How to legalize cannabis

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. (UPDATE: Numbers inserted to facilitate comments.)

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


1. 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.

2. 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.

3. 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.

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

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

6. 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.

7. 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.

8. 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.

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

10. 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.

11. 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.

12. “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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.

20. 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.

Comments

  1. Bryce says

    Very comprehensive. I’d also mention some sections on production levels being equally important as price and the challenges that home grow and clubs pose to controlling for overproduction and tax evasion. Also maybe the future of the international system in addition to the federal government’s position.

    • Mark Kleiman says

      Thanks. Yes, clubs and home-grow present complicated problems. If production controls push up prices, they’re just a variation on a tax.

      • Anonymous37 says

        Yes, clubs and home-grow present complicated problems.

        Can you elaborate on that? The obvious question that comes to mind is why, if “illicit pot is cheaper per hour intoxicated than alcohol”, then why isn’t home-brewing and home-distilling a major factor in cutting into alcohol taxes?

        I would actually think — I am not an expert, obviously — that home-grow and clubs would have a relatively minor effect, as properly growing popular strains of cannabis would be more difficult than making ethyl alcohol.

        • Gabe Nichols says

          Actually not, the home production of Ethyl Alcohol, at least in the form anyone would choose to drink, requires large quantities of heavy materials, careful manipulation of time and temperature, and only yields a relatively small quantity of final product. Weed on the other hand is just that, a weed. It grows readily and quickly and if legally done out in the open requires only minimal care. A few small packets of seeds will plant enough in the backyard to supply the heavy drug habit of quite a few people and if done on a larger scale by a collective could produce huge quantities very easily.

          • FredJ says

            Home brewing is easy. You can buy all the ingredients in a kit, just add water. It’s harder to grow potent weed than you think. Dropping some seeds into the ground won’t do it.

          • Shwell Thanksh says

            If beer “production controls” were set at $300 a liter, the vast majority of consumers would become homebrewers. It’s easier than you think to grow potent weed at home using widely available hydroponic kits.

          • Brett Bellmore says

            Actually, I think that, in that scenario, the vast majority of consumers would be buying from bootleggers. Not a whole lot of difference between taxing a “legal” product to raise it’s price above the black market price, and simply outlawing it. Except, I suppose, from the perspective of those wealthy enough to pay insane prices for legal protection.

      • Ed Whitney says

        In Colorado not all municipalities will allow retail operations to open on Jan 1. However, citizens can grow their own cannabis in limited quantities, and only in areas which essentially amount to indoor growing; towns which prohibit retail sales will create incentives to grow. Sales of seeds is a separate issue. Home growing, though subject to legal constraints on numbers of plants, may not observe these constraints and may not be detected if they are halfway discreet. There will be a patchwork of retail ordinances in large metropolitan areas where multiple municipalities coexist, and what is lawful on one side of a street may be unlawful on the other side.

  2. John Beaty says

    A very nice overview, Mark. (Although I think it’s hysterically funny that you still include your own snark while cautioning others!) In any case, a couple of points:
    You say:
    ” “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.” My experience leads me to believe that different means of use actually result in quite divergent experiences: a couple of quick puffs on a joint does not give the same high nor pain/anxiety relief as a small amount of ingested edible. So, there is more than just price driving the different paths.

    Further, you say that once cannabis is legalized, there is no need to maintain a separate medical system, but “users with legitimate medical need” might qualify for excise tax reduction. This would re-enact our current system, where people would be encouraged to cheat to gain cheaper access. As you point out, the tax would likely be very high, and so
    would attract a criminal element. Possibly getting the insurance companies to pay the difference would work. Also, we’re back to the, “What is a legitimate medical need?” Do you decide, or do I?

    • Mark Kleiman says

      How about having honest physicians decide, subject to normal rules under which M.D.s who corruptly write controlled-substance prescriptions, as opposed to actually practicing medicine, lose their licenses?

      But you’re right that even a tax-exemption system might not prove workable in practice.

      P.s. Other than the reference to “snark and rant,” what do you find snarky in the original post?

      • kenny says

        good luck with that ‘honest physicians’ thing, mark…
        i guess this opens up a whole ‘nother debate–what’s an honest physician? and what does it mean to over-prescribe?

