Studies: Marijuana Legalization May Reduce Mexican Drug Crime, Increase Tax Revenue

Border states enjoyed decline in cartel crime, while nationwide legalization may mean billions

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January 16, 2018

Southwestern border states that legalize medical marijuana see a notable decline in violent crime rates, especially in border counties and as compared against states that do not, a recently released study concluded.

The study, published in the journal of the Royal Economic Society, is an effort to provide empirical evidence for the claim that the legalization of medical marijuana reduces the violent activity of Mexican drug trafficking organizations, which are overwhelmingly the suppliers of marijuana in America.

A drop in violence, the study's authors argue, would be because legal marijuana regimes allow local farmers to enter the market, in turn cutting the profits for Mexican drug traffickers. Violence is expensive, they note, and so a cut in profits should drive down violence as traffickers have less incentive to use violent force to keep control of customers and territory.

To determine the effect of medical marijuana laws on violent crime rates, the study authors performed three comparisons: They studied crime rates in counties before and after the introduction of medical marijuana; then between counties with and without medical marijuana; and finally, between counties at the border and further inland.

Combining these conclusions results in a reduction of 12.5 percent in the violent crime rate for border counties. Analysis using an alternate data set produced even more stark declines in violence: medical marijuana has "lead to a 40.6 percent decrease in drug-law related homicides in Mexican border states," the study says. 

"We find that when a neighbour to a Mexican border state passes a MML [medical marijuana law], this results in a significant reduction in violent crime rates in the border state. More generally, we find that when a state passes a MML this reduces crime rates in the state in which the nearest Mexican border crossing is located. This evidence is consistent with our hypothesis that MMLs lead to a reduction in demand for illegal marijuana, followed by a reduction in revenue for Mexican DTOs, and, hence, a reduction in violence in the Mexican-border area," the study concludes. 

Notably, the effect existed only in border states. The study replicated earlier studies that found medical marijuana had a negligible effect on crime rates across all states, with significant declines emerging only between border and non-border states.

Although the border county study concerned itself only with the effects of medical marijuana, another recently released study suggested that broader marijuana legalization could be a boon to federal tax receipts and American employment.

That study suggested that nationwide legalized and taxed recreational marijuana would lead to more than $132 billion in tax revenue and a million new jobs, the Washington Post reported.

The analysis, by New Frontier Data, argued that legalized marijuana would lead to $131.8 billion in tax revenue between 2017 and 2025, assuming a 15 percent retail sales tax, payroll tax deductions, and business tax revenue.

That total would include $51.7 billion to the federal government, which at present does not tax legal marijuana sales, as the drug remains illegal under federal law. The analysis assumes a 35 percent corporate tax rate, substantially higher than the 21 percent rate enacted by Congress last month.

Nationwide legalization would also lead to 782,000 new jobs, the analysis finds, rising to 1.1 million by 2025. Those boosts would come from diverse jobs, including farmers, storefronts, and supply chain in between.

To date, legal marijuana in Colorado, Washington, and Oregon has produced some $1.3 billion in tax receipts for the state governments. California is set to join that group with its roll-out of legal marijuana sales beginning earlier this month. State and local governments are projected to eventually reap up to a billion dollars a year from California's legal marijuana industry.

However, that legalization may be under legal threat, following Attorney General Jeff Sessions's rescinding of a 2013 letter from his predecessor's Justice Department which instructed U.S. Attorneys not to enforce the federal ban on marijuana in states with legalization regimes.

Sessions's new order simply instructs U.S. Attorneys to exercise their pre-existing prosecutorial discretion, leaving the federal government's stance on state-level legal marijuana an open question.