Federal-state legal conflicts over cannabis

On August 26, Patrick Leahy, the chairman of the Senate Judiciary Committee, announced hearings on conflicts between federal and state marijuana laws and invited Attorney General Eric Holder to testify. Three days later, the Justice Department announced that even large for-profit cannabis firms operating under state law would not be priority targets for federal enforcement unless their operations trenched on eight specified federal priorities.

The hearing announced two weeks ago takes place this afternoon. The committee staff invited me to submit a written statement. (Full text after the jump.)

The statement makes five basic points:

· DoJ lacks the resources to enforce the marijuana laws without state and local help, so some form of accommodation was unavoidable.

· But DoJ could and should insist on a complete ban on marketing.

· Either formal agreements authorized by current law or policy waivers requiring new legislation could outperform informal guidance such as DoJ has issued.

· Bank regulators should allow businesses legal under state law to have access to normal banking services (checking accounts and credit-card processing) to avoid the robbery risks created by a large all-cash industry.

· A commercial market is not the only alternative, or the best alternative, to legalization. A for-profit cannabis industry will be devoted to creating bad habits, just like the existing alcohol, tobacco, and gambling industries. If Congress wants to preserve the option of a non-commercial system it needs to act now, before commercialization becomes entrenched.

September 10, 2013

Dear Mr. Chairman:

Thank you for the invitation to submit a statement of my views on conflicts between state and federal marijuana laws.

By way of introduction, I am a Professor of Public Policy at the UCLA Luskin School of Public Affairs. With Jonathan Caulkins, Angela Hawken, and Beau Kilmer, I wrote a book last year called Marijuana Legalization published by Oxford University Press. Kilmer and I jointly edit the Journal of Drug Policy Analysis.

In addition to my academic work, I provide advice on crime control and drug policy to governments in the United States and abroad through BOTEC Analysis Corporation. BOTEC has been advising the Washington State Liquor Control Board on the implementation of a regulated market for cannabis.

The opinions here expressed are entirely my responsibility, and should not be taken to reflect the views of UCLA, of the State of Washington, or of my co-authors.

The Nature of the Conflict and the Case for Accommodation

The combination of the Controlled Substances Act and state-level legalization creates a conflict: the states are licensing individuals and firms to commit federal felonies. The question is how the federal government should deal with that conflict. Neither of the obvious answers to that question – simple acquiescence nor a complete crackdown – is either workable or consistent with the requirements of the CSA itself.

It is undisputed that the states could repeal their marijuana laws entirely – as New York State did with alcohol in 1923 – leaving the federal government with an impossible task: 4000 DEA agents can’t replace 500,000 state and local police.

It would clearly be more desirable, in terms of controlling drug abuse – which, after all, is the purpose of the CSA – for the states to tax and regulate than for them to declare a free-for-all. To make those taxes and regulations effective, the states will have to maintain or even increase enforcement against the remaining illicit market. It has proven impossible to eliminate cannabis use and sales entirely, because arresting a grower or dealer creates a market niche for another grower or dealer. It should not be impossible, once a state allows a reliable competing state-licensed source of supply, to drive most of the purely illicit market out of business, just as the legal alcohol industry has largely eliminated moonshining.

Therefore it makes sense for the federal government to work with the states – as the CSA requires – rather than against them, even when the states decide to regulate and tax cannabis rather than continuing to prohibit it. That does not change the illegal status of the activity under federal law. But it does hold out hope of preventing these two local experiments from becoming national problems.

Indeed, the federal government could easily destroy the licensed, taxed, and regulated systems Colorado and Washington are now putting into place. But that would not mean that no one in those states would produce, sell, or consume marijuana: it would merely leave production and sale in the hands of unlicensed, untaxed, and unregulated illicit and quasi-medical producers and distributors. Would that really be a better result than is likely to emerge if the state-level experiments are allowed to run their course?

On the other hand, simple deference to the states seems equally unwise. The CSA remains the law of the land, and other states have a right to expect the federal government to ensure that decisions made in Washington and Colorado do not lead to a national flood of cheap, high-potency cannabis.

The DoJ announcement of August 29 seems to me a serious and well-considered effort to deal with a situation without any easy solutions.

Alternative Approaches: Sec. 873 Contractual Agreements and Waivers

Still, the uncertainties and ambiguities created by the conflict of laws represent undeniable problems. In a recently published paper, “Cooperative Enforcement Agreements and Policy Waivers: New Options for Federal Accommodation to State-Level Cannabis Legalization,” (Journal of Drug Policy Analysis. Volume 6, Issue 1, August 2013)  I attempt to lay out two alternatives.

