If you are unaware that Americans widely consume marijuana, it’s a safe bet you’ve just fallen off a turnip truck. The Department of Health and Human Services estimated that 49.6 million people used marijuana in 2020 — some 18 percent of the population aged 12 or older. And polling data suggest that almost half of U.S. adults have at least tried the stuff, up from just 4 percent in 1970.

By no coincidence, support for legalizing marijuana has also been growing for decades. Polls suggest that only one in eight Americans supported legalization in 1969; in 2020, the figure was two in three. Support for legalizing marijuana for medical purposes is even higher, reaching 91 percent in a 2021 poll.

Nevertheless, marijuana remains illegal under federal law and many state laws. Police made some 546,000 arrests for cannabis-related crimes in 2019, most of them for simple possession. And an estimated 40,000 people are behind bars on marijuana charges. Some level of enforcement continues even in states that have legalized it, since marijuana is still illegal at the federal level. (The penalty for possession is up to a year in jail or in jail; for sale of a kilo, up to life.) And even states that have opted to make marijuana legal for recreational use still tax and regulate its sale. Thus, while much has changed, the U.S. is still in an odd limbo in which consumption flourishes but harsh penalties remain on the books.

Indeed, pushback against legalizing marijuana continues. Critics argue that legalization increases the use of marijuana as well as alcohol and other toxic substances, generates traffic fatalities, harms public health and promotes violent crime. Advocates dispute these claims, emphasizing significant benefits of legalization, including improved well-being of marijuana users, improved public health and traffic safely, and reduced crime — not to mention the potential for significant tax revenue. Here, we review the history of marijuana prohibition and legalization in the U.S. and examine the available evidence regarding the impact of state-level legalization on relevant outcomes.

Before the Fall

Marijuana was legal under state and federal laws until California and Utah banned it in 1913 and 1914, respectively. The Harrison Anti-Narcotic Act excluded opium, cocaine and other drugs in 1914 at the federal level, but not marijuana. By 1930, however, largely in response to anti-immigrant sentiment and the popular (but untrue) belief that Mexican immigrants brought marijuana to the U.S., 30 states had outlawed pot.

Uncle Sam then got into the act. The newly established Federal Bureau of Narcotics pushed state legislatures to adopt “uniform anti-narcotics acts” and other measures to restrict the circulation of “Indian hemp.” By 1937, almost all states had signed on. The same year, Congress passed the Marihuana Tax Act (its spelling, not ours), which effectively outlawed marijuana by imposing federal licensing requirements and a prohibitively high tax.

The Controlled Substances Act of 1970 — the tip of the spear of Richard Nixon’s War on Drugs — currently bars marijuana possession, use and distribution at the federal level. It classifies marijuana as a Schedule I drug, which, according to the Drug Enforcement Administration (DEA), means cannabis has “no currently accepted medical use and a high potential for abuse.” Other Schedule I drugs are heroin, LSD and ecstasy. Morphine, cocaine, fentanyl, oxycodone, Ritalin and Adderall are in Schedule II, which lists drugs with a “high potential for abuse.” Doctors can prescribe those, subject to DEA oversight and regulation.

In contrast to the federal government, states have been relaxing restrictions on marijuana since the 1970s. Between 1973 and 1978, 11 states — Oregon, Alaska, California, Colorado, Maine, Minnesota, Ohio, Mississippi, New York, North Carolina and Nebraska — “decriminalized” marijuana, abolishing minimum jail terms for first-time marijuana possession or even de jure removing legal penalties. Alaska, marching to the beat of its own drummer, recriminalized marijuana in 1990, only to relegalize it in 2014. A second wave of decriminalization began in the 2000s, starting with Nevada in 2001. Today, 27 states have fully or partially decriminalized.

In parallel with decriminalization, states have been legalizing medical marijuana for some time. Since the 1970s, evidence has been accumulating that, among other medical benefits, marijuana can suppress nausea after chemotherapy, alleviate chronic pain and contain multiple sclerosis’ symptoms. Between 1978 and 1982, 30 states expanded the medical use of cannabis.

But since marijuana has no federally accepted medical use, states had to apply for FDA authorization and be supplied through the National Institute on Drug Abuse — cumbersome requirements imposed by Washington that meant these early programs largely failed. As a result, medical users still had to rely on illicit sources and were often targeted by law enforcement.

Action and Reaction

But advocates fought on. In 1996, a ballot initiative in California kickstarted a new generation of medical marijuana laws by legalizing cannabis for the treatment of a variety of illnesses. In part, it passed where other initiatives had failed because popular support was growing in response to mounting evidence of marijuana’s medical uses.

The big legal breakthrough, built into the language of the winning California medical marijuana initiative (1996), was permission for individuals with prescriptions to obtain marijuana through “compassion clubs” or by growing it on their own. This freed Californians to bypass the federal chokehold on legal access. Since then, 35 states have “medicalized” marijuana.