      • Anonymous says

        No no, your honest Doctor is getting wacked for treating a Patents pain, or getting wacked for not… So I think your assumption that a MD who prescribes a pain med is “corrupt” is way out of the ball park…

  3. says

    Two substantive reactions:

    - I disagree with your statement that “once cannabis is available to all comers, there is no clear reason to maintain a separate system for medical use,” for two reasons. First, there will still be children who might benefit from cannabis-derived medications and who are not old enough to purchase it at the package store. Second, the “medical marijuana” of the near future will look very different than that of today; dominated by GW Pharmaceuticals and not the dispensary, the industry will sell extracts in pills or other form factors very different than cured flowers. In that case, it makes sense to have a separate set of rules for availability by prescription.

    - In your essay at the end of Marijuana Legalization: What Everyone Needs to Know, you opine that “noncommercial” distribution, such as through not-for-profit cooperatives, would be preferable to commercialized retail. Yet, I see no notes on that distinction here. Have you changed your mind, or do you think that all the states are headed down the commercial road already and it’s too late to change course?

    • Mark Kleiman says

      You’re right that if someone like GW gets a cannabis product through the FDA, that product would naturally move through the prescription system (and presumably be covered by insurance). I was thinking of the stuff that’s currently sold in the dispensaries, which could just as well be handled through commercial sales, with the exception you correctly note about juveniles with genuine medical need.

      I still like the idea of grow-your-own instead of commercialization, but I doubt home-grow can keep up with the product innovtion in the commercial system. My guess is that concentrates will largely replace herbal product, and not many people are going to make their own BHO.

  4. Kt says

    You are very smart. Something potentially left out – regulating behavior while intoxicated might have just as good a mitigating effect as taxation (or it is taxation on behavior, not consumption), given that you say addiction will be a concern before cost is.

    Why not just double or triple the current penalty for any civil or criminal activity if you are caught doing it while intoxicated on anything. That way people can mostly self regulate, and know that society really doesn’t want these other things to happen.

    • Mark Kleiman says

      As we see from drunk driving and drunken assault, one of the effects of intoxication is to reduce the efficacy of deterrent threats.

      • says

        Cannabis and alcohol have very different effects, particularly in this area. Focus needs to be on treating the detrimental effects of addiction of all kinds, not on assuming that consumption of this medicinal herb on a habitual basis is a bad thing. Please don’t forget there are many of us who suffer from severe pain and gain relief, in addition to spiritual insight from this ever-popular entheogen. When I used to drink a few beers every night, that was considered normal and possibly even beneficial for my health. So, why isn’t using the herb to relieve every day pains and stress acknowledged as a healthier alternative?

        The science isn’t lacking, if you go back through eastern history — starting with the Vedas from 1500 — 2000 B.C. Most modern religions have deep roots in the beneficial uses of this herb. It is also worth considering how many of the great artists, intellectuals, athletes and spiritual leaders have used cannabis and extolled its many virtues. My overall point being this plant deserves far more respect than to be dismissed as a dangerous intoxicant like alcohol, which obviously kills brain cells instead of encouraging their growth. This plant is considered holy sacrament for many who do not affiliate with any particular church and is also known, by myself and surely lots of others, as a much more entertaining, healthier and more productive alternative to alcohol — meaning the result of legal access will be less worthless drunks and more people weening themselves off far more dangerous drugs (including pharmaceuticals). Overall health and mental capacities of our society will increase substantially if we are simply allowed to cultivate this medicinal herb without ridiculous and unproductive interference from a morbidly obese government.

      • Timothy says

        You say “intoxication” like it’s generic. Alcohol def. decreases sensitivity to risk, but I have to imagine that while marijuana probably does as well (through the anxiolytic effect if nothing else) the effect has got to be way less than alcohol, possibly reversing for people who get stricken by paranoia.

  5. says

    You say “Pricing has most of its consumption-reducing effects on very heavy users and on minors.” That makes perfect sense and without any other factors considered, makes a strong argument for bringing up the price.

    However, do we know at what point pricing actually has non-trivial effect on those users? Obviously, at very low levels, increases in price are unlikely to have any significant effect on such use (eg, an increase of 10 cents per dose would be unlikely to have any perceptible effect). At some much larger level, the effect would be noticeable and therefore, probably justifiable. Do we know what that price point is, and how that price point relates to the price point at which the black market becomes a viable option?

