Marijuana Use and Negative Externalities

Amendment 64

Amendment 64 in Colorado, which legalized recreational marijuana use in Colorado for those over 21, has been perhaps produced the most interesting conundrum of legal issues in Colorado in recent history -- and it's not just the fact that marijuana is still illegal federally.

Cannabis Tourism (All Aboard the Canna-Bus?)

Legal issues aside, however, the legalization of marijuana has succeeded most in one area:  boosting tourism in Colorado, particularly those areas that have legal marijuana dispensaries such as Denver.  According to CNN Money, in the first half of 2014, Colorado took in $19 million dollars in tax revenue from legal marijuana alone, giving some idea to the magnitude of this industry.  Unfortunately, this number doesn't differentiate between in-state and out-of-state purchasers.  However, some dispensaries estimate that upwards of 1/3 of their business is from out-of-state tourists.

Issues with Cannabis Tourism

But the problem here?  This article brings up the fact that there really isn't anywhere for tourists to use their legally-purchased marijuana.  Some examples:

• Out-of-state tourists can't go home and consume their marijuana - they aren't legally allowed to cross state lines with their marijuana
• They can't consume the marijuana in the place where they buy it - it is illegal to consume marijuana at the dispensary which they purchase it at.  Also, dispensaries are not allowed to sell any other sort of cannabis-free food or drink, so they are not particularly destinations to spend time at.
• Bars and restaurants are off limits - consuming marijuana, like cigarettes, is prohibited in bars and restaurants.  Outdoor patios are also off limits because Amendment 64 prohibits the use of marijuana out in the open in public.
• But what about the hotel? - most hotels are smoke-free, and marijuana-smoke-free, as well.  They just don't want to deal with it. And they have that right.

What Does Economics Have to Do With This?

Negative Externalities

An externality exists when the market transaction - a consumer purchasing and consuming marijuana from a supplier - creates a consequence that affects an unrelated, third-party individual.  A negative externality is when this consequence adversely affects the third party.

When done publicly, consuming marijuana can thrust several of these negative externalities upon society, especially with regard to clean air.  For example:

• People don't like the smell
• The fumes do have the ability to adversely affect those who breathe it in (aka, a contact high)

Because of these various negative externalities, government regulation has been used to concentrate the use of marijuana into private spaces.  But this is complicated when marijuana tourists have a lack of access to "private" places.  And that's problematic with as large of as industry as cannabis tourism has become.

Fixing Negative Externalities

In a traditional sense, the easiest and most common fix to a negative externality is to make it more expensive, since negative externalities are caused by the fact that we consume a good or service at a higher equilibrium quantity than what we ought to demand, socially.  This expense comes from taxing things at higher rates.

The problem here, though, is the fact that the market price of marijuana is difficult to determine because it is such a new market.

So Where Does that Leave Us?

This leaves us in a place of business doing what they do best - sort of ignoring rules.  "420-friendly" concerts and events are becoming increasingly popular as a means of creating atmospheres for public marijuana use where the behavior is not condoned, but it is not prohibited either.  It's a gray area.  It's right where this issue lives best.

Other options are hotels and other "private" clubs and businesses where marijuana use is allowed as these establishments are not open to the public and therefore work around 'open-to-the-public' aspect that usually prohibits marijuana use almost everywhere else.

But like all else with this messy issue, as it comes to resolved, it will be nothing but interesting.