A growing number of countries are deciding to ditch prohibition. What comes next?
IN AN anonymous-looking building a few minutes’ drive from Denver International Airport, a bald chemotherapy patient and a pair of giggling tourists eye the stock on display. Reeking packets of mossy green buds—Girl Scout Cookies, KoolAid Kush, Power Cheese—sit alongside cabinets of chocolates and chilled drinks. In a warehouse behind the shop pointy-leaved plants bask in the artificial light of two-storey growing rooms. Sally Vander Veer, the president of Medicine Man, which runs this dispensary, reckons the inventory is worth about $4m.
America, and the world, are going to see a lot more such establishments. Since California’s voters legalised the sale of marijuana for medical use in 1996, 22 more states, plus the District of Columbia, have followed suit; in a year’s time the number is likely to be nearer 30. Sales to cannabis “patients” whose conditions range from the serious to the notional are also legal elsewhere in the Americas (Colombia is among the latest to license the drug) and in much of Europe. On February 10th Australia announced similar plans.
Now a growing number of jurisdictions are legalising the sale of cannabis for pure pleasure—or impure, if you prefer. In 2014 the American states of Colorado and Washington began sales of recreational weed; Oregon followed suit last October and Alaska will soon join them. They are all places where the drug is already popular (see chart 1). Jamaica has legalised ganja for broadly defined religious purposes. Spain allows users to grow and buy weed through small collectives. Uruguay expects to begin non-medicinal sales through pharmacies by August.
Canada’s government plans to legalise cannabis next year, making it the first G7 country to do so. But it may not be the largest pot economy for long; California is one of several states where ballot initiatives to legalise cannabis could well pass in America’s November elections. A majority of Americans are in favour of such changes (see chart 2).
Legalisers argue that regulated markets protect consumers, save the police money, raise revenues and put criminals out of business as well as extending freedom. Though it will be years before some of these claims can be tested, the initial results are encouraging: a big bite has been taken out of the mafia’s market, thousands of young people have been spared criminal records and hundreds of millions of dollars have been legitimately earned and taxed. There has so far been no explosion in consumption, nor of drug-related crime.
To get the most of these benefits, though, requires more than just legalisation. To live outside the law, Bob Dylan memorably if unconvincingly claimed, you must be honest; to live inside it you must be regulated. Ms Vander Veer points to a “two-inch thick” book of rules applicable to Medicine Man’s business.
Such rules should depend on which of legalisation’s benefits a jurisdiction wants to prioritise and what harms it wants to minimise. The first consideration is how much protection users need. As far as anyone has been able to establish (and some have tried very hard indeed) it is as good as impossible to die of a marijuana overdose. But the drug has downsides. Being stoned can lead to other calamities: in the past two years Colorado has seen three deaths associated with cannabis use (one fall, one suicide and one alleged murder, in which the defendant claims the pot made him do it). There may have been more. Colorado has seen an increase in the proportion of drivers involved in accidents who test positive for the drug, though there has been no corresponding rise in traffic fatalities.
The chronic harm done by the drug is still a matter for debate. Heavy cannabis use is associated with mental illness, but researchers struggle to establish the direction of causality; a tendency to mental illness may lead to drug use. It may also be the case that some are more susceptible to harm than others.
Jonathan Caulkins of Carnegie Mellon University has found that cannabis users are more likely than alcohol drinkers to say the drug has caused them problems at work or at home. It is an imperfect comparison because most cannabis users are, by definition, lawbreakers, and therefore perhaps more prone to such problems. Nonetheless it is clear that pot is, in Mr Caulkins’ words, a “performance-degrading drug”.
What’s more, some struggle to give it up: in America 14% of people who used pot in the past month meet the criteria by which doctors define dependence. As in the alcohol and tobacco markets, about 80% of consumption is accounted for by the heaviest-using 20% of users. Startlingly, Mr Caulkins calculates that in America more than half of all cannabis is consumed by people who are high for more than half their waking hours.
To complicate matters, the public-health effects of cannabis should not be looked at in isolation. If taking up weed made people less likely to consume cigarettes or alcohol it might offer net benefits. But if people treat cannabis and other drugs as complements—that is, if doing more pot makes them smoke more tobacco or guzzle more alcohol—an increase in use could be a big public-health problem.
