices of the RAND Drug Policy Research Center, a joint endeavor of RAND Health and RAND Infrastructure, Safety, and Environment. Library of Congress Control Number: 2010931677 ISBN 978-0-8330-5034-2 The RAND Corporation is a nonprofit research organization providing objective analysis and effective solutions that address the challenges facing the public and private sectors around the world. RAND’s publications do not necessarily reflect the opinions of its research clients and sponsors. R® is a registered trademark. © Copyright 2010 RAND Corporation Permission is given to duplicate this document for personal use only, as long as it is unaltered and complete. Copies may not be duplicated for commercial purposes. Unauthorized posting of RAND documents to a non-RAND website is prohibited. RAND documents are protected under copyright law. For information on reprint and linking permissions, please visit the RAND permissions page (http://www.rand.org/publications/ permissions.html). Published 2010 by the RAND Corporation 1776 Main Street, P.O. Box 2138, Santa Monica, CA 90407-2138 1200 South Hayes Street, Arlington, VA 22202-5050 4570 Fifth Avenue, Suite 600, Pittsburgh, PA 15213-2665 RAND URL: http://www.rand.org To order RAND documents or to obtain additional information, contact Distribution Services: Telephone: (310) 451-7002; Fax: (310) 451-6915; Email: [email protected] Preface California Assembly Bill 2254—often referred to as the Ammiano bill—and the Regulate, Control, and Tax Cannabis (RCTC) proposition would legalize marijuana use for those 21 and over in California. The Ammiano bill would allow the state to regulate production and distri- bution and initially apply an excise tax of $50 per ounce. The RCTC proposition would allow local governments to choose whether and how to regulate and tax production and distribution. Two issues central to the debate are how legalization would affect marijuana consumption and public budgets. Governor Arnold Schwarzenegger suggested that “it was time for a debate” about legalization to generate revenue, and one government analysis estimated that taxing marijuana at $50 per ounce would generate $1.4 billion annually in revenues. In this occasional paper, researchers addressed these two issues by constructing a model based on a series of estimates of current consumption, current and future prices, how respon- sive use is to price changes, taxes levied and possibly evaded, and the aggregation of nonprice effects (such as changes in attitudes). This occasional paper results from the RAND Corporation’s Investment in People and Ideas program. Support for this program is provided, in part, by the generosity of RAND’s donors and by the fees earned on client-funded research. Rosalie Liccardo Pacula is a recipient of a 2010 RAND President’s Award. One vehicle through which RAND invests in people, President’s Awards recognize individuals who have made outstanding contributions to the RAND community while exemplifying RAND’s core values of quality and objectivity. Made possible by the generosity of donors to the RAND Policy Circle, the awards provide staff with research time and support to pursue activities related to career development or exploratory research. This project did not have an external sponsor; the time used to conduct the work was either donated by the authors or internally funded by two of the RAND Corporation’s units: RAND Health and RAND Infrastructure, Safety, and Environment. The RAND Drug Policy Research Center This study was conducted under the auspices of the RAND Drug Policy Research Center, a joint endeavor of RAND Health and RAND Infrastructure, Safety, and Environment. The goal of the Drug Policy Research Center is to provide a firm, empirical foundation on which sound drug policies can be built, at the local and national levels. The center’s work is supported by foundations, government agencies, corporations, and individuals. iii iv Altered State? Questions or comments about this paper should be sent to the project leader, Beau Kilmer ([email protected]). Information about the Drug Policy Research Center is available online (http://www.rand.org/multi/dprc/). Inquiries about research projects should be made to the center’s co-directors, Rosalie Liccardo Pacula ([email protected]) and Beau Kilmer ([email protected]). Contents Preface ........................................................................................................... iii Figures ...........................................................................................................vii Tables ............................................................................................................ ix Acknowledgments ............................................................................................. xi Abbreviations ..................................................................................................xiii CHAPTER ONE Introduction ..................................................................................................... 1 CHAPTER TWO The Marijuana Landscape in California ................................................................... 5 Consumption ..................................................................................................... 5 Treatment ......................................................................................................... 7 Arrests and Dispositions ......................................................................................... 7 The Evolving Legal Environment for Marijuana in California ............................................. 9 Marijuana-Related Proposals in California ..................................................................10 Putting the Proposed Legislation into Context: Some Thoughts from an International Perspective ..................................................................................................12 CHAPTER THREE How to Project the Effects of Marijuana Legalization ..................................................15 Building a Logic Model ........................................................................................15 Current Price ....................................................................................................17 Current Consumption ..........................................................................................18 Future Price ......................................................................................................18 Tax Rate and Evasion .......................................................................................... 20 Changes in the Mix of Types of Marijuana ..................................................................21 How Price Changes Affect Use: The Elasticity of Demand ............................................... 23 Nonprice Effects on Consumption from Both Legalization and Promotion ........................... 23 Starting Values for the Base-Case Scenario