Is Marijuana the Answer to California's Budget Woes?

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Daniel Karmann / dpa / Corbis

Proponents of marijuana legalization have advanced plenty of arguments in support of their drug of choice: marijuana is less dangerous than legal substances like cigarettes and alcohol; pot has legitimate medical uses; the money spent prosecuting marijuana offenses would be better used for more pressing public concerns.

While 13 states permit the limited sale of marijuana for medical use, and polls show a steady increase in the number of Americans who favor legalization, federal law still bans the cultivation, sale or possession of marijuana. In fact, the feds still classify marijuana as a Schedule I drug, one that has no "currently accepted medical use" in the U.S.

But supporters of legalization may have been handed their most convincing factor yet: the bummer economy. Advocates say that if state or local governments could collect a tax on even a fraction of pot sales, it would help rescue cash-strapped communities. Not surprisingly, the idea is getting traction in California, home to the nation's largest supply of domestically grown marijuana (worth an estimated $14 billion a year) and biggest state budget deficit (more than $26 billion).

On July 20, Governor Arnold Schwarzenegger and California legislative leaders reached a tentative budget agreement to plug the state's deficit, but it would involve making sweeping cuts in education and health services as well as taking billions from county governments. Democratic state assemblyman Tom Ammiano has introduced legislation that would let California regulate and tax the sale of marijuana. The state's proposed $50-per-oz. pot tax would bring in about $1.3 billion a year in additional revenue. Ammiano's bill was shelved this session, but he expects to introduce a revised bill early next year.

If the state legislature doesn"t act, perhaps California voters will. One group is preparing to place a statewide initiative for the November 2010 ballot that would regulate and tax the sale of marijuana for Californians 21 years of age and older. Tellingly, the group spearheading the measure calls itself, stressing the revenue advantages of marijuana legalization. The group hopes to collect the required 650,000 voter signatures by January to place the measure on the ballot.

"There's no doubt that the ground is shifting on marijuana," says Ethan Nadelmann, executive director of the Drug Policy Alliance, which promotes alternatives to the war on drugs. "The discussion about regulating and taxing marijuana now has an air of legitimacy to it that it didn"t quite have before. And the economy has given the issue a real turbo-charge."

The legalization effort is getting serious consideration from surprising quarters. In May, Schwarzenegger publicly called for a large-scale study to determine whether to legalize and tax marijuana.

"I think it"s time for a debate," the governor said at a news conference. "I think we ought to study very carefully what other countries are doing that have legalized marijuana and other drugs."

In California, medical-marijuana sales are already taxed, and one community recently grabbed for a bigger slice of the pot pie. Residents in Oakland on July 21 overwhelmingly approved a ballot measure that would make the city the first in the country to establish a new tax rate for medical-marijuana businesses. The measure, which a preliminary count shows passed with 80% support, considerably hikes the tax Oakland marijuana dispensaries pay on sales, from $1.20 per $1,000 in receipts to $18 per $1,000.

A Field Poll conducted in California this spring showed that 56% of the state's registered voters support legalizing and taxing marijuana as a way of offsetting some of the budget deficit. Several national polls have shown that more than 45% of American adults are open to legalizing pot, about double the support a decade ago.

Yet even the most ardent marijuana advocates aren't expecting nationwide legalization anytime soon. Instead, any action is likely to come on the state and local level. For now, all eyes are on cash-strapped California, where high taxes could take on an entirely new meaning.