A recent study measuring the effects of legalizing marijuana found that even though there may be some economic benefits, there are also economic and social costs like rising homelessness, increases in substance use disorders and lower labor force participation.

The working paper was published on Sept. 28 by researchers from the Federal Reserve Bank of Kansas City. Researchers explored state-level data from the 23 U.S. states that have legalized marijuana across several categories like economic activity, crime, public health and substance use rates. The data spanned from 2000 to 2020. They compared this data to states which did not legalize recreational marijuana.

While the study acknowledged some economic benefits of legalizing marijuana such as an increase in state revenue by 3%, it also identified social costs and under-explored economic costs.

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Three main findings from the study

Here are three main findings from the study:

  • Substance use disorders and chronic homelessness increased in states that legalized recreational marijuana.
  • Economic benefits were more pronounced in the states that legalized recreational marijuana earlier on.
  • There were increased rates of DUI and disorderly conduct offenses in states that legalized recreational marijuana.

The economic costs of recreational marijuana legalization

While the study found potential economic benefits to recreational marijuana legalization, it also found drawbacks.

Those benefits include 3% higher income per capita, 6% higher housing prices, and the establishment of an industry that brings new jobs along with it.

Recreational marijuana was found to have a somewhat neutral effect on tax revenue. It was not affected significantly, because as revenue from recreational marijuana increased, it decreased for alcohol and tobacco.

There were also economic costs related to recreational marijuana legalization, although those were harder to measure. The economic costs included fewer people entering the job market and lower worker productivity. It’s important to note that these two economic costs are also related to social costs.

Initial data on labor force participation and labor productivity is mixed. “With widespread usage, an additional concern is that workers may become more detached from the labor force,” the authors wrote.

The social costs of recreational marijuana legalization

“Legalization of marijuana for recreational purposes might lead to undesired public health outcomes such as substance abuse related-mortality, homelessness, traffic accident fatalities, and crime,” the study authors wrote.

When it came to social costs, there were a few areas study authors highlighted: increase in substance use disorders and arrests and a higher rate of chronic homelessness. Substance use disorders increased by 17% and the chronic homeless rate swelled by 35%. These kinds of social cost effects are “difficult to link directly to legalization” because some of the data comes from self-reporting, the authors said.

The rising in substance use disorder “becomes larger and more significant over time, consistent with a channel in which legalization introduces cannabis to consumers, which serves as a gateway to use of more addictive illicit substances,” the authors wrote.

The finding regarding the homelessness rate did correlate with a published manuscript of a 2022 study by James A. Sanderson, cited by the authors, which found “recreational marijuana legalization increases homelessness, particularly for early adopting states, and that these effects may compound as more years pass post-legalization.”

While legalization did not have a significant impact on violent crime, there was an increase in some non-violent crimes. “We find that legalization increases DUI and disorderly conduct offenses,” the study authors wrote.

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What did the study conclude?

The study did not offer a comprehensive cost-benefit analysis when it comes to legalizing recreational marijuana.

“Widely distributed benefits versus more concentrated costs indicate that policymakers should be cautious in discounting the existence of potential costs of recreational legalization,” the authors wrote in the conclusion.

What else do we know?

Dr. Ken Winters, founder of the Center for Adolescent Substance Abuse Research at the University of Minnesota, told Daryl Austin, “Tax revenues from marijuana sales do not cover the costs of added harms and health issues that communities have to bear.”

Some of those health issues include links between marijuana and risk for partner violence, conditions like chronic bronchitis and an impact on the brain’s function and mental health, according to Austin.