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December 26, 2013 11:03 AM How to Legalize Cannabis

By Mark Kleiman

Debating whether to legalize pot is increasingly pointless. Unless there’s an unexpected shock to public opinion, it’s going to happen, and sooner rather than later.

The important debate now is how to legalize it. The results of legalization depend strongly on the details of the post-prohibition tax and regulatory regimes. In the current situation, continued prohibition might be the worst option. Full commercial legalization on the alcohol model might well be the second-worst. But that’s the way we’re heading.

I’m preparing an essay about designing a post-prohibition regime. After the jump is a set of topic sentences and paragraphs for sections of that essay, not yet in a well-defined order.

Substantive comments are welcome. Rant and snark will be ruthlessly zapped.

We probably should legalize cannabis. Prohibition is now breaking down. $35B/yr. is a lot of money to give to criminals, and no one has a plausible plan to shrink the illicit market under prohibition. Even where “medical marijuana” has degenerated into system when anyone can buy a user license from a crooked doctor, the voters still like it. Arguably, prohibition was worth trying. But it’s time to go home.

Everything has advantages and disadvantages. Cannabis legalization will reduce criminal revenue, intrusive enforcement, arrest, incarceration, and disorder around illicit markets, and enhance personal liberty, consumer choice, and respect for the law, and probably reduce bloodshed in Mexico. It might foster safer and more beneficial practices of cannabis use.

Legalization will certainly increase drug abuse, including heavy use by minors. Every adult is a potential source of leakage to minors. And if we insist on making minors consume illicitly-produced pot, we reserve 20-25% of the market for criminals. Much better to tolerate leakage and have a grey-market supply to minors like the current system that provides them with alcohol.

The polarized nature of the debate means that both sides wind up spending lots of time denying the obvious.

Good design tries to get as much of the advantages, and as little of the disadvantages, as possible.

The policies most likely to help control increases in drug abuse are taxation and other efforts to keep prices high, rules about consumer information (labeling and marketing), and “nudge” strategies to enhance consumer mindfulness.

It matters a lot whether, under conditions of legality, cannabis turns out to be a substitute for alcohol or instead a complement. Right now, no one knows the answer, which might not be the same for all parts of the population or the same in the long run as in the short run.

Analysis can help, but there’s no substitute for experience. The trick is not to get locked in to a set of bad policies. We need a process designed to learn from mistakes.

Neither “cannabis” nor “legalization” names its object with enough specificity. Lots of different things are legalization. Lots of different things are cannabis.

To know the effects of the drug on a user, you’d have to know (at least):

- The levels and ratios of active agents.
- Dosage.
- Means of administration.
- Something about the user: age, tolerance.
- Something about the setting of use.

We don’t know as much as we ought to know about the relationship between the chemical composition of the cannabis consumed, the dose, and the means of administration on the one hand and the experience on the other, and especially about the risk of dysphoria and panic. It’s probable that lower THC levels and higher levels of cannabidiol (CBD) tend to be safer. If so, consumers should be told that, and taxes and regulations designed to reflect it. A per-ounce tax encourages the sale of high-potency product.

“Dabbing” - flash-vaporizing big doses of cannabis extract - seems to be psychologically more dangerous than smoking. On the other hand, vaporization using an e-cigarette might be safer, as might ingestion if the “servings” are appropriately divided and labeled. The fact that different means of administration have very different bioavailability complicates the problem of taxation; high prices encourage users to economize on physical cannabis, which might lead to riskier behavior.

The initiative process may be the only way of accomplishing legalization in some states, but the ordinary process of legislation, where feasible, is likely to yield better outcomes.

The bulk of the revenue of a legal cannabis industry, like the bulk of the revenue of the beer industry, will come from people with substance abuse disorder. Thus the commercial interest will be opposed to the public interest in minimizing the growth of the clinically impaired population.

In the face of the lobbying power of the cannabis industry, it will be difficult to maintain high taxes or tight regulation. A state-monopoly system at retail might be preferable. The doctrine of “commercial free speech” makes the regulatory problem harder; one advantage of a state monopoly would be better consumer information. But the state lotteries demonstrate that a revenue-driven state monopoly can be just as ruthless as any private enterprise.

Virtually no one starts using cannabis with the intention of becoming a chronic heavy daily user. A system of user-set periodic purchase quotas could help users protect themselves from their own tendencies to excess, and the marketing efforts of the industry.

Even illicit pot is cheaper per hour intoxicated than alcohol: about $1/hr. for those without much tolerance. For anyone but a very impoverished user, drug abuse becomes a problem before cost does. Pricing has most of its consumption-reducing effects on very heavy users and on minors. The argument against letting prices fall are strong. But the natural tendency of legalization will be to decrease prices substantially.

The free-market price of cannabis is at least half an order of magnitude smaller than the current illicit price. Collecting high enough taxes to prevent a price decrease will require enforcement; the $8-per-pack cigarette tax in New York City is widely evaded, yet a pack of cigarettes weights about an ounce. The relevant tax on cannabis would be closer to $300 an ounce.

The federal response to state legalization needs to be systematized. Mere implicit toleration of state-legal activity that remains a federal crime is no better than a stop-gap. A formal system of policy waivers would work much better, and the conditions of those waivers need to be carefully considered.

Taxation should be framed as a specific excise, not ad valorem (a share of market price). The relevant unit is not the dry-weight ounce of cannabis, but the gram of THC.

Once cannabis is available to all comers, there is no clear reason to maintain a separate system for medical use, though users with legitimate medical need might be exempted from paying excise taxes.

[Cross-posted at The Reality-Based Community]

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

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