Potential for Legal Marijuana Sales in California to Supply Rest of U.S

We use four data sets (two from law enforcement, two from user reports) to estimate that the current price gradient for marijuana in the United States is $300 $1000 per pound per thousand miles, with $450 being perhaps the best guess. We take this as a measure of the cost of smuggling marijuana through parts of the US interior where marijuana is illegal. We combine this gradient with estimates of post-legalization production costs in California to project the proportion of the lower 48 states for which taxed, legally produced sinsemilla would undercut current sinsemilla prices. This analysis suggests that: (1) legalization of marijuana in California would put downward pressure on sinsemilla prices throughout most of the country and (2) the number of past-year marijuana users outside of California who would find buying taxed California sinsemilla to be cheaper than their current source is roughly six times the number of marijuana users who live in California, so, under the right conditions, “exports” might generate significant excise tax revenue for California. Introduction California has the potential to reap tax revenues from the legal sale within its borders of marijuana that is then exported illegally to consumers elsewhere. Here we try to estimate potential exports to other U.S. states in the lower 48 only. Currently the U.S. imports rather than exports to Mexico and Canada (NDIC, 2009). In principle that could change if legalization reduced California’s production costs sufficiently. Likewise, it seems odd but is not impossible that California might illegally export legally purchased marijuana further afield; border controls heading into the U.S. are generally tougher than controls on material flowing out. However, we ignore such possibilities here. Hence, the estimates here are conservative in that respect. The basic exercise is to compare for each state (1) the post-legalization, taxed price in California bumped up by the cost of smuggling marijuana illegally from California with (2) the current price of marijuana. If the former is smaller than the latter, then consumption in that other state might end up being supplied from California. If the California price plus smuggling cost were only slightly lower, then the current suppliers might merely cut their prices but retain market share. Hence, we present the final analysis of market sales that California could capture as a function of the price advantage needed to capture market share from the current sources. Here we take the post-legalization price in California simply as an exogenous parameter to be estimated elsewhere. In particular, we assume that it is $1,500 per pound, including $800 per pound for a $50 per ounce excise tax. That is essentially the same price per unit weight that we use elsewhere for the retail price per ounce (with taxes), and so is conservative. People smuggling taxed California marijuana would presumably buy in bulk and so might receive better prices, but we find below that even starting with this projected retail price, California exports would still undercut current prices in almost all of the lower 48 states. We do not speculate about whether federal enforcement of anti‐marijuana laws will change if California legalizes marijuana. This could influence the smuggling costs. We do briefly discuss possible federal actions in Chapter X.