One, which could have been done – or could still be done – within the confines of the current law, would be for the federal government and the legalizing states to enter into “contractual agreements” as provided for in

Section 873 of the CSA. That section gives the Attorney General the power to make such agreements “notwithstanding any other provision of law.” In the negotiations leading up to such agreements, the Justice Department could and should require specific, verifiable commitments from Colorado and Washington with respect both to the controls to be placed on the state-legal markets and the efforts to be undertaken with respect to the frankly illicit markets. In my view, the risks of interstate smuggling from purely illegal activity, and from the unregulated and unregistered production for personal use allowed under the Colorado law and under Washington’s medical marijuana law, are more substantial than the risks of diversion from licensed producers.

A second alternative – requiring new legislation – would be to create a formal “waiver” process under which states would be allowed to experiment with taxed and regulated cannabis production and distribution, as states were allowed to experiment with alternative forms of income support under AFDC waivers. The waiver process could be made as strict as Congress desired. With a waiver in place, state-legal activity would become legal under federal law as well, a substantial improvement, for state regulators and industry participants alike, over simply being a low enforcement priority. That promise would provide a substantial incentive for states seeking waivers, or wanting to hold on to waivers, once granted, to do their utmost to prevent sales out of state. That would also create an incentive for the newly-legal industries to self-police and to support enforcement efforts against rogue licensees and entirely illicit traffickers, since the threat of having a waiver withdrawn as the result of misbehavior by a few bad actors or the state’s failure to rein in the illicit market would be a potent one.

The goals established, either under contractual agreements or under waivers, would have to be realistic. Even under existing laws, we have notably failed to prevent the distribution of cannabis to minors, just as age restrictions have not prevented a major alcohol-abuse problem among people under 21. A rule that required states to promise that no cannabis from licensed sellers ever find its way into the hands of minors would be a demand for the Moon. However setting reasonable goals and requiring sensible policies about, for example, labeling, marketing, and child-resistant or child-aversive packaging, could produce reasonable results.

Commercialization is Not the Only Option

The voters in Colorado and Washington State have created “alcohol-like” cannabis industries: competing for-profit firms acting under state regulation. There is reason to doubt that such a system is anywhere close to the ideal one. Whether the drug involved is cannabis or alcohol, commercial vendors have interests directly opposed to the public interest, because their most reliable and lucrative customers are precisely the minority of cannabis users or drinkers who have lost control over their consumption. The public interest is in allowing adult access to intoxicants for those who will use them moderately and responsibly. The commercial interest is in maximizing revenues and profit, which means creating and serving a market of people with substance abuse problems. The ability of regulators to rein in market excesses is limited by the Supreme Court’s “commercial free speech” jurisprudence. In what seems (to a non-lawyer) a complete absurdity, the Court has held that Congress or a state legislature may ban an activity entirely, but may not allow it while banning its promotion.

There are at least two alternatives to commercial availability, short of complete prohibition. One would be to create a state monopoly on retail sales, as used to be the policy toward alcohol in many states. The other would be to allow production and sale on a strictly not-for-profit basis, exemplified by the Spanish “cannabis clubs” where users band together to hire people to produce cannabis for them, on the model of a consumer-owned organic farm. Neither of those approaches is simple or without its own problems, but either would dampen what will otherwise be the enthusiastic efforts of state-licensed cannabis vendors to create bad habits. A “state-store” system could both limit its own marketing and require its suppliers to limit theirs as a contractual matter. (There is no guarantee that a state monopoly system would avoid relentless promotion; consider the excesses of the state lottery system, But the federal government could insist on such restraint as the price of a waiver.)

While the Controlled Substances Act in its current form remains in place, the “state-store” system is not an option, because no state can instruct its officials to violate the federal law, as selling cannabis clearly does. (Regulating the behavior of private parties, even when that behavior violates the federal law, does not create the same problem.)  Production and sales activity under a waiver of the kind proposed would be legal, rather than merely tolerated, eliminating the legal problem. Thus a “waivers” approach could allow a state monopoly on sales.

In creating authority for cannabis policy waivers, the Congress could even require either state-monopoly sales or an entirely not-for-profit industry. Or it could choose to give the Executive Branch, and the states, more leeway. But without new legislation the Federal response will necessarily continue to be purely reactive, and without substantial legislative input. Surely it would be better for the Congress to take an active role, lest the country wind up stuck with the commercial-sales model simply because that was the choice of the first two states to attempt cannabis regulation.