More recently, many states have dropped the medical fig leaf, legalizing marijuana for recreation. Colorado and Washington were the first movers in 2012; the District of Columbia and 17 other states have followed suit.

Early efforts to legitimize medical or recreational marijuana have mostly taken the route of state ballot initiatives. But since most states do not allow citizen-initiated ballot measures, advocates must convince state legislatures to liberalize the law. And that is happening, albeit with a fight. As of February, the Marijuana Policy Project listed 23 states with bills to legalize recreational marijuana, eight with bills to decriminalize possession and nine with bills to medicalize.

A recent trend in legalizing states has been the introduction of “equity” measures. Vermont, for example, established a “Cannabis Business Development Fund” to grant “financial assistance, loans, grants, and outreach to social equity applicants” seeking to operate state-licensed marijuana facilities. New York, for its part, is reserving the first 100 licenses to sell marijuana for individuals who were convicted of marijuana offenses in the past.

Initiatives to reconcile the divergence of federal and state laws have been under way for some time. The Cole Memorandum, issued by the U.S. Attorney General during the Obama administration in 2013, stated that the Justice Department would not enforce the federal prohibition in states that legalized marijuana and had “strong and effective” regulatory systems in place. And though the Trump administration rescinded the memorandum, federal enforcement has not changed much.

A bill guaranteeing the Cole protections is pending in the House with bipartisan sponsorship. But for the time being, federal agencies still have discretion to target marijuana businesses and consumers in legalized states, even though state medical cannabis laws remain protected under the Rohrabacher-Farr amendment, which prohibits the Justice Department from spending funds to meddle with state-level medical marijuana programs.

Another unresolved effect of the ongoing federal prohibition is financial barriers to those in the marijuana business. The Bank Secrecy Act (BSA) requires financial institutions to report transactions suspected to involve illegal activity. Banks therefore bear legal risks in providing routine financial clearing services for state-legal cannabis businesses. The SAFE Banking Act of 2021, which was approved by the House, would redress these issues, but it has yet to secure approval in the Senate.

Consequently, most cannabis dispensaries still do not accept credit or debit cards and must use cash to pay employees. This heavy use of cash means they are juicy targets for robbery and must spend heavily on security.

Note, too, that, thanks to Section 280E of the tax code (enacted in 1982) businesses dealing in illegal Schedule I substances cannot deduct expenses like rent, wages and utilities from their federal taxable income. So now, cannabis businesses must pay effective tax rates that can go up to 90 percent of profits, which likely encourages many to evade the IRS.

Evidence-Based Analysis

The plethora of changes in state marijuana policies over past decades provides the raw material for “natural experiments” to evaluate the competing claims of legalization advocates and critics. Not that the analysis is straightforward: liberalization is not an onoff switch but a continuum.

Sometimes decriminalization comes with legalization; other times, before. In some states, medical marijuana laws are so lax that they might as well count as full legalization. And states that liberalize may differ from states that do not. Further, most liberalizations are recent. All that said, we believe there’s enough evidence to inform the debate.

Use of Marijuana, Alcohol and Other Substances

The most fundamental question about marijuana liberalization is whether it generates big changes in use of marijuana — not to mention alcohol and other potentially dangerous substances. If not, then most other alleged consequences of liberalization, such as reduced traffic safety, can’t be significant since they are tied to increased use.

Evidence on the early decriminalization laws is essentially nonexistent because reasonable measures of marijuana use and abuse of other substances did not really exist before the late 1970s, making before-after comparisons a non-starter. But we know a lot more now. Passage of medical marijuana laws (MMLs) is not correlated with increased teen marijuana use, while recreational marijuana laws (RMLs) appear to increase adult marijuana use by a modest amount. Use is typically higher after adoption of RMLs, but it had already been trending upward in most states before legalization, suggesting rising use may drive legalization — not vice versa. Consistent with this hypothesis, perceptions of risk from marijuana use are lower in states that have legalized.

Further evidence comes from marijuana prices. Legalization critics predicted that it would lower prices dramatically, thereby stimulating use. A 2010 RAND study, for example, estimated that marijuana prices in California would fall by 80 percent post-legalization. But the data tell a different story.

Marijuana prices did drift downward in the months following legalization, but soon stabilized at levels well short of 80 percent lower. Note, too, that prices were falling in most states before legalization.

Does marijuana liberalization increase the use of other toxic substances? The evidence suggests that MMLs have been associated with decreased alcohol consumption — and, more important, decreased binge-drinking. MMLs are also associated with reduced tobacco use. Evidence on RMLs suggests no clear marijuana- induced uptick in consumption of hard drugs such as cocaine or opiates. Indeed, some studies have shown that marijuana liberalization decreases opioid mortality.