    If it turns out that the price point that will have a non-trivial impact on use by minors and heavy users is above the price point at which those user groups would turn to the black market, then that price increase is not going to do any good, and you’d be better off keeping the price low to drive out criminal competition, since that would be a greater public good gain than the trivial effect on your target populations.

    Additionally, while we postulate that a certain price point would affect minors and heavy users of marijuana, we haven’t discussed substitution in that regard. If it turns out that a higher price point reduces the use of marijuana by minors and heavy users only to drive them to worse drugs in substitution, then that would be a net loss as well.

    So, while I agree that “Pricing has most of its consumption-reducing effects on very heavy users and on minors,” that doesn’t mean that I necessarily buy yet that artificial price increases on legal marijuana will actually result in a better outcome for those groups.

    • Mark Kleiman says

      Thanks, Pete. Very helpful.

      Yes, if cannabis is a strog substitute for other drugs, that would argue for lower prices. That’s a big “if.”

      Hard to see illegal pot maintaining much competition with legal pot, even with very high taxes.

  6. John says

    I am an active participant in the newly emerging legal cannabis business in Colorado.

    On 1/1/14 you are going to witness a demand much higher than is expected, an increase3425366 in price from $3000 per pound to double that, and a chronic shortage of cannabis in all forms.

    This enormous demand will surprise the experts.

    Most of your comments about this ju next are extremely accurate and I’m impressed with your knowledge.

    To understand legalization and the now inevitable end to prohibition you must get this point: the nation and then the world is going to drastically change the way they alter their state of consciousness with cannabis ( largely in concentrates and edibles) and away from alcohol. It will be a very positive and profound thing for the world.

      • kenny says

        actually, john, i’d love to hear why you think the demand will be so much higher than expected? i don’t necessarily disagree. but i’d bet that alcohol use drops only slightly.

    • Mark Kleiman says

      Competition is a wonderful thing. Pot is cheap to produce. There might be a price spike if there’s a shortage of legal product right after the stores open, but the market won’t support a high price for long.

      As to the explosion of demand: hasn’t been seen in the Netherlands. Neither has a substitution away from alcohol.

      • John G says

        but Luther was a monk, living a monkish existence. If you sat at a table in a cold room all day, you could have upped the number of your theses, I’m sure.

  7. James Wimberley says

    Re: “… users with legitimate medical need might be exempted from paying excise taxes.” No. Clunky and a loophole. If there’s a medical need, provide and reimburse cannabis drugs through the existing system for prescribed treatment. That’s the way the French and Germans provide holidays in spas!

  8. Jason Elsome says

    How do we determine that an act happened “under the influence” when considering cannabis? Since the body processes alcohol rather quickly it is relatively easy to determine that this person was “under the influence” when a given act occurred. But THC can accumulate in adipose tissue and definitive tests usually require a blood draw. I think the system and the science are not there yet to help us determine that someone was high when they wrecked the car, etc. And I haven’t really seen that addressed anywhere yet.

    • Mark Kleiman says

      Right. I think the stoned-driving problem is pretty much insoluble. Best you can do is make sure users know that impairment outlasts subjective intoxication by at least several hours. The bright side is that cannabis alone doesn’t make people aggressive, so the big worry is likely to be combination use with alchohol. Maybe a zero BAC limit for a driver who has any cannabis on board?

      • says

        “impairment outlasts subjective intoxication by at least several hours” — Are you saying that people remain notably impaired from this drug even hours after they feel sober? Is there data to back this up, other than the presence of THC in your system? I think it’s vital we don’t confuse the presence of THC with objective intoxication, because the scientific data largely contradicts these assumptions. My opinion is the solution to impaired driving laws is very simple: embrace technologies which measure actual impairment, not blood levels. An new app for smartphones, called “Walk or Drive” is a great example of what’s possible — this will also prove very useful for people unsure of their degree of impairment from other medicines, or even lack of sleep…

      • Brett Bellmore says

        “Maybe a zero BAC limit for a driver who has any cannabis on board?”

        Why would we do that? Cannabis you haven’t consumed can’t have intoxicated you. Are you sure you’re not just groping around for ways to harass people who use the drug even after it becomes legal?

        • prognostication says

          Well, for starters, although I wouldn’t like it on a personal level, there’s a colorable argument that the optimal BAC limit is zero or near-zero anyway.

