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Legalizing pot: States need to put on their poker face

Remember when casino gambling in America was a real novelty and going to a place like Las Vegas or Atlantic City was super-exotic and cool?

Yeah, those were the good old days.

States should learn from what happened with gambling — and be on their game when it comes to legalizing marijuana.


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Twenty-five years ago, Nevada had the monopoly on legalized gaming in the West and New Jersey had a lock in the east — and all the tax revenue that came with it. But now, a whopping 39 states allow casino gambling and the competition has really taken a bite out of money New Jersey and Nevada expected to be raking in for decades to come.

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Don't be fooled: More money is being made overall (and therefore more tax revenue) — it's just that the pot is being spread out much more and everyone's margins are a lot smaller. In other words, it's a more competitive market which is better for the gambling consumer and better for the casinos who offer the best services and attractions.

But it's worse for the statist bureaucrats who simply want to approve gaming licenses and collect easy money with no other effort required.

Boo hoo for them.

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It took a long time for more states to catch the casino fever, so Nevada and New Jersey enjoyed a few decades worth of artificially inflated tax revenues while they cornered the market. Now, that's over and while Las Vegas still has a big edge in the "cool" part of the casino-marketing story, Atlantic City is struggling to keep up.

There are two important lessons to be learned from the casinos in America story.

First: the only thing that can beat one state's commercial monopoly is a commercial monopoly run by another state. For anti-statists everywhere, the results have been fun to watch, as once-comfy and lethargic government officials are now having to squirm and actually make an effort to keep milking the gaming cash cow. Imagine if every state ran building-permit offices or DMVs that could legally market their services to people in other states! Sure, it would be far from a truly free market environment, but it would be an improvement.

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Second: states that are considering going the way of Colorado and Washington and legalizing pot for recreational use, should take a good hard look at the casino-legalization boom. Early adopter states won't enjoy a monopoly for very long on legalized recreational pot sales. And so, all the legislators deciding whether to vote for or against pot legalization in their states had better not put too much stock in all the projected tax revenues some legalization advocates are promising.

I expect at least 15 states to have Colorado-style legalized marijuana within five years. It will almost surely be legal nationwide not much longer after that.

Casino gambling and pot smoking are closely related issues for those of us who favor more economic and personal liberty. While we support legalization, we don't support it just so governments can collect more taxes and consolidate their power. But with state-to-state competition taking a big toll on each individual government's take, that tradeoff is a little easier to stomach.

When it comes to statist-controlled enterprises like gambling and narcotics, state-to-state competition is the closest thing to the free market we can get. There's no way any government will allow the private sector to operate those businesses without heavy licensing and regulation. So interstate competition is the best we can get.

And while it's not as competitive and innovative as the private sector, it does succeed and fail based on the quality of the goods and services.

So the next time you have a hankering to play black jack or toke up on a joint, consider your options and get the best deal for you.

And make sure the tax man doesn't take you for granted!

Commentary by Jake Novak, supervising producer of "Street Signs." Follow him on Twitter @jakejakeny.