Discouraging Marketing

Even under the prosecutorial-discretion approach adopted by the Justice Department, there are opportunities for discouraging marketing activity which the memo issued last month does not fully exploit. A retailer needs a modest sign on the outside of the building and a website listing what it has to sell.  There is no need to tolerate anything more than that: billboards, flyers, newspaper/television/radio advertising, “social marketing.” The Justice Department could, and I submit should, add marketing efforts to the list of eight categories of activity that will attract enforcement and prosecution. That would do more to prevent increased drug abuse and increased use by minors than any single other step the Federal government could take.

Both in Washington State and in Colorado, there are two major categories of risk: the risk of increased drug abuse and its consequences within the state, and the risk of exports to other states worsening drug abuse problems there. In each case price is a key consideration. If prices in the licit market are so much higher than illicit prices that they help keep the black market in business, it will frustrate the goal the voters had in mind. But there is no good reason to allow licit-market prices to fall much below current illicit-market or medical-market prices. (In Colorado especially, some of the reported medical-market prices are already at dangerously low levels, and they are likely to fall – even taking taxation into account – when producers are able to enjoy the efficiencies that go with open rather than covert production.)  For a non-habituated user, cannabis intoxication is already available at a price of less than a dollar per hour. Paraphrasing an old ad for a premium Scotch, “If the price bothers you, you’re toking too much.” It should be an explicit goal of state and federal policy to prevent any further decrease in price. Both Washington and Colorado use ad valorem taxes, which will fall along with market prices. A better approach would be a specific excise based on the quantity of THC, and rising as market prices fall.

The Financial-Services Issue

Federal responsibility does not begin and end with the Department of Justice. Treasury Department (and Federal Reserve Board) regulations, and the guidance provided to financial institutions by their regulators and inspectors from the Fed, the Comptroller’s office, the Federal Deposit Insurance Corporation, and the National Credit Union Administration currently mean that in practice the entire state-legal medical marijuana industry, and the new state-legal commercial cannabis industries in Washington and Colorado, have to operate almost entirely in cash – without being able either to accept credit cards or to have checking accounts – unless they conceal their identity from their financial institutions by calling themselves “flower shops” or “natural products suppliers” or “herbalists” or some such, or maintaining what are in fact business accounts under personal names. Even those prepared to engage in such subreption face the constant risk of having their accounts terminated.

Once Washington and Colorado have their commercial systems up and running, those regulatory practices, if not changed, will mean hundreds of millions of dollars per year in cash transactions, with attendant risks of robbery. That risk to public safety seems to me unnecessary and unaccompanied by any good result. I would suggest that the Committee, having asked the Justice Department what it plans to do and gotten the August 29 memo as an answer, now ask the Treasury Department whether it plans to offer new guidance to the bank regulators, or whether it believes that new legislation is needed. This matter deserves, I submit, more attention than it has received heretofore.

The States as Laboratories

Now, as to the longer term:

I have been a long-time skeptic about proposals for cannabis legalization. But the changes in public opinion, and in market behavior, over the past decade now make me doubt that there is a operationally and politically sustainable version of cannabis prohibition still available. It seems to me that the burden of the argument now falls on those who wish to retain the legal status quo. What specific policies would they put in place, and what resources would they be willing to provide, that could realistically be expected to shrink what is now a $30 billion-per-year illicit market? If they have no more idea than I do how to accomplish that, then it is time to ask whether whatever benefits we get from continued cannabis prohibition in the form of reduced drug abuse are really large enough to justify offering criminal organizations such a huge economic prize.

The answer to that question depends in part on whether the states and the federal government can design and implement effective systems of taxation and regulation to replace the cannabis provisions of the CSA and of the corresponding state laws. Right now, no one knows.  The Colorado and Washington experiments will provide substantial help in finding some answers. (Since those data will not collect themselves federal and philanthropic research-funding agencies should be ready to take advantage of the opportunity to learn from experience.) That – along with the sheer impossibility of enforcing federal law without state and local help – seems to me the best argument for accommodating to the Washington and Colorado initiatives rather than merely clamping down hard.

 

 

Comments

  1. Brett Bellmore says

    “· DoJ lacks the resources to enforce the marijuana laws without state and local help, so some form of accommodation was unavoidable.”

    Lacks the resources with such help, too, we must remember.

  2. Frank says

    Great post Mark.

    Three quibbles:

    1. Do you have any evidence that alcohol state-stores reduce problem drinking in states that have them, versus non-state alcohol retail outlets? A good natural experiment would be Ohio, which sold a bunch of their state-owned liquor stores over the last few years.

