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Thursday, February 27, 2014

Vice Pays the Bills: The Economics of Marijuana

Ever wonder why the proponents for the legalization of marijuana have been able to enjoy a victory dance lately as currently two states, Washington and Colorado have now allowed for adults to enter sanctioned stores and purchase cannabis as easily as one would buy soda pop or toilet paper?

To answer that question, you have to go back in time to February 1933 and ask why was the 21st Amendment enacted which repealed the 18th Amendment which back then made alcohol illegal..

It wasn't due to questions of health benefit or to curtail organized crime and the black market or that prisons were overcrowded with alcohol-loving law breakers...

It was repealed for one reason stated in two words: Economic Necessity.
The Great Depression began in late 1929 though people at the time had no idea it would ultimately last 12 years..

During this period, unemployment ran as high as 25% and no one fudged the numbers back then like the government does today with that current 6.6% nonsense..  And loss of jobs means loss of tax revenue as well as inability for people to pay their property taxes..

Government of all levels suffered.. Federal, state, city and local..

So as a revenue stream for government, alcohol production, distribution and consumption was now made legal again and the populace could happily dull their pain away all day n' night free of the worries of imprisonment.
Same thing happening today..

The corrupt media can lie all the live long day about "recovery" and economic optimism but the truth can be felt in real life...

Government needs money desperately..  State governments especially..

And no one wants to raise taxes especially the cowardly one trick pony Republicans who only know how to campaign on the notion that every expenditure in Washington should be slashed and burned to curtail the deficit...

Well except Defense spending..
So where once in the 1980s the unofficial motto was "Greed is Good", today in year 6 of this current recession-depression, the unofficial motto is "Vice pays the bills"

According to TheStreet.com, it is projected that due to the legalization of pot, Washington state is expected to generate $359 million in additional tax revenue with Colorado bringing in $208 million by year's end..

This is why you have another 14 states projected to pass adult use regulations in the next five years, including Alaska, Arizona, California, Delaware, Hawaii, Massachusetts, Maine, Maryland, Missouri, New Hampshire, Nevada, Oregon, Rhode Island and Vermont.
Marijuana is now government's newest latest cash-cow bubble..

Investors are also taking notice of its profitability..

From TheStreet.com:

"Legal marijuana businesses are cropping up in many states, but  those who have definitive business models and mainstream strategies are able to attract funding from investors, boost their growth and achieve scale.

The potential for the marijuana market to increase to $10.2 billion within the next five years or a 700% increase from the current U.S. market value is very likely, said Douglas Leighton, managing partner of Dutchess Capital, a New York investment firm which manages $125 million in assets, has $200 million in direct investments and made its first investment in the cannabis industry recently. 
The "real growth" will arise when more states decriminalize the use of marijuana.

"I've never seen it where a market already exists for the product," he said. "The market is already there and it will gain wider acceptance.""

Investment firms are now looking to expand their profits vis a vis the expansion of the gateway drug.

Not really a surprise though.. 'Morality' to Investors is simply a term in the encyclopedia between 'Money laundering' and 'Off-shore accounts"
Don't be surprised if one day you see a company producing and/or distributing marijuana become so big and profitable that it is publicly traded on NYSE or Nasdaq and as embraced by the public as McDonald's or Disney.

The legal marijuana market is estimated to grow by 64% to $2.34 billion in 2014 from $1.44 billion, according to a recent report by The ArcView Group, a cannabis investment and research firm based in San Francisco.

And governments across the country aren't stopping there in pursuit of new taxable revenue streams..

Many states are building new casinos as fast as their grubby fingers can pay off the right people and some states such as New Jersey have even allowed their citizens to play online gambling.
As the economy worsens, we look forward to seeing more vices legalized..  perhaps cat house prostitution will ultimately be legalized in all 50 states as it is currently in Nevada...

Or harder drugs with governments mandating the opening of "dens" where people can relax while the opium, heroin, meth, crack or other hardcore drug is in their system..

And who knows.. if the market suffers a serious crash down to Dow 4,000 and masses of people are standing in long breadlines and living in their cars, maybe the government will legalize and incentivize child prostitution and use the tax revenue to fund food stamps..

Why not?  Vice is Vice is Vice..
Its really all a matter of personal interpretation and how slippery does the slope go..

Vice is profitable..

As of 2009, the US government collects a little over $1 per pack of cigarettes in tax revenue... Then individual states receive another 75cents to $3 depending on jurisdiction..  That adds up to over $17.7 Billion in tax revenue..

And the smokers keep on a-smokin'

Then there's alcohol.. Did you know 45% of the cost of a beer is composed of various taxes?!
The government collects $10.8 billion in tax revenue simply off the public's consumption of alcohol, then gets another $33 billion directly from the alcohol distributors themselves.

Good thing alcohol is legal or it would just be one more sin tax added currently by state and local governments in desperate need of money to pay back municipal bonds, loan interest and maintain a local community..

It is projected the legal marijuana market could generate as much as $10 billion in revenue by 2018 and outpace the sales of tobacco and alcohol combined.
And this was why states are waiting in line to legalize it, and no other reason but..

Now if only the various governments could figure a means to tax the hell out of masturbation, the National Debt would be paid down to zero in no time..