Why Colorado and Washington Were Wise to Legalize Pot

Like water finding a path, entrepreneurs will always figure out a way to respond to business opportunities. That's why other states should follow the example of Colorado and Washington and legalize the recreational use of marijuana. Harnessing the power of entrepreneurs is much more productive than fighting it.

On January 1, Colorado legalized the sale of small amounts of marijuana for recreational use. Later this year, Washington will follow suit. Alaska, Arizona, California, D.C. and Oregon may be the next states to permit cannabis businesses.

Cultural attitudes, fairness, economics, and entrepreneurial behavior all point to extension of this trend toward legalization. Much like policy makers were caught flat-footed as American attitudes towards same-sex marriage changed, so too have they missed the shifting views toward the legalization of pot. According to an October 2013 Gallup Organization poll, 58 percent of Americans now favor legalization of marijuana -a jump of ten percentage points over the previous year. Many policymakers seem to have missed the memo showing that voters' views on the topic are fundamentally different from the late 1960s, when only one-in-nine Americans favored sanctioning it.

Fairness, too, justifies legalizing cannabis. In the 48 states that do not permit recreational use of marijuana, smoking tobacco, which causes cancer, is legal. By contrast, smoking weed, which is used to treat the symptoms of cancer treatments, is not. Moreover, some experts believe that alcohol, which is legal in virtually all parts of the United States, is more harmful than marijuana, which is illegal in almost all of the country.

Fairness dictates that policymakers either need to play nanny and ban everything that's bad for us - from sugar-laden soda to fat-filled fast food - or they need to allow Americans to make adult decisions about what they want to put in their bodies. Making cigarettes, beer, and whiskey legal, while banning joints and hash brownies, unfairly favors the makers of certain harmful products.

Making pot legal has economic benefits. Policymakers can tax sales of the product - and are doing so relatively heavily. Both Washington and Colorado are charging a 25 percent tax on pot sales, with even higher rates in some municipalities. The non-partisan Tax Foundation estimates that Colorado will bring in nearly $70 million in new taxes, with initial proceeds being used for school construction. Because tax revenues are expected to exceed school building needs, Colorado public officials are already thinking of additional ways to use the tax windfall.

By making pot legal, police can focus their attention on stopping more destructive illegal drugs like cocaine and heroin, which are more likely to cause crime and health problems. That would help financially strapped states. If all states legalized cannabis sales, the reduced drug enforcement costs and higher tax revenues would be worth more than $17 billion to them, a 2010 Cato Institute study revealed.

Legalized pot will also produce public health benefits, Forbes reports. Because alcohol consumption is more harmful to people than marijuana use, but the two are substitutes, legalizing pot will lead customers to shift to the better of the two choices.

Entrepreneurs find and pursue market opportunities wherever they are. Making a business illegal doesn't get rid of the efforts of entrepreneurs to pursue it. Everyone knows that entrepreneurs are selling marijuana for recreational use in all 48 states where it is illegal.

Making a business legal makes it easier for policymakers to tap entrepreneurial efforts to benefit society. Colorado and Washington are using taxes and regulation to channel pot entrepreneurship more productively than other states, where policy makers are wasting resources trying to stop it, and, consequently, driving it underground.

The author is an Entrepreneur contributor. The opinions expressed are those of the writer.

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).