Futile pursuits: chasing rainbows and rescheduling cannabis

Rescheduling cannabis wouldn’t accomplish anything: the key is to get the feds out of the way of research.

The discussion of “rescheduling” marijuana is confused because most of the people engaged in it don’t know how the law works.

Jacob Sullum, always willing to let his ignorance be the measure of other people’s knowledge, utterly unwilling to let mere facts get in the way of libertarian ideology, and eager to please his paymasters by slagging a Democratic President, illustrates my point in his response to the latest CNN Obama interview.

Rather than reviewing the bidding about who said what, let me simply lay out the actual state of affairs.

The Controlled Substances Act is a law. It cannot be changed by administrative fiat. That law provides that any substance with abuse potential be put into one of five schedules. Schedule I is for drugs without accepted medical use. Schedules II-V are for drugs with accepted medical use but with abuse potential, with less abusable drugs placed in the lower schedules. Alcohol and tobacco, both highly abusable drugs with no accepted medical use, would be Schedule I, but they are explicitly exempted in the text of the law:

The term [controlled substance] does not include distilled spirits, wine, malt beverages, or tobacco.

“Marihuana,” by contrast, is placed by name in Schedule I. That placement tracks its treatment in the international conventions governing drug policy.

Yes, authority to reschedule cannabis lies with the Administration. If the DEA Administrator decided that the drug had “accepted medical use,” that would move it to Schedule II, making cannabis legally available by prescription. Selling it without a prescription would remain the same crime it is today. (Recall that cocaine and methamphetamine are Schedule II drugs.)

But prescriptions can only be written for FDA-approved drugs. And the FDA can’t approve “marijuana,” because “marijuana” isn’t something that can be put through clinical trials. The New Drug Application would have to be for a specific cannabis preparation, to be given in a specific dosage regimen via a specific route of administration for the treatment of a specific condition. That “new drug” could be a single molecule a combination, an herbal preparation, or an extract. In any case, it would have to have a known and reproducible chemical composition and be produced using “Good Manufacturing Practice.” Producing cannabis without FDA approval would still be the illegal manufacture of a Schedule II controlled substance.

So administrative rescheduling would not make “medical marijuana,” or any other kind, legal at the federal level. Its practical effect would be identically zero.

What’s actually needed in the way of administrative action is to get the DEA and the Public Health Service out of the way of medical research, by breaking the University of Mississippi monopoly on research cannabis and eliminating the requirement that researchers using cannabis (but no other controlled drug) have the material “granted” to them by a federal agency rather than just going out and buying it. The Obama Administration can and should be criticized for not having taken those steps.

But “rescheduling” is a red herring dragged across the trail of policy reform.

Update Tom Angell’s feelings are hurt because I was mean to poor widdle Jacob Sullum. And he insists that I mention that, if marijuana were downscheduled to Schedule III rather than Schedule II (a scheduling decision that wouldn’t make much sense, given that something more than 2 million people in the U.S. meet diagnostic criteria for cannabis abuse or dependency at any one time), marijuana sellers would be able to deduct their business expenses in calculating their federal income taxes. Since that trivial impact on the cannabis problem isn’t the same as “identically zero impact,” Angell demands that I retract.

OK. Rescheduling to the appropriate schedule would have identically zero impact, but excessive downscheduling could somewhat increase the after-tax incomes of marijuana retailers and perhaps lead to slightly lower retail cannabis prices in state-legal stores.

Cannabis taxes will wind up too low, not too high

The big threat to cannabis legalization isnt high taxes; it’s low taxes and loose regulation.

Legal cannabis will naturally be much, much cheaper than illegal cannabis. A joint is the same sort of item as a teabag: the dried flowers of a plant in a wrapper. A fancy teabag costs a dime at the supermarket; the marijuana in an average joint costs about $4 (0.4 gram of sinsemilla flowers @ $10/gram) on the current illicit and quasi-medical markets. The combination of not having to worry about law enforcement and the economies of mass production will inevitably drive the joint price down close to the teabag price. (Generic tobacco cigarettes can be manufactured for about two cents each; the remainder of the price is marketing expense, quasi-rent on brand names, and taxes.)

