The Beckley report, Licensing and Regulation of the Cannabis Market in England and Wales: Towards a Cost-Benefit Analysis, grasps of the economic consequences of a regulated market, as opposed to the current prohibitionist model. This is essential for evaluating the impacts of possible drug policy reform. The report outlines the factors which must be included in further cost-benefit analyses. The report costed 60.000 pounds and 3 years to create. Reliable data was often lacking and more evidence is needed.

One of the key advantages to a cost-benefit analysis is its complete elimination of subjective and emotive processes, which have become an unfortunate mainstay in the drug policy debate - this gives the results an objective credibility.

It is very important to note that by excluding 'internal costs and benefits' the report specifically excludes the reasons why people use cannabis, such as medication, enjoyment and creativity - instead this report takes the perspective of a concerned tax payer, or a budget-focused politician.

An often-used argument surrounding cannabis reform is the concept of the 'gateway effect'; the idea that cannabis use leads to the use of 'harder drugs'. This report not only rejects the idea of a demand side gateway effect (through a thorough assessment of the available data), but also introduces the idea that a regulated market would virtually eliminate another sort of damaging gateway effect, namely the supply-side gateway. This is where social dealers of cannabis come into contact with professional dealers of a larger variety of drugs and thus are more likely to progress to dealing harder drugs.

Another element which has gained much attention in recent history is the mental health costs of cannabis brought about by the increased ratio of THC to CBD. One of the many advantages of a regulated market is that through health-education, labelling and variable tax rates, strains of cannabis with a high CBD ratio can be encouraged, particularly for vulnerable users.

The main conclusion is that there would be a net social benefit to reform of some­where between 280 and 460 million pounds. This means that even when we ignore the experiential benefits claimed by cannabis users and just focus on the financial effects on society at large, the argument for reform remains robust, compelling and increasingly difficult for policy makers to ignore.

On top of the financial benefit there are of course many other advantages. These include increased respect of human rights, the avoidance of discrimination in the enforcement of prohibition, the minimisation of the blighting effect of a criminal record on a person’s life and the increased accessibility to health information and treatment. The current criminalization of cannabis users sacrifices the credibility of health campaigns. Moreover, based on US evidence it is expected that access to cannabis for teenagers would probably decrease.

Because taxes are a transfer, rather than a net social gain, they are not included in the report’s cost benefit analysis. However, a conservative estimation is made of what the tax revenue might be following reform.

The authors aim to bring the price of cannabis to lower than the illicit price, whilst aiming to keep it high enough to deter the expansion of use due to low price, particularly by the young. This would be achieved by a tax rate of around 70%, which is lower than the 83% on cigarettes and closer to the 72% on high alcohol beer.

The report predicts a small increase in cannabis quantity [+15% - +40%] due to a decreased cannabis price. The price elasticity of cannabis is estimated between [-0.2, -0.7]. The cross-price elasticity is important to consider: will alcohol consumption decrease if the price of cannabis decreases and cannabis consumption increases? According to a study of Clements and Zhao (2005), a4% increase in cannabis consumption would lead to a decrease of alcohol consumption (-1% beer, -2% wine, -4% spirits).

The authors assumed a cap on THC levels of 10% for licensed cannabis. By creating this limitation it leaves higher THC strains of cannabis in the illicit market. It would probably be better to keep all strains of cannabis within the licit market, and use taxation intelligently to make more potentially risky or harmful strains of cannabis less financially attractive. Campaigns could move users away from combining tobacco and cannabis.

The authors estimate that the government would gain in budgetary terms by something around one billion pounds a year, roughly three quarters of which would come from tax revenues rather than expenditure savings. In these times of economic hardship cost-benefit analyses with positive results should surely begin to play a key role in government.

The report

Mark Bryan, Emilia Del Bono, Stephen Pudney, Licensing and Regulation of the Cannabis Market in England and Wales: Towards a Cost-Benefit Analysis, Institute for Social and Economic Research (Iser), University of Essex & Beckley Foundation, September 2013