    2. I do think you over-emphasize the effects of marketing. There is a whole school of thought that marketing cannot induce consumption, but just the composition of the consumption. And it makes intuitive sense-people will like intoxicants just because of the high, but there consumption of the intoxicant may vary with marketing.

    3. I would be wary of thinking of non-profit preventing abusive practices or growth of industry; there are large insurers that are non-profit.

    Frank

  3. joel hanes says

    I’d ask Frank to cast his mind back to the first puff of tobacco he tried to smoke.
    It’s nasty stuff; it hurts; the body rejects it.

    Now, quickly:
    Sing the Marboro theme song.
    “We’d rather fight than ____”
    LSMF___
    Winston tastes good, _______
    Nine out of ten doctors choose _____
    You’ve come a long way, ____

    The cigarette TV ads of forty years ago still persist in memory.
    Powerful stuff; powerful enough to make a poisonous habit seem glamorous.

    There may well be a school of thought that claims that advertising cannot create demand, only reallocate it among brands, but I think the history of cigarette marketing is strong evidence against that idea.

    • Joel says

      I never saw a cigarette TV ad because I was too young!

      I have heard of, “You’ve come a long way, baby!” because it was bizarre combination of feminist lib with tobacco advertising.

      My view is the big drop-off in cigarette smoking is probably tax and litigation costs added on to cigs over the last 15 years, rather than restrictions in ads.

      I would be curious if someone could show analystically the uptake in liquor consumption is due more liberal television advertising rules…

      Frank

    • MobiusKlein says

      I remember my first puffs, and I could tell the nicotine had a pleasant buzz going. I would not put any stock in dissuading folks from cigarettes by saying it is no fun.

      Btw, the total tobacco equivalent I have smoked, lifetime, is less than a pack.

      • Brett Bellmore says

        I was fortunately untempted, being allergic to tobacco in all forms. I still recall a school field trip to Greenfield village one year when they’d planted a tobacco field there; The whole time I was down wind of it I was coughing up phlegm. Took a lot of long walks back before my parents quit.

        Made it rather hard to take Ayn Rand entirely seriously, though like Nietzsche, there were some insights among the nonsense.

        • says

          “Insights among the nonsense.” I suppose that’s fair, but it’s like comparing hand-gleaning a machine-cut field for unharvested grain to a bird picking apart a cow patty for a kernel of corn.

          • Brett Bellmore says

            It’s the best you could possibly say about a lot of philosophers. At least Rand wasn’t responsible for megadeaths, which is more than you can say about some of the left’s icons.

    • says

      I smoked for about 30 years before quitting. Ads never had an impact on my starting. It had everything to do with availability, friends, and social situations. Cigarette ads, to me, were about brand loyalty. Ads often convinced me to try a different cigarette after I started.

      Additionally, anti-smoking ads had nothing to do with me quitting. Usually they made me want a cigarette. No, I quit because I didn’t want to smoke anymore. That simple.

    • J. Michael Neal says

      There may well be a school of thought that claims that advertising cannot create demand, only reallocate it among brands, but I think the history of cigarette marketing is strong evidence against that idea.

      The most obvious evidence against this idea is Cialis and other prescription drugs. Advertising has very clearly increased the demand for them.

  4. Pococurante says

    I am pleased that all other participants accorded Mr. Sabet the full lack of respectful acknowledgement that he deserves. Senator Grassley raised points that should be considered. (that was difficult for me to type)

  5. Your Syllabus says

    I never could understand how the CSA laws had anything to do with drugs. The current myth is: marijuana, cocaine, heroin etc are dangerous and therefore have been outlawed. If this was remotely true or even related to the drugs themselves (if the laws essence were in regards to the drugs and stopping drugs etc), why haven’t we seen laws that outlaw everything possibly bad and dangerous? i.e. parents put children’s lives at risk by forcing them to ride in cars (which have been proven to be bad and even fatal for children), therefore we are obligated as a nation to outlaw having children younger than 16 (because of driving age) ride in cars . . . or better yet, driving should be illegal. The law cannot be blind and its premise should be focused on public/private safety thus we are obligated as a nation to outlaw everything possibly dangerous and bad (teenage pregnancy, unprotected sex, alcohol, obesity, guns, knives, contact sports, various jobs in construction/manufacturing etc). Much of our U.S. Constitution was created for the protection of not only the majority, but the minority as well. Since everything possibly dangerous isn’t illegal, one must assume our CSA laws have nothing to do with drugs or the possibility that said drug(s) is dangerous. It appears that drugs were just randomly picked out and outlawed for reasons having nothing to do with their being dangerous due to the fact our U.S. Constitution would require everything dangerous/bad for you to be illegal as a method of keeping up the integrity of the law’s premise or otherwise hypocrisy runs rampant and thus makes the Constitution non-void through a law implemented for no reason at all. One cannot smoke pot or heroin on his or her couch, but you can place your infant in a child seat in a vehicle while teenage or sleepy drivers are out –how does that make any sense? Hypocritical laws are no laws and thus we have no evidence proving the CSA laws are the laws of the lands, but merely laws belonging to an illicit institution wedged into the Body Republic like a thorn: unwanted and unwarranted.

