Over the past few years, there has been a lot of talk about the legalization of marijuana and how it would affect our economy. Some numbers point to the reduction of government costs of prison sentences, while others point to taxation and additional revenue streams. Some people think that the federal government is wasting resources by keeping the drug at a Schedule I level, and prosecuting those caught with it. Other people think that legalizing it would be a boon to the economy.

According to Forbes, the IRS has been at the forefront of the crackdown on medicinal marijuana dispensaries, but not because they've been baking their books -- they've actually been paying their taxes. It's because of a federal targeting effort to shut down the industry.

Even state and local governments disagree with the attack, though. The legalization of marijuana can open up the possibility to regulate it. That regulation implies the opportunity to tax the drug, and it also makes law enforcement easier. The localization of the growing process can help to weed out drug dealers, gangs, and cartels as well.

If the economy can benefit from it, the government can save and make money from it, and consumers can enjoy it, it might be high time to end the prohibition on marijuana. Maybe we should let the industry catch fire legally and let it blaze.

On the other hand, the legalization of marijuana may make it more difficult for prisons to meet their prisoner quota.

Business section: Investing ideas
The prison cost argument is a large one for marijuana legalization -- so how would prison stocks be affected?

Interestingly, the argument goes both ways, since many are private institutions reliant on a certain level of crime to remain profitable. Meanwhile, less crime would benefit the taxpayers and federally run prisons, which are already maxed out.

Below are a couple of prison stocks that might see some movement if the legalization were to happen. How do you think they would respond? (Click here to access free, interactive tools to analyze these ideas.)

1. Corrections Corporation of America (NYS: CXW) : Operates privatized correctional and detention facilities in the United States. The company specializes in owning, operating, and managing prisons and other correctional facilities and providing inmate residential and prisoner transportation services for governmental agencies. Its facilities offer a range of rehabilitation and educational programs, including basic education, religious services, life skills and employment training, and substance abuse treatment. It has a market cap of $3.14 billion.

2. GEO Group (NYS: GEO) : Provides government-outsourced services specializing in the management of correctional, detention, and mental health and residential treatment facilities in the United States, Australia, South Africa, and the United Kingdom. It operates a range of correctional and detention facilities, including maximum, medium and minimum security prisons, immigration detention centers, minimum security detention centers, mental health, residential treatment and community-based re-entry facilities. It offers counseling, education, and treatment to inmates with alcohol and drug abuse problems at most of the domestic facilities, which it manages. It also provides secure transportation services for offender and detainee populations as contracted. It has a market cap of $1.27 billion.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


At the time this article was published Kapitall's Danny Guttridge does not own any of the shares mentioned above. Data sourced from Finviz. Motley Fool newsletter services have recommended buying shares of Corrections Corporation of America. The Motley Fool has a disclosure policy.
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dave mowers

Why not cite the RAND study which the State of California paid for when considering legalizing marijuana for all uses? The State would charge a percentage at sale on the pot and the estimates by proponents were enormous except they are all based on fantasy concepts like the price never going down at retail even though everyone would deal pot for those levels of profit. RAND showed that high grade indoor marijuana would in a couple years time be priced at the same levels as Mexican grade commercial marijuana is now- $80.00's a pound. In fact another study even showed the current price for high grade outdoor from Afghanistan and it sells for a whopping $8.00's a pound now. So California would end up making next to nothing on pot sales within five years as legal pot would sell for prices around the same as legal tobacco and it would be grown overseas by mega corporations not by medical provider clubs with budtenders who think that an ounce of pot is worth $400.00's and a gram is worth $30.00's retail. This is a dumb argument pot, like alcohol and tobacco would be dirt cheap because a single mature plant can grow 12 feet tall and yield multiple pounds every six months and that is California imagine what pot looks like in the Amazon?

April 24 2012 at 10:26 AM Report abuse rate up rate down Reply
Suzi Drake

The five biggest lobbyists against medical marijuana legalization: Alcohol industry, pharmaceutical industry, private prison corporations, prison guard and police unions.

April 24 2012 at 1:26 AM Report abuse rate up rate down Reply
Brandt Hardin

The War on Drugs failed $1 Trillion ago! This money could have been used for outreach programs to clean up the bad end of drug abuse by providing free HIV testing, free rehab, and clean needles. Harmless drugs like marijuana could be legalized to help boost our damaged economy. Cannabis can provide hemp for countless natural recourses and the tax revenue from sales alone would pull every state in our country out of the red! Vote Teapot, PASS IT, and legalize it. Voice you opinion with the movement and read more on my artist’s blog at http://dregstudiosart.blogspot.com/2011/01/vote-teapot-2011.html

April 23 2012 at 9:46 PM Report abuse rate up rate down Reply