No one yet knows which is more likely. A review of mostly American studies by the RAND Corporation, a think-tank, found mixed evidence on the relationship between cannabis and alcohol. Demand for tobacco seems to go up along with demand for cannabis, though the two are hard to separate because, in Europe at least, they are often smoked together. The data regarding other drugs are more limited. Proponents of the Dutch “coffee shop” system, which allows purchase and consumption in specific places, argue that legalisation keeps users away from dealers who may push them on to harder substances. And there is some evidence that cannabis functions as a substitute for prescription opioids, such as OxyContin, which kill 15,000 Americans each year. People used to worry that cigarettes were a “gateway” to cannabis, and that cannabis was in turn a gateway to hard drugs. It may be the reverse: cannabis could be a useful restraint on the abuse of opioids, but a dangerous pathway to tobacco.
More bong for your buck
Danger and harm are not in themselves a reason to make or keep things illegal. But the available evidence persuades many supporters of legalisation that cannabis consumption should still be discouraged. The simplest way to do so is to keep the drug expensive; children and heavy users, both good candidates for deterrence, are particularly likely to be cost sensitive. And keeping prices up through taxes has political appeal that goes beyond public health. Backers of California’s main legalisation measure make much of the annual $1 billion that could flow to state coffers.
Setting the right level for the tax, though, is challenging. Go too low and you encourage use. Aim too high and you lose one of the other benefits of legalisation: closing down a criminal black market.
Comparing Colorado and Washington illustrates the trade-off. Colorado has set its pot taxes fairly low, at 28% (including an existing sales tax). It has also taken a relaxed approach to licensing sellers; marijuana dispensaries outnumber Starbucks. Washington initially set its taxes higher, at an effective rate of 44%, and was much more conservative with licences for growers and vendors. That meant that when its legalisation effort got under way in 2014, the average retail price was about $25 per gram, compared with Colorado’s $15. The price of black-market weed (mostly an inferior product) in both states was around $10.
The effect on crime seems to have been as one would predict. Colorado’s authorities reckon licensed sales—about 90 tonnes a year—now meet 70% of total estimated demand, with much of the rest covered by a “grey” market of legally home-grown pot illegally sold. In Washington licensed sales accounted for only about 30% of the market in 2014, according to Roger Roffman of the University of Washington. Washington’s large, untaxed and rather wild-west “medical” marijuana market accounts for a lot of the rest. Still, most agree that Colorado’s lower prices have done more to make life hard for organised crime.
Uruguay also plans to set prices comparable to those that illegal dealers offer. “We intend to compete with the illicit market in price, quality and safety,” says Milton Romani, secretary-general of the National Drug Board. To avoid this competitively priced supply encouraging more use, the country will limit the amount that can be sold to any particular person over a month. In America, where such restrictions (along with the register of consumers needed to police them) would probably be rejected, it will be harder to stop prices for legal grass low enough to shut down the black market from also encouraging greater use. Indeed, since legalisation consumption in Colorado appears to have edged up a few percentage points among both adults and under-21s, who in theory shouldn’t be able to get hold of it at all; that said, a similar trend was apparent before legalisation, and the data are sparse.
If, starved of sales, the black market shrinks beyond a point of no return, taxes could later go up, restoring the deterrent. There is precedent for this. When the prohibition of alcohol ended in 1933, Joseph Choate of America’s Federal Alcohol Control Administration recommended “keeping the tax burden on legal alcoholic beverages comparatively low in the earlier post-prohibition period in order to permit the legal industry to offer more severe competition to its illegal competitor.” After three years, he estimated, with the mob “driven from business, the tax burden could be gradually increased.” And so it was (see chart 3).
Those taxes reflected the strength of what was for sale; taxing whiskey more than beer made sense as a deterrent to drunkenness. Here, so far, the regulation of cannabis lags behind. The levies on price or weight used by America’s legalising states are easy to administer, but could push consumers towards stronger strains. In the various lines sold by Medicine Man, for example, the concentration of tetrahydrocannabinol (THC), the chemical compound that gets you high, varies from 7% to over 20%. The prices, though, are mostly the same, and there is no difference in tax. Some like it weak, but on the whole, Ms Vander Veer says, the stronger varieties are what people ask for. If they cost no more, why not? The average potency on sale in Denver is now about 18%, roughly three times the strength of the smuggled Mexican weed that once dominated the market.