But we think it is premature to draw the conclusion that marijuana liberalization reduces hard drug use. A recent study suggests that earlier results promising good news do not hold when looking at longer periods or when controlling for other variables. Indeed, that study concludes MMLs and RMLs have in fact increased opioid mortality. We take this result with a grain of salt, however, because the conclusion drawn from the statistical analysis is sensitive to controls for other variables.

To sum up, marijuana liberalization is statistically associated with increased use. But the evidence from state liberalizations, as well from other countries and time periods, rules out large effects. These results are also consistent with government surveys showing that, across decades, high school seniors have rated marijuana as “fairly” or “very” easy to obtain despite almost a century of prohibition.

Public Health Effects

There is good reason to believe that marijuana can have both positive and negative impacts on health depending on the user, the quantity and the type of use. On the positive side, marijuana appears effective in addressing a broad range of medical conditions.

Consistent with this evidence, a group of researchers at the University of California (Irvine) found that the introduction of medical marijuana in California reduced suicides by approximately 11 percent, although other studies offer little support for this conclusion.

A study looking at RMLs finds no significant association between such laws and suicides, as well as a reduction in other drug overdoses. Finally, a comparison between the suicide rates in states before and after RMLs shows no clear relationship.

A 2017 report by the National Academies of Sciences, Engineering and Medicine reviews the health effects of cannabis and lists potential benefits and harms. On the benefit side, the report finds “substantial evidence” that marijuana is good for treating chronic pain and some multiple sclerosis symptoms. It also finds “conclusive evidence” that cannabis is effective for treating chemotherapyinduced nausea and vomiting.

One alleged harm is impaired cognitive development and/or disappointing educational outcomes in teens. An oft-cited 2012 study finds that persistent cannabis use during teenage years is associated with an eightpoint IQ drop in adulthood. Several studies since, however, show that controlling for confounding variables makes the purported effect vanish.

A different alleged harm is that marijuana users are at greater risk of developing schizophrenia and other forms of psychosis. The National Academies review does find “substantial evidence” for this effect, but otherwise notes that the incidence of schizophrenia has remained stable over the past 50 years despite the growth in use of cannabis.

Other researchers stress that existing evidence consists of “association” studies, implying that individuals prone to mental illnesses may be more likely to consume marijuana. In fact, a Swedish study found a statistical association between cigarette smoking and schizophrenia, though there is no known mechanism by which tobacco could cause the disorder.

The National Academies review also finds long-term marijuana smokers are at risk of developing respiratory problems and that smoking cannabis during pregnancy may lower the birth weight of babies. But it’s important to remember that legalization makes it easier to consume the psychoactive chemicals in cannabis in ways other than smoking. This, one can surmise, partially or even wholly offsets the impact of legalization on respiratory pathologies.

Violent Crime

A different concern is that marijuana liberalization increases violent crime. The alleged mechanism is that consumption can cause psychosis, which sometimes leads to violence. As discussed, limited evidence supports this specific claim. But some studies do find a positive association between use and domestic violence and other types of aggression.

Such studies do not persuade us, though, because they document correlations rather than identifying cause and effect. Marijuana use might be more common among individuals prone to violent behavior without causing it. And standard measures of marijuana use, such as urinalysis, detect marijuana long after the psychotropic effects have worn off, thereby overstating the association between cannabis and crime.

Even if concern about violence has merit, the implication for liberalization is unclear. Liberalization has only a modest impact on use, implying a modest impact on behavior, including crime. Plus, many studies find that liberalization reduces the consumption of alcohol and other drugs, such as cocaine, that also allegedly increase crime.

Actually, on balance, legalization probably reduces crime via several mechanisms. Of course, it lowers lawbreaking by decriminalizing marijuana production, distribution and use. As noted above, in 2019 police arrested over a half-million for marijuana-related offenses in the U.S. — more than 30 percent of total drug arrests that year.

Legalization also tends to reduce violence by shifting production and sale to legal markets, where participants can enforce contracts and resolve disputes through courts or arbitration. Think of the alcohol trade, which was largely peaceful both before and after — but certainly not during — Prohibition.

Traffic Safety

The effects of marijuana legalization on road safety are ambiguous. Marijuana likely impairs driving ability, leading to more accidents; but drivers may be substituting marijuana for alcohol, which appears to impair driving ability more.

Research on the issue shows mixed results. One study found that decriminalization of marijuana was associated with a 13 percent increase in fatal crashes involving young male drivers, but the same study found that the effects fade two years after decriminalization. Another study looking at RMLs found an 8-11 percent decline in overall traffic fatalities in the first year of legal marijuana. Yet another study found no change at all.

