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Marijuana is one of the most commonly
used illicit drugs within the United States (Mathre, 1997). While it is
typically used for enjoyment and relaxation, it does have medicinal purposes.
The battle on legalizing marijuana has been around for some time. Where some
people believe that marijuana is a substance that cannot be controlled and is
harmful. Others believe that legalizing marijuana can help the economy and the
people. More and more states are slowly making the change in legalizing
marijuana. Legalization of marijuana would offer some great benefits for the
economy due to the decriminalization of the drug, and how the government can
start taxiing the drug. The purpose of this research is to discuss and explain
what the economic impacts are on legalizing marijuana within the United States.

Quantifying the Marijuana Market

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a state can allow marijuana to be legal, they must quantify the supply and
demand. The quantity that is supplied is the amount of marijuana producers are
willing to supply when receiving a certain price, where the quantity that is
demanded is the amount of marijuana that people are willing to buy at a certain
price. However, quantifying the marijuana market could be difficult because of
how scarce the data on the drug has been since it was illegal. If the state
does not issue enough licenses to growers, then the legal market will have
supply constraints. This is an issue because having supply constraints when
there is a high demand and the consumers are already used to getting marijuana
illegally will most likely cause the consumers to go back to getting the drug
illegally. Another issue could be charging dispensary licensing fees that are
too high for the producers to pay, which will either cause the producers to go
back to using the black market or to stop growing marijuana altogether. This
will cause the supply in the legal market to decline and the price to increase.
If the state issues taxes that are too high, then the growers and consumers
will go back to the illegal market again. To prepare the market for the
legalization of marijuana, a state can have local growers start supplying
before recreational licensing begins. However, in doing this could cause an
oversupply, which is what happened in California. The marijuana growers
supplied more than the industry in California would demand (Wells, 2017). This
causes the prices to fall. Therefore,
it is necessary to ensure that the supply of marijuana is going to meet the
demand, while allowing lawmakers tools to eliminate the illegal marijuana

Supply and Demand

marijuana were completely legal in the United States more people would have the
opportunity to get their hands on it. People would be more willing to test the
drug to see if there are actual benefits with smoking marijuana, which would
cause the demand to increase in the short-term causing the demand curve to shift
to the right. The demand would be expected to rise in the short-term because
there would be no penalties for being caught with marijuana. After testing
marijuana and seeing that the benefits exist or finding out that the drug is
not for them, will then determine how it effects demand in the long run. If
more people find that they like smoking, or that the drug does have medicinal
benefits to it, then the demand will increase in the long run because they will
continue to buy it if they can. However, if there are a lot of people who test
it and dislike it then the demand will decrease in the long run. For the people
who already smoke marijuana, it would be easier for them to also get it. Making
marijuana legal would allow the people who do not smoke, because they could
lose their jobs or income, to start smoking, causing the demand to rise in the
long run. Because more states are legalizing marijuana the supply is getting
bigger. When marijuana was first legalized in the couple of states around the
United States, the price of weed was very high because there were not a lot of
distributers. Now however, with the large increasing number of stores and
growers, the price of pot is declining. In 2015 a pound of weed went for about
$2,500 (Utti, 2017). With how supply and demand works, the more product the
cheaper the price, causing the price of weed to basically be cut in half in
just three years. When more producers enter the market, this will cause the
price of weed to decrease so much that some producers could be forced to shut
down because they cannot afford to stay open. And because the number of
supplier’s multiplied, the supply curve is  shifted to the right, meaning there is an increase
in quantity and the price is expected to decrease. This graph shows what will happen
when the supply curve shifts to the right:


            A tax is a fee that is charged by the
government on either a product, income or an activity. The government then takes
that fee and invest it in the needs of the American people, like education. As of
right now there is no federal tax on marijuana because it is not legal in every
state. So each state has their own tax rate. In Colorado, for recreational marijuana,
there is a 2.9% state sales tax, a 10% state marijuana sales tax and any local taxes
(Sherrard, 2017). Medical marijuana also has the 2.9% state sales tax and any local
taxes, but does not have the 10% state sales tax. Oregon has a flat 17% tax, where
Washington’s is a high 37%. Alaska has a set $50 per ounce and a tax rate of 21%.
California is still working out its kinks but it currently

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