  6. says

    But DoJ could and should insist on a complete ban on marketing

    Leaving aside the offensiveness of this on its merits (you are basically depriving marijuana consumers information regarding the products they wish to purchase), this is just a complete First Amendment violation. You can’t impose a “complete ban on marketing” of something that can be lawfully sold. If you want the DOJ to take the double-ju-jitsu position of saying it can’t actually be lawfully sold, that doesn’t permit the DOJ to commandeer STATE resources to impose the ban. Now you’ve violated TWO amendments, the First and the Tenth.

    The Constitution simply does not permit your dream solution to the marijuana issue, where capitalists can’t tell consumers about their products.

    A commercial market is not the only alternative, or the best alternative, to legalization. A for-profit cannabis industry will be devoted to creating bad habits, just like the existing alcohol, tobacco, and gambling industries. If Congress wants to preserve the option of a non-commercial system it needs to act now, before commercialization becomes entrenched.

    A regulated commercial market will assure access to quality, safe marijuana. And it isn’t as though people don’t get addicted to substances just because they are sold or produced not-for profit.

  7. says

    I am skeptical that a ban on advertising would reduce cannabis “abuse” rates. Partial advertizing bans aren’t very effective, and a complete
    ban would be impossible to implement given the internet, the constitution, and the imagination of advertisers.

    Whether or not a given cannabis consumer becomes chronic, for a period of time, seems to depend more on the consumer than on advertizing or the incentive of suppliers to make money. Note that the black market is like Amway, almost everyone from the top to the bottom works on commission or by plant trimmed, etc., as opposed to a fixed wage or salary.

    I would argue that most chronic consumers are self-medicating; if not for the usual medicinal purposes, then for insomnia, stress, anxiety, PTSD and other psychological and emotional problems. I suspect most would make due with alcohol, tobacco, opiates, sedatives, tranquilizers, anti-depressants, anti-psychotics, etc. if they didn’t have access to cannabis.

  8. says

    “A better approach would be a specific excise based on the quantity of THC, and rising as market prices fall.”

    Yes, but there are two pieces:

    Rate: A tax rate that rises as market prices fall is ideal. A tax rate can be flexible (or not) whatever the tax base — price, weight, or THC potency. Legislatures are reluctant to cede rate-setting power, but without flexibility, problems are bound to appear.

    Base: Basing an excise on quantity of THC is ideal, but labs don’t agree on how much THC a sampled batch of plant matter contains, since it’s not fungible. http://canorml.org/news/ringtest.html. Concentrates should be fungible enough to allow a THC tax base, though.

    Pat Oglesby
    Center for New Revenue

  9. David says

    Mark K: “A commercial market is not the only alternative, or the best alternative, to legalization. A for-profit cannabis industry will be devoted to creating bad habits, just like the existing alcohol, tobacco, and gambling industries. ”

    Mark’s obsession with the small proportion of abusers clouds his judgment. He equates problematic alcohol users with problem cannabis users; this is understandable, but quite misleading when unqualified by comments clarifying which is more harmful (alcohol, hands down).
    Mark frequently says full legalization is not ‘ideal,’ when nobody says it is ideal. It is unarguably better than the status quo, however. It is incumbent upon Mark to show why full commercialization/legalization would be so detrimental to society that we must forbid commercialization, which, as noted above, is neither practical, fair, nor constitutional. Just stating that the cannabis industry would market to problem users is not enough; just how problematic are these cannabis abusers? How destructive are they? And even if there was such evidence (if there were any, Mark and other anti-legalizers surely would have provided it, why should a minority’s irresponsibility deprive the majority of a relatively benign relaxant? Cannabis use is already culturally entrenched, over multiple generations. Cannabis legalization activists appear to have to meet hurdles that no other group has to meet; it’s neither just nor wise to insist that unless legalization is perfect or ideal than we must not enact it.

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