Economic Activity, Tax Revenue and Expenditure

The U.S. Bureau of Economic Analysis estimates that adding legal and illegal marijuana to the national income accounts would raise officially measured GDP by 0.2 percent, or around $40 billion in 2019. This is a large number in absolute terms, but small in the context of a $23 trillion economy. Thus, claims of huge economic benefits from legalization, such as increased employment, are likely overstated. And some of any measured increase — perhaps a lot of it — will reflect economic activity that was already occurring in the underground sector.

To the extent liberalization means higher measured GDP, it does mean more tax revenue. The Marijuana Policy Project estimates that states have collected more than $10 billion in taxes from legalized marijuana sales since 2014, when Colorado and Washington state first passed RMLs. In 2020, California alone raised more than $1 billion in taxes from marijuana — but the sum was a drop in California’s $172 billion tax bucket. Halfway through the current fiscal year, Massachusetts reported raising more in excise taxes from marijuana than from alcohol. All told, then, taxes from legalized marijuana are a welcome addition to government coffers, but still very modest compared to sales and income taxes as a source of revenue.

To the extent liberalization means higher measured GDP, it does mean more tax revenue. The Marijuana Policy Project estimates that states have collected more than $10 billion in taxes from legalized marijuana sales since 2014, when Colorado and Washington state first passed RMLs. In 2020, California alone raised more than $1 billion in taxes from marijuana — but the sum was a drop in California’s $172 billion tax bucket. Halfway through the current fiscal year, Massachusetts reported raising more in excise taxes from marijuana than from alcohol. All told, then, taxes from legalized marijuana are a welcome addition to government coffers, but still very modest compared to sales and income taxes as a source of revenue.

There is no plausible scenario in which marijuana taxes will ever make a big contribution. Nor, we believe, should governments try to get much more milk from this cow: higher taxes could well backfire by shifting sales back to the underground market.

Above or Below Ground?

A further criticism of marijuana liberalizations is that, contrary to predictions from supporters, illicit sales persist. The legal weed industry in California, for example, has struggled in the face of high taxes, local government opposition and cumbersome regulation. Estimates from 2018 suggest 75-80 percent of sales are still somehow illegal in the Golden State. Similarly, a market research analysis suggests that nearly 70 percent of Massachusetts marijuana sales in 2020 happened outside the state-regulated market.

Nevertheless, we think this concern about legalization is misplaced. Marijuana is still illegal everywhere under federal law, which incentivizes some participants to remain underground. By the same token, the dispensaries operating under cover of state law are handicapped by numerous regulations and restrictions, plus high taxes.

California regulators, for example, require “seed-to-sale” tracking systems, inventory control and frequent quality testing. They also charge sales taxes (8.5 percent), excise taxes (15 percent) and a cultivator tax on recreational marijuana. Some municipalities ban recreational sales outright.

In Massachusetts, marijuana retailers, delivery operators and consumption establishments must pay $1,500 just to apply for a license, plus a $10,000 annual licensing fee. Indoor cultivators can pay up to $25,000 in annual fees. There are also limits on how many licenses an individual or firm may possess, limiting economies of scale and scope. Dispensaries are forbidden to sell edible products that look like candies. Like California, local governments can also ban weed sales locally.

States also have several marijuana packaging requirements. Montana, for example, forbids packaging graphics from depicting celebrities, minors or images commonly associated with minors — endorsements from Justin Bieber or Donald Duck are not welcome.

Michigan and Maine are regulating with a lighter touch, at least in some market segments. Registered caregivers can grow a significant amount of marijuana for patients with little oversight. As a result, estimates suggest caregivers and medical home cultivation account for 30 percent of Michigan’s cannabis — lower than the share of illegal and recreational home cultivation market (39 percent), but much higher than either adult-use stores (15 percent) or medical provisioning centers (16 percent).

So Is Further Liberalization the Right Policy?

Many people believe that they benefit from marijuana use, whether medically or recreationally. Even if some users exaggerate these perceived benefits, legalization should be regarded as the default policy in a free society — it is prohibition that requires justification. And there is simply no good reason to believe that legalization has a significant negative impact. Prohibition, in contrast, has unambiguous costs from ancillary crime, forgone tax revenue, massive outlays for police and prisons and, most importantly, the deprivation of individuals of their freedom.

We should also not forget that marijuana was once legal, and that prohibition was not spurred by any public health or safety catastrophe. Marijuana prohibition was mostly a political response to Mexican immigration.

For us, then, the answer is obvious: marijuana should be legal under federal law, which would incentivize further legalization in most states. Modest regulation and taxation, along the lines of current regimes for alcohol and tobacco, are not necessarily beneficial but unlikely to cause much harm. By the same token, issues like driving while buzzed are best addressed by other measures like laws against driving under the influence of any intoxicant.

No policy regime for marijuana will be perfect — some people will use marijuana unwisely, regardless of its legal status. But the ancillary costs of prohibition make that policy far worse than the social ills it purports to treat.