STUDY: LEGAL WEED CHEAP, BUT STATE'S TAX HAUL IFFY

Legalizing pot may drop the price of a marijuana cigarette to as
little as $1.50 in California, but taxing weed may create a whole new
black market, according to a new RAND Corp. study.

The six-month study, released Wednesday by the renowned Santa
Monica-based think tank, provides fuel for both sides of the debate
over whether California should legalize marijuana for recreational
use.

The study said legalizing marijuana in California would drop the price
of pot by more than 80 percent and increase consumption.

It also said California could generate annual tax revenues either far
higher or much lower than a much-publicized $1.4 billion tax estimate
by the state Board of Equalization last year.

For example, California tax revenues could swing upward if
legalization leads to a surge of Amsterdam-style pot tourism or even
lures out-of-state drug traffickers wanting to buy cheap California
weed to resell elsewhere.

"It may depend on whether dealers outside of California can access
marijuana in California and bring it back to their states," said
Jonathan Caulkins, a Carnegie Mellon University researcher and
co-director of RAND's Drug Policy Research Center.

Potential tax revenues may be lower if an illicit, secondary market
develops from people trafficking cheaper, non-taxed marijuana.

"One could hypothesize that people would be willing to pay that tax
(on pot) because it would be a lot cheaper to what they're paying in
an illegal market," said Rosalie Liccardo Pacula, a senior economist
for the RAND Corp. "But there is room for a black market to emerge."

The study didn't take a position on either the November ballot
initiative Proposition 19 to legalize recreational marijuana use or
proposed separate state legislation to impose a $50-per-ounce pot tax.

Backers of the marijuana initiative said they were in accord with many
of the study's findings.

"This is what we've been saying all along: Legalization will lead to
lower prices and some additional consumption," said Dale Gieringer,
California director of the marijuana legalization group the National
Organization for Reform of Marijuana Laws. "But the economic impact
depends crucially on how you implement the taxation and
regulations."

The study said as many as one-fourth of marijuana smokers could turn
to illegal markets for pot purchases with a $50-per-ounce tax. That is
the amount proposed in Assembly Bill 2254 by Assemblyman Tom Ammiano,
D-San Francisco.

Proposition 19 would legalize recreational marijuana use for
California residents over 21 and allow small residential cultivation.
A state tax is not part of the initiative. It leaves decisions on
taxing and regulating pot sales to local governments.

The RAND study also said legalizing marijuana beyond current medical
use would bring "California law into direct conflict with federal
law." That could result in federal lawsuits or action by Congress to
cut state highway funds.

"The RAND findings highlight the considerable uncertainty surrounding
Proposition 19," said Roger Salazar, spokesman for Public Safety
First, the campaign committee for initiative opponents. "This is a
free-for-all. Tax revenues could go in all directions. And we could
get sued by the federal government."

Lead author Beau Kilmer, the other co-director of the RAND Drug Policy
Research Center, said the cost of prime California pot currently
valued at $300 to $450 per ounce could fall to as little as $38 an
ounce if legalized in California. He said that could mean "$1.50 a
joint for high-quality marijuana."

Kilmer said the drug prices would drop dramatically because drug
dealers in California "won't have to be compensated for their risks"
of operating illegally.

He said legalization will vastly expand indoor growing operations
proliferating under existing medical marijuana law to create
low-cost, commercial networks.

The RAND report said researchers couldn't predict how much marijuana
use would increase with legalization. But Kilmer said falling prices
could drive up pot use by anywhere from 75 to 150 percent.

"We believe consumption is going to increase, but it is unclear how
much," Kilmer said. "(Legalization) could change the stigma. There
could be more promotion. There could be more advertising. ... There
also will be a drop in the ... price that can influence behavior."

The report can be viewed at www.rand.org.