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March/ April/ May 2014 How Not to Make a Hash Out of Cannabis Legalization

Leaving it to the states is a recipe for disaster.

By Mark Kleiman


Credit: iStockphoto

A majority of Americans, and an overwhelming majority of those under thirty, now support the legalization of marijuana. This change in public opinion, which has been building for years but has accelerated of late, is now generating policy changes.

In 2012, voters in Colorado and Washington State endorsed initiatives legalizing not just the use of cannabis but also its commercial production and sale to anyone over the age of twenty-one. That goes further than the “medical marijuana” provisions that are now the law in twenty states. Nonmedical retail sales started on January 1 in Colorado and will begin in early summer in Washington. Similar propositions are likely to be on the ballot in 2014 and 2016 in as many as a dozen other states, including Alaska, Arizona, California, Nevada, and Oregon, and a legalization bill just narrowly passed in the New Hampshire House of Representatives, the first time either chamber of any state legislature has voted for such a bill. Unless something happens to reverse the trend in public opinion, it seems more likely than not that the federal law will change to make cannabis legally available at some point in the next two decades.

The state-by-state approach has generated some happy talk from both advocates and some neutral observers; Justice Louis Brandeis’s praise for states as the “laboratories of democracy” has been widely quoted. Given how much we don’t know about the consequences of legalization, there’s a reasonable case for starting somewhere, rather than everywhere. Even some who oppose legalization are moderately comforted by the fact that the federal government isn’t driving the process. “It’s best that this be done state by state,” said Pat Buchanan recently on The McLaughlin Group, “so you can have a national backlash if it doesn’t work out.”

But letting legalization unfold state by state, with the federal government a mostly helpless bystander, risks creating a monstrosity; Dr. Frankenstein also had a laboratory. Right now, officials in Washington and Colorado are busy issuing state licenses to cannabis growers and retailers to do things that remain drug-dealing felonies under federal law. The Justice Department could have shut down the process by going after all the license applicants. But doing so would have run the risk of having the two states drop their own enforcement efforts and challenge the feds to do the job alone, something the DEA simply doesn’t have the bodies to handle: Washington and Colorado alone have about four times as many state and local police as there are DEA agents worldwide. Faced with that risk, and with its statutory obligation to cooperate with the states on drug enforcement, Justice chose accommodation.

In August, the deputy U.S. attorney general issued a formal—though nonbinding—assurance that the feds would take a mostly hands-off approach. The memo says that as long as state governments pursue “strong and effective” regulation to prevent activities such as distribution to minors, dealing by gangs and cartels, dealing other drugs, selling across state lines, possession of weapons and use of violence, and drugged driving, and as long as marijuana growing and selling doesn’t take place on public lands or federal property, enforcement against state-licensed cannabis activity will rank low on the federal priority list. Justice has even announced that it is working with the Treasury Department to reinterpret the banking laws to allow state-licensed cannabis businesses to have checking accounts and take credit cards, avoiding the robbery risks incident to all-cash businesses.

That leaves the brand-new cannabis businesses in Colorado and Washington in statutory limbo. They’re quasi-pseudo-hemi-demi-legal: permitted under state law, but forbidden under a federal law that might not be enforced—until, say, the inauguration of President Huckabee, at which point growers and vendors, as well as their lawyers, accountants, and bankers, could go to prison for the things they’re doing openly today.

But even if the federal-state legal issues get resolved, the state-level tax and regulation systems likely to emerge will be far from ideal. While they will probably do a good job of eliminating the illicit cannabis markets in those states, they’ll be mediocre to lousy at preventing an upsurge of drug abuse as cheap, quality-tested, easily available legal pot replaces the more expensive, unreliable, and harder-to-find material the black market offers.

The systems being put into place in Washington and Colorado roughly resemble those imposed on alcohol after Prohibition ended in 1933. A set of competitive commercial enterprises produce the pot, and a set of competitive commercial enterprises sell it, under modest regulations: a limited number of licenses, no direct sales to minors, no marketing obviously directed at minors, purity/potency testing and labeling, security rules. The post-Prohibition restrictions on alcohol worked reasonably well for a while, but have been substantially undermined over the years as the beer and liquor industries consolidated and used their economies of scale to lower production costs and their lobbying muscle to loosen regulations and keep taxes low (see Tim Heffernan, “Last Call”).

The same will likely happen with cannabis. As more and more states begin to legalize marijuana over the next few years, the cannabis industry will begin to get richer—and that means it will start to wield considerably more political power, not only over the states but over national policy, too.
That’s how we could get locked into a bad system in which the primary downside of legalizing pot—increased drug abuse, especially by minors—will be greater than it needs to be, and the benefits, including tax revenues, smaller than they could be. It’s easy to imagine the cannabis equivalent of an Anheuser-Busch InBev peddling low-cost, high-octane cannabis in Super Bowl commercials. We can do better than that, but only if Congress takes action—and soon.

The standard framing of the cannabis legalization debate is simple: either you’re for it or you’re against it. Setting up the debate that way tempts proponents of legalization to deny all risks, while supporters of the status quo deny how bad the current situation is. Both sides deny the unknown. In truth, there’s no way to gauge all the consequences of adopting unprecedented policies, so it’s foolish to pretend to be 100 percent certain of anything. But it’s possible to guess in advance some of the categories of gain and loss from policy change, even if the magnitudes are unknown, and to identify the complete wild cards: things that might get either better or worse.

The undeniable gains from legalization consist mostly of getting rid of the damage done by prohibition. (Indeed, as E. J. Dionne and William Galston have pointed out, polling suggests that support for legalization is driven more by discontent with prohibition than by enthusiasm for pot.) Right now, Americans spend about $35 billion a year on illegal cannabis. That money goes untaxed; the people working in the industry aren’t gaining legitimate job experience or getting Social Security credit, and some of them spend time behind bars and wind up with felony criminal records. About 650,000 users a year get arrested for possession, something much more likely to happen to a black user than a white one.

Mark Kleiman is a professor of public policy at the University of California Los Angeles.

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