          • Brett Bellmore says

            I’d say there’s a better argument that, if you’re not going to mandate that everyone who drives be trained up to the level of a race car driver, be in tip top physical shape, and never drive when at all sleepy, you’ve got little basis for banning a BAC low enough that its effects are comparable to having a cold, not being perfectly rested, or having a fifty year old nervous system, instead of a 30 year old one.

            Diminishing returns applies to BAC regulation, as much as anything.

            Jack, my reasoning is thus: The fact that you can’t test for something which IS a problem does not justify treating something which ISN’T a problem as though it were, just because you can test for it. Not unless maybe you regard harassing people doing the thing you’re actually testing for as a benefit, not a cost. Which I frankly suspect of Mark, hence my question.

            Not that it’s going to be a fact much longer.

            But, really, there are so many things that can impair driving, maybe we shouldn’t care WHAT happens to be impairing your driving, and just test for impairment, instead? Or is it that it’s more politically acceptable to punish somebody for driving with a BAC too low to really matter, than it is to take driver’s licenses away from people old enough to be equivalently impaired by the decline in their reaction time with age? Just a matter of political clout, not rational policy?

        • Jack Thompson says

          Mark is trying to solve a policy problem. He could describe it better, but I would sum it up this way:

          (1) there is no good test to determine whether someone is currently under the influence of marijuana. Instead, the urine test being used detects levels of marijuana long after the effects of the marijuana would have been felt. For example, a person could smoke a joint on Saturday night and get pulled over on Sunday evening and test positive despite not feeling any effects of the marijuana. This makes marijuana distinct from alcohol.

          (2) As Mark previously stated, it is an insoluble problem because there are no easily administered tests that determining whether someone is feeling the effects of Marijuana. Currently, the only easily administered test we have to determine whether a person is under the influence and, if so, how much a person is under the influence is to ask that person and receive honest answers. People who get pulled over for driving under the influence of marijuana will not tell the truth (and, under the Constitution, do not have to say much at all).

          (3) The semi-good news is that driving under the influence of marijuana does not appear to be as dangerous as driving under the influence of alcohol. If people are substituting marijuana for alcohol (something that has not occurred other places), then the roads of these states will be safer.

          (4) The bad news is that studies have also shown that combining alcohol and marijuana creates substantially more dangerous drivers. If there is a substantial increase in these types of drivers, the roads of these states will be more dangerous.

          (5) However, because of the problem of the test for marijuana, it is impossible to determine someone’s current BAC and current marijuana intoxication level without input from the subject.

          Therefore, you have two choices:

          (1) Admit that this is a problem, make no change in policy, and hope like hell that people substitute instead of combine

          or

          (2) Try to craft some rule that would reduce the problem.

          I think that’s the purpose for this comment section is so Mark can address some of these issues. If you do not like Mark’s proposal, what rule would you craft to address this problem? It seems an exceedingly difficult one and, if it goes wrong, could substantially impact the legalization debate this country is having right now.

  9. says

    Do you think your revokable license scheme you’ve mentioned for alcohol would not work here?

    Unrelated, it seems to me that edibles present one of the biggest problems with liberalization. It appears trivially easy to create foods laced with enough THC to really ruin the day of an unsuspecting eater (sometimes resulting in 911 calls and ER visits). What is the best way to deter people from (un)intentionally poisoning others?

    • Mark Kleiman says

      I’d be surprised if cannabis-inoxicated misbehavior got to be a major problem. But a user-license system could be used to force some consumer education, and would underly a system of user-set quotas.

      As to edibles: I’d be inclined to ban sweetened products.

      [Changed "TLC" in your comment to "THC." I assume that's right?]

  10. says

    Quick reactions on taxes: I agree about preferring a weight-based tax to an ad valorem tax. For instance, if, as suggested above, prices in Colorado do double, Colorado’s ad valorem taxes will double, too, and exacerbate the bootlegging problem. (There’s a different problem, just as foreseeable, if prices collapse.) A weight-based tax would at least hold steady. And to the extent that concentrates replace herbal product (where THC content varies beyond the threshold of “close enough for government work’), THC content will be reliably measurable.