Barbara Brohl, the head of Colorado’s Department of Revenue, says THC-based taxation is something the state may try in the future. But the speed with which the regulatory apparatus was set up—sales began just over a year after the ballot initiative passed in November 2012—meant that they had to move fast. “We’re building the airplane while we’re in the air,” she says. Uruguay, clear that it wants to be “a regulated market, not a free market”, as Mr Romani puts it, plans a more direct way of discouraging the stronger stuff. Dispensaries will sell just three government-approved strains of cannabis, their potencies ranging from 5% to 14%.
Another issue for regulators is the increasing number of ways in which cannabis is consumed. The star performer of the legalised pot market is the “edibles” sector, which includes THC-laced chocolates, drinks, lollipops and gummy bears. There are also concentrated “tinctures” to be dropped onto the tongue and vaping products to be consumed through e-cigarettes. Foria, a California company, sells a THC-based personal lubricant (“For all my vagina knew, I was laying on one of San Diego’s fabulous beaches!” reads one testimonial).
The popularity of these products looks set to grow; users appreciate the discretion with which they can be consumed, producers like the ease with which their production can be automated (no hand-picking of buds required). But edibles, in particular, make it easy to take more than intended. A hit on a joint kicks in quickly; cakes or drinks can take an hour or two. Inexperienced users sometimes have a square of chocolate, feel nothing and wolf down the rest of the bar—only to spend the next 12 hours believing they are under attack by spiders from Mars.
The three cannabis-related deaths in Colorado all followed the consumption of edibles. Hospitals in the state also report seeing an increasing number of children who have eaten their parents’ grown-up gummy bears. In response the authorities have tightened their rules on packaging, demanding clearer labelling, childproof containers, and more obvious demarcation of portions.
A second concern about new ways of taking the drug is that they could attract new customers. Ms Vander Veer says that edibles offer a “good way to get comfortable with how THC makes you feel”; women, older people and first-timers are particularly keen on them. If you see cannabis as a harmless high, this is not a problem. If you want to keep usage low, it is.
The innovation seen to date is just a taste of what entrepreneurs might eventually dream up. On landing in Denver—which, uncoincidentally, is now the most popular spring-break destination for American students—you can call a limo from 420AirportPickup which will drive you to a dispensary and then let you smoke in the back while you cruise on to a cannabis-friendly hotel (some style themselves “bud ‘n’ breakfast”). You can take a marijuana cookery course, or sign up for joint-rolling lessons. Dispensaries offer coupons, loyalty points, happy hours and all the other tricks in the marketing book.
Legalisation has also paved the way for better branding. Snoop Dogg, a rap artist, has launched a range of smartly packaged products called “Leafs by Snoop”. The estate of Bob Marley has lent its name to a range of “heirloom marijuana strains” supposedly smoked by the man himself.
Roll up for the mystery tour
Branding means advertising, which may itself promote use. Many in America would like to follow Uruguay’s example and ban all cannabis advertising, but the constitution stands in their way. When Colorado banned advertising in places where more than 30% of the audience is likely to be under-age cannabis companies objected on the grounds of their right to free speech, though the suit was later dropped.
As well as moving into advertising, the industry is growing more professional in its lobbying. In legalisation initiatives the “Yes” side increasingly outspends the “No” side: in Alaska by four to one, in Oregon by more than 50 to one. Rich backers help—in California Sean Parker, an internet billionaire, has donated $1m to the cause. In some states, ballot initiatives have been heavily influenced by the very people who are hoping to sell the drugs once they are legalised. In November 2015 voters in Ohio soundly rejected a measure that would have granted a cannabis-cultivation oligopoly to the handful of firms that had backed it.
Worries about regulatory capture will increase along with the size of the businesses standing to gain. Big alcohol and tobacco firms currently deny any interest in the industry. But they said the same in the 1960s and 1970s, a time when Philip Morris and British American Tobacco, it has since been revealed, were indeed looking at the market. Brendan Kