U.S. Markets open in 3 hrs 14 mins

Uruguay’s Marijuana Rx

Yahoo! Finance
The Exchange

By Robert Hahn and Peter Passell

As goes Colorado and Washington, so goes Uruguay? Yes, Uruguay has decided to legalize (and regulate) the use of marijuana. But it’s a bit Ameri-centric to link the change to similar initiatives in two U.S. states. Back in 2009, Argentina’s highest court ruled penalties for possession of pot were unconstitutional. And that same year, Mexico decriminalized possession of small amounts of illicit drugs, both hard and soft.

All over Latin America, it’s fair to say, opposition to drug use is easing. In part, the movement toward decriminalization/legalization has been driven by frustration with the indifference of the big consuming countries (read: United States) to the violence the illicit drug trade has engendered as the cartels search for new routes from Latin American labs to users from Miami to Seattle. But it’s also a product of the growing recognition that the characteristics of the markets for illicit drugs make the trade almost impossible to suppress.

Actually, it’s even worse: Once enough politicians, cops, prosecutors, prison guards, private prison companies understand that their livelihoods (legal and illegal) depend on the never-ending war, rational efforts to minimize the harm from drugs hardly stand a chance.

Benefits outweigh costs

Here’s the problem – or, at least, one of the problems. The cost of producing virtually every illicit drug from cocaine to heroin to marijuana is trivial compared to their value in the hands of western consumers. Thus smugglers can lose the lion’s share en route and still make astounding profits. And since the demand for most drugs appears to be inelastic, successful efforts to reduce supply lead to higher street prices – and more collateral damage in the form of violence among rival distributors and crime to support addicts’ habits.

Nobody in his right mind thinks legalization is a panacea. But, at least in the case of marijuana, the benefits of legalization (less collateral crime, less waste of police resources and less suffering on the part of users caught in the justice system) seem to trump the costs in terms of abuse.

Uruguay has apparently thought this through pretty carefully. The business of growing and selling pot will remain private. But the wholesale product will be inspected for purity; only pharmacies will be allowed to retail it – and only to registered of-age customers at a price of no more than $2.50 a gram in quantities no greater than 40 grams a month.

The price cap is designed to limit mark-ups and persuade consumers to put up with the minor hassles of registration, pharmacy visits and quantity limits (40 grams of today’s ultra-potent marijuana hybrids would keep all but the most dedicated imbiber happy for a lot longer than a month). And while it may not suppress illegal sales entirely -- $2.50 a gram is easily 10-20 times the cost of production – it will certainly reduce incentives for violence, adulteration with toxic chemicals and abuse by children.

It's a start

Other jurisdictions are trying other approaches. California, for example, allows sales of medical marijuana to licensed adults, and demoted illegal possession to a summons that carries neither stigma nor the horrors of jail. The Netherlands permits sales to adults, but only to residents and only through “coffee shops.” Portugal has not legalized drugs, but has reduced the penalties for possession of small amounts of all drugs to a misdemeanor. Brazil, for its part, mostly just ignores the marijuana trade.

But seen in terms of harm reduction, there’s no obvious “best” reform. Indeed, it may vary from culture to culture. What’s so refreshing is that so many politicians have begun to focus on the real issues, rather than just wringing their hands and arming the police with heavier weapons and higher-tech surveillance drones.

Robert Hahn is director of economics at the Smith School, University of Oxford, and a senior fellow at the Georgetown Center for Business and Public Policy. Peter Passell is a senior fellow at the Milken Institute and editor of the Milken Institute Review