    Evasion of cigarettes taxes is harder to solve than marijuana tax evasion. The case you describe typically involves a pack of cigarettes bought legally and then resold illegally without further tax in New York City. Those cigarettes were legal through all but the last steps of the supply chain. They were cost-effectively manufactured in a big, noticeable factory by an identifiable, deep-pocketed corporation that tested them for quality — on which its reputation depends. They typically bore both federal tax and whatever tax was due from some state or reservation. They are in a recognizable branded package, designed by the manufacturer to prevent counterfeiting. Customers know what they are getting. That case is different from sales of untested, unbranded, untaxed trust-your-illegal-supply-chain mystery material, which requires secretly beating the system during every minute of the production process. Enforcement won’t be easy, but it can work.

    After alcohol Prohibition ended, a strong federal effort stopped tax evasion by big-time organized liquor tax manufacturers in a couple of years, leaving bootlegging to the small-time operator who does not benefit from the economies of scale available to the legal sector. Illegal liquor manufacturing has long been just a minor problem.

    • Mark Kleiman says

      I hope you’re right. But getting drunk requires about three pounds of beer; getting stoned requires about a quarter of a gram of cannabis. High value-to-bulk makes cannabis much easier to deal surreptitiously.

      • says

        Agreed. Here’s a minor factor: Marijuana is easier to detect in the growing stage. It’s more pungent than corn (or grapes) or other raw materials for beverage alcohol, and those are legal while growing. Aerial surveillance or electricity monitoring might catch domestic growing.

        But I’m with you on the conclusion. The value to bulk ratio is a much more important factor.

      • JohnMcC says

        The main difficulty that I see in any high-tax-scheme is that MJ will be extremely cheap to produce (Matt Yglesias had a recent posting in ‘moneybox’ about this – pardon the lack of a link) and that growers will have a significant incentive to offer higher potency product and that “diversion” is relatively easy in a distribution system if there is enough money to be made. It will also be legal to use sophisticated growing techniques — hydroponics and specialty lights/timers/warmers — if the legally available product is highly taxed.

        It seems to me that we’re going to have product that will be satisfactory to the vast majority of users available very inexpensively. We just have to bear up under such a difficult situation (pardon the snark).

  11. DCA says

    Perhaps too obvious or banal, but it should include the tightest restrictions possible on advertising–ideally bans (remember, this is commercial speech). Though I say this subject to correction by the more expert–I’m assuming that the decline in tobacco use correlates with the exclusion of its advertising from more and more media

    • Mark Kleiman says

      Very hard to do given “commercial free speech.” That’s a strong part of the case for state monopoly.

        • Anonymous says

          I’m actually not sure that is constitutional unless non-speech expenses aren’t deductible either.

          • says

            Tax deductions are a matter of “legislative grace.” Here’s a piece pointing out that the “Constitution does not require the federal government to subsidize advertising through the Tax Code. Congress could revoke the legislative gift of tax deductions for DTCA (Direct-to-Consumer Prescription Drug Advertisements) without running afoul of regulating speech.” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2011879.

            That’s why the ad industry is worried that Congress will take its deductions away (and leave other deductions in place): http://www.adweek.com/news/advertising-branding/uh-oh-advertising-tax-deduction-back-play-152725.

            Advertising deductions have been on the loophole closer list for decades, if only to be spread out over a number of years. Much advertising creates an image that lasts beyond the current year (Winston tastes good like a cigarette should) and should be amortized rather than deducted currently. But it’s hard to separate out current as opposed to long term effects. And advertisers are in cahoots with the media, which brings to mind the old-time politician’s slogan about opposing the interests of the press: Don’t pick a fight with anyone who buys ink by the barrel.

          • Anonymous says

            That article is advocacy disguised as scholarship. I’m pretty sure Arkansas Writers Project and New York Crime Victims Board are still good law, and that financial penalties for speech are going to get strong scrutiny, especially from the current court.

      • snoey says

        An advertising ban leaves the test percentages as the primary marketing point.

        Allowing a bit of purple prose might help solve the purple urkle problem.

  12. says

    Mark,
    Another issue involved in how to legalize commercially is vertical integration: Require it (as Colorado has done), ban it (as Washington state is doing for producers and retailers), or tilt toward it or against it?

  13. Kevin Elliott says

    I have a general organizational comment. Bearing in mind that this is a very rough draft, I’d encourage talking first about the big picture legalization questions, like how to go to about legalization (legislature > initiative) and the nature of the production and marketplace (homegrow/coops vs. commercial production vs. state monopoly). This would include concerns about the business model of these endeavors and the public interest (that 80% of income comes from 20% of users) and that a commercial industry would constitute a persistent pressure for less regulation and taxation.

    This emphasis is important because people have very limited political imaginations for how regulatory regimes can be set up and now is the time to expand those imaginations. In my experience, people who rant about the insanities of cannabis prohibition have only and exactly the alternative of alcohol regulation in mind, yet as you say, that is probably the second worst option after prohibition. The point that “legalization means many things”–and that some are better than others–cannot be repeated enough or receive enough emphasis right now, when public opinion is changing decisively and policy makers are starting to pay real attention to this issue. A clear menu of alternatives is needed before delving into the weeds of dosage and taxation.

  14. Ed Whitney says

    Even though cannabis sale and purchase without medical use is legal in Colorado, there are constraints on its use which do not apply to alcohol. “Public” use is prohibited; you can have a picnic in the park and pass around a bottle, but you may not pass a joint, nor can you smoke one on the street or in areas designated for smoking outside public buildings.

    As Mark pointed out, “legalization” has many shades of meaning; conditions of use may vary from state to state as more states repeal their laws against the recreational use of marijuana.

  15. Vapor Girl says

    Would you please provide the references for “abuse of cannabis”? How is it measured and what are the effects? Also by increased
    use, please clarify. Do you mean those who already use cannabis will use more if legal or do you mean more people will start using and this
    will lead to abuse? Also why do you state that there will be more abuse by minors if cannabis is legal? Where are you getting these data from?

    thanks

  16. Mavis Beacon says

    Your point about nobody knowing alcohol and cannabis are substitutes or complements could be fleshed out more, I think. For starters, they can be (and probably are) both substitutes and complements – depending on the person and the night. Moreover, the degree to which they are substitutes or complements may be affected by the relative prices of cannabis and alcohol. This can cut multiple ways:

    1. A small amount of cannabis (say $3) combined with a small amount of alcohol (say $5) is more intoxicating than a comparable amount spent simply on alcohol or cannabis ($8). If either substance grows expensive, intoxication seekers may find joint use increasingly cost effective.

    2. Ensuring a high price of cannabis to reduce problem use will likely reduce some potential substitution from cannabis to alcohol.

    3. Raising the price of alcohol while keeping the price of cannabis constant, will likely encourage substitution toward cannabis.

    • says

      These are salient points, but I can’t resist throwing a couple of complicating wrenches in the gears.

      1. Dependence. Alcohol has a much higher rate of dependence in its users than cannabis; this will complicate economic substitution analysis. Instead of comparing literal apples to apples, in which price is a strong determining factor for the consumer, the difference will be more like the choice between Apple and Microsoft. Many Mac users I know are “dependent” on their Macs to the extent that they’ve invested in software which isn’t cross-compatible and they’re trained in Apple’s UX. This goes both ways. A friend of mine – an alcoholic – has a hard time substituting marijuana for alcohol, because she has so much trouble not drinking. She combines instead (not a pretty outcome). By way of contrast, I choose not to drink alcohol at all because I know how addictive it is for me. I use only cannabis instead, regardless of price point.

      2.Advertising bans (see elsewhere on this page). More Americans may substitute cannabis for alcohol if they are made aware of certain body image-conscious selling points (i.e., no empty calories). But if cannabis sellers are not allowed to advertise, who will get that message out? The government???

  17. Anonymous says

    I’m one of the ranting drug legalizers here, and I think this is basically quite good. I would quibble with 20 though- I think it is pretty clear that there are medical uses and the federal government has tried to suppress research to maintain prohibition. If smoked marijuana has legitimate medical uses, doctors ought to be able to prescribe it.

  18. Peter says

    Maybe the legal system can take some inspiration from the ad hoc medical pot implementation…stay with me…

    One of the boundaries to consumption in the medical system is needing to go to a crooked doctor and paying the “examination fee” along with fees for the ID card etc. thus takes time and money and amounts to a fixed cost for consumption. Something similar for paying cannabis taxes might be interesting in a legal system. Instead of applying taxes at the point of sale, have people buy tax credits in fixed blocks (maybe one ounce worth at a time, or whatever he right thc or cbd equivalent is, so it is sufficiently large to be a barrier) from a state storefront. Then these get redeemed at point of purchase.

    Yes, this adds friction to the market , but might prevent some people from buying heir own (stay social smokers) and would also introduce a psychological hurdle for buying for minors (“but I only have .25 credits left”). It doesn’t solve the issue of chronic users. It also might confound efforts to track and account for illicit (tax free) product, but maybe could also contribute to a tracking system depending on how things get structured.

  19. CoffeeJunkie says

    Many of these ideas will be put to experience soon in upcoming 2014 session in Washington state.

    Regulatory capture on either side of private or public will be difficult to “control” once revenue starts flowing in.
    There is a robust discussion about revenue sharing between the association of counties and cities and the state, which
    needs to be hammered out at the same time as with regulation and control.

    I have read that revenues from legal cannabis could be zero, but also up to $200 million dollars in the first year.
    Add the recent RAND study of underestimating cannabis consumption in Washington state. The lure of “WHAT IF” could be
    sweeter than the siren song, but with equally disastrous results.

  20. Alejandro Hope says

    Mark,

    Given the recent move in Uruguay, I would consider including a small section on international trade. As more national and subnational jurisdictions move down the path of legalization, two sets of problems are likely to emerge: 1) cross-border regulatory arbitrage (i.e., smuggling), and 2) compliance of marijuana-specific regulations with non-discrimination, market access, and investor protection rules included in trade pacts (e.g., NAFTA). Arguably, a country that limited market access to national MJ producers could be brought to a WTO arbitration panel or face retaliatory trade sanctions (if a large marijuana industry emerges, its lobbying efforts could probably become global). At a minimum, that could limit (perhaps significantly) national regulatory leeway; in a worst case scenario, it could create a regulatory race to the bottom.

    Best regards (and happy New Year).

  21. Mara Felsen, Esq. says

    For the most part, I agree with most of your points. I would add a few things:
    1) there is a vast body of research out there that points to cannabis as a substitute for alcohol;
    2) it is not a foregone conclusion that legalization will increase drug abuse. my understanding is that the opposite occurred with alcohol in that there was rampant abuse during prohibition that was reined in once the free-for-all of prohibition (it is illegal for everyone so everyone engages in unsafe behaviors) was over.
    3) I understand that prices will bottom out once it is legalized but the notion of a $300 an ounce TAX on cannabis is absolutely preposterous. I don’t even pay $300 an ounce for my weed. You can bet that I will never ever ever pay that amount as a TAX on top of the price of it. there is nothing that will drive this industry underground faster than outrageous and oppressive taxes that are so grossly out of line of people’s willingness to pay that it is very clear to me that the whole thing will collapse on its face if we try to do what you are proposing. People will evade oppressive taxes just like they do in NY and it is a whole lot easier when you can grow it yourself. That won’t help anything. I really hope we can find a happy medium here because obviously it is on this prong of analysis that the system either thrives or crashes and burns.

  22. says

    On point 11, drawing from the experience with alcohol, this might be less straight-forward than people seeking the greatest potency for the least cost. The alcohol tax is a proportional tax on price, yet beer outsells vodka (and other high-potency liquors) by a wide margin. Some of this is the social aspect. If you show up for a Sunday football party with a bottle of Stoli and a bottle of tonic water, rather than a six- or twelve-pack of beer, people will look at you funny. While at night-clubs the urge to get drunk quickly pushes people toward high-potency liquors.

    Perhaps when we better pin down the effects of different mixes of THC and CBD and other compounds we will see this same effect, with people pursuing different highs based on the occasion/time of day while being largely indifferent to the differentiated tax burden.

  23. dave s says

    A portion of the proceeds from the tax should be allocated to drug education programs to minimize abuse and the use of alcohol with pot.

  24. says

    Legalizing and regulating marijuana will bring the nation's largest cash crop under the rule of law, creating jobs and economic opportunities in the formal economy instead of the illicit market. Scarce law enforcement resources that could be better used to protect public safety would be preserved while reducing corrections and court costs. State and local governments would acquire significant new sources of tax revenue from regulating marijuana sales.

  25. says

    Even with a diminished opposition, the path to legalization faces considerable obstacles, especially from parents who don’t want their teens to be too easily tempted by the drug, city residents who envision street corners teeming with kids getting high, and sheriffs and police chiefs who say marijuana arrests remain a powerful tool against drug abuse and other crimes.

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