Now that the federal government has made it clear that state-licensed production in Washington and Colorado will mostly get a pass from federal law enforcement, and now that Washington has decided to allow outdoor growing, avoiding the production bottleneck that might have resulted from the lags in local land-use approval for growing facilities, I’d expect to see much lower-than-current prices in Washington State’s commercial stores no later than next fall. (If I had been running things, I would have started with lower tax rates to speed the transition to the legal market, and then raised taxes to offset the fall in market prices, but the tax rates were in the legislation the voters passed.)

Even at current prices, cannabis is a remarkably cheap intoxicant. A  drinker who hasn’t built up a tolerance might need about $5 worth of mass-market beer to get sloshed; a similarly fresh cannabis smoker could float away on half a normal joint: call it $2 worth. Colorado medical dispensaries already offer their “weekly special” strains of sinsemilla at $5/gm., with volume discounts, and vaporization seems likely to lower the effective cost substantially.  Anyone who’s worried about the price of cannabis is spending far too much time stoned.

Taxation, even if it is very heavy on ad valorem (percentage-of-price) basis, won’t change that picture much; Washington state will collect something like 40% of total retail prices in tax, but 40% of “damned near free” isn’t very much. Colorado’s taxes will be even lower.

The illicit markets may start out with a price advantage over taxed and regulated commercial markets for a year or two. Even then, the quality/reliability/ legality advantages enjoyed by the legal stores would be expected to quickly push the illicit business to the margins, as legal alcohol has done with moonshining. That will be especially true if the states that legalize make a vigorous law-enforcement push against purely illicit activity.

The untaxed and (in Washington State) unregulated quasi-medical markets may also enjoy a price advantage; if people with medical recommendations can buy their cannabis tax-free, we should expect a certain amount of arbitrage. How best to rein in the out-of-control medical-recommendation systems is a challenge that Washington and Colorado (and California, which hasn’t legalized for non-medical use but which has more “medical marijuana” outlets than it has Starbucks) will confront over the coming months and years.

So the biggest worry about legalize cannabis would be a big upsurge in heavy use, and that worry would be exacerbated to the extent that the growth in heavy use is among juveniles. (Provision to minors is by definition illegal, but, as with alcohol, it seems unlikely to generate a distinct illicit market; younger smokers who can’t buy in the stores will be supplied by older siblings, older friends, their parents’ supplies at home, and straw purchasers.

How big that problem turns out to be depends in part on unknowns and in part on policy choices. If cannabis prices are allowed to fall to something like their free-market levels, a very large increase in heavy use would be the likely result. Preventing that will require heavy specific-excise taxation (perhaps on a per-milligram-of-THC basis) and enough enforcement to prevent the evasion of that tax.

The other approach to limiting the increase in heavy use and use by minors would be on the information side: limits on marketing, required vendor training, aggressive consumer information both at point of sale and in the community.

Naturally, true-believing libertarians insist that cannabis legalization be done in the way likely to generate bad outcomes. Taxes BAD! Regulations BAD! “Commercial speech” is SACRED! The free market FOREVER! And of course drug abuse is a merely imaginary problem, so cannabis is just an ordinary commodity that the market will handle perfectly.

It’s possible that they’ll get their way, and that as a consequence the results of cannabis legalization will be just about as bad as the drug warriors keep predicting: the reproduction of our very bad, no good, awful alcohol markets. It’s barely possible – this is what my drug-warrior friends hope – that the results will be so awful that the voters shy away from legalization altogether.

Jacob Sullum has elevated the temporary risk that relatively high taxes starting will slow down the migration from the illicit to the licit market into an existential threat to the legalization project, and is more or less encouraging Colorado pot fans to double-cross the rest of the voters by rejecting the taxes that were the premise of last year’s legalization push. “From a consumer’s perspective, something has gone terribly wrong if legal marijuana prices do not end up being substantially lower than black-market prices.” That’s true, if by “consumer” you mean someone who smokes multiple joints per day. For anyone else, the cost of weed is way down in the rounding error of a personal budget; a weekly smoker might now be paying something like $100 per year for cannabis, even at current prices.

Andrew Sullivan seems to take this seriously. Talk about solving the wrong problem!