As of this moment, 21 states or territories have either fully or partially legalized cannabis. Uruguay became the first nation to fully, recreationally legalize it in 2013, with numerous states following suit, most notably Canada in autumn 2018. The approach towards cannabis differs greatly from nation to nation, and sometimes even within nations, as in the U.S. and India. While many countries opt for decriminalizing cannabis but keeping it illegal, others legalize medical use, or even increasingly, recreational use. And yet, in several Asian and Middle Eastern countries possession of even the smallest amount can lead to severe punishments. The approach in India and the U.S. is complicated – while cannabis is still illegal at the federal level, numerous states have legalized it. In the U.S. ten states and the District of Colombia currently allow legal possession and consumption of recreational marijuana while 33 have legalized cannabis for medical purposes. On the federal level though, cannabis is classified as a “Schedule I” drug after the Controlled Substance Act of 1971, with “no currently accepted medical use and a high potential for abuse”. Cannabis is considered as harmful and dangerous as Heroin, while drugs such as Cocaine or Opium are classified as Schedule II drugs. Hence, with all the controversy surrounding the topic, it might be time to reassess our understanding.
A different approach to scheduling drugs was laid out by David J Nutt et al through a multicriteria decision analysis. Instead of the three criteria the DEA uses to classify drugs, the Independent Scientific Committee on Drugs scored drugs according to sixteen criteria, nine of these referring to harms to the individual and seven referring to harm caused to others. The drugs were then scored out of 100 and weighted to indicate their importance. The findings of this research were shocking – out of twenty drugs, by far the most harmful is alcohol, scoring 72 out of 100 points with heroin and crack cocaine scoring 55 and 54 respectively. According to this study, also cannabis isn’t harmless, but at 20 points it is a far stretch from other legal drugs such as alcohol and tobacco, at 26 points. There is no correlation between the findings of the research and present classifications by law, so the negative stigma surrounding cannabis is quite comprehensible.
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When assessing if cannabis should be legalized (either medically or recreationally) there are many different aspects to be included, ranging from the economic effects in terms of taxes and employment, the eradication of the black market or the creation of new market opportunities to the health effects legalization could have on individuals or society as a whole. In order to narrow the scope, we limited our research to the understanding of the positive and negative consumption externalities associated with cannabis, concentrating on mental health as the prime positive externality and the economics of smoking as well as the aforementioned study by David J Nutt et al as the prime negative externalities.
Economic Aspects
We have decided to focus on the positive and negative externalities that are implied by the consumption of cannabis. For the purpose of narrowing down the scope of this paper, we are assuming that there are no production externalities.
A negative consumption externality arises when an individual’s consumption of a good reduces the well-being of others, who are however not compensated by the individual. On the contrary, a positive consumption externality is associated with an individual’s consumption increasing the well-being of others, but the individual is not compensated by those others .
Figure 1 shows the impact of a positive consumption externality on the supply and demand curves in the market of a particular good. The supply is equal to the private marginal cost, PMC, which is the direct cost to producers of producing an additional unit of a good as well as the social marginal cost, SMC. This in turn is equal to the PMC plus any costs associated with the production of the good that are imposed on others. Since we assumed there to be no production externalities (and therefore no costs), the PMC is equal to the SMC.
The demand is equal to the private marginal benefit (PMB), however the social marginal benefit (SMB) of consuming a unit of the good is higher, since it is the PMB plus any benefits associated with the consumption of the good that are imposed on others. The PMB describes the direct benefit to consumers of consuming an additional unit of a good.
In this case, there is an under-consumption of the good, since for every unit between Q1 and Q2 the social marginal benefit exceeds the social marginal cost.
Figure 2 shows the case of a negative consumption externality. As before, the supply side is fixed with PMC=SMC. The SMB however now equals the PMB minus the marginal damage (MD) that is done to others by the consumption of a unit of the good. In this case, there is an overconsumption of the good, since the SMC exceed the SMB for every unit of good between Q2 and Q1, resulting in a deadweight loss.
In both cases welfare loss occurs, as the current consumption level is different from the social-welfare maximizing level where the social marginal cost equals the social marginal benefit.
In this report, we assumed smoking of cannabis to be associated with negative externalities and the improvement of the mental health of consumers with positive ones. Hereby we encountered difficulties linking the latter with the model of positive consumption externalities, since we found it to be too subjective for being able to put in relation with a specific market. Instead, we thought of individuals not suffering from depression or anxiety, or at least being able to cope with it, as more productive workers who are less likely to take sick days, and generally, more pleasant and social people who take part in the community.
Also one should note that the assumption that there are no externalities due to production would not hold in reality.
Literature Review on Effects of Legalizing Cannabis on Mental Health
As mentioned before, we assumed cannabis to help improving the mental health of consumers. Over the course of our research we discovered however, that there are mixed results as to whether this may actually be the case.
The IZA (Forschungsinstitut zur Zukunft der Arbeit) discussion paper by D. Anderson et al. (2012) „High on Life?“ focusses on the relationship between the legalization of medical marijuana and suicides. By using state-level data from the United States for the period 1190 through 2007, they were able to find an association between passing the medical marijuana law and a 5 percent decrease in total suicides. For males between 20 and 29, the decrease was about twice that high, at 11 percent. The authors linked these results to the possibility of marijuana helping to cope with depression and other mood disorders, as well as negative “shocks to happiness” which often lead to suicide. This coincides with our own assumptions; however the authors focus on medical marijuana and cite self-medication as a possible disruptive factor to the study.
The study of Annette Beautrais (1999) compared the cases of 302 individuals making medically serious suicide attempts with 1028 randomly selected control subjects to try and find a relation between cannabis abuse and the risk of suicide. While she did find one, she acknowledged the fact that most of the positive correlation was due to the “disadvantaged socio-demographic and childhood backgrounds” most of the subjects are likely to use cannabis are from.
More recently, Troup et al. (2016) focused on the relationship between cannabis use and symptoms of depression and anxiety in college students. For this purpose, the authors used a questionnaire to screen 178 undergraduates in post-legalization Colorado for pre-depressive and pre-anxiety symptoms, as well as their respective cannabis use. They then sorted them into 8 distinct groups according to their scores on the questionnaires: Depressed users, non-depressed users, anxious users and non-anxious users, depressed non-users, non-depressed non-users, anxious non-users and non-anxious non-users. While the authors did find a negative correlation between cannabis use and pre-depressive symptoms compared to the non-user group, they did not find such relationship with anxiety. Interestingly, contrasting previous literature indicating that more frequent use leads to greater deficits in mood , this study suggests that casual users (less than once a week) scored higher on the scale for depression compared to both frequent users (once a week or more) and non-users .
A different approach has been taken by Bambico et al. (2009), who conducted animal studies to examine the potential of cannabinoids in the treatment of mood disorders. The authors observed that cannabinoids can increase serotonin transmission and therefore may serve as an alternative to the classical anti-depressant medication.
Overall, the literature on the effects of marijuana proved to be ambiguous and fragmentary, leaving no clear picture if mental health could be improved and therefore justify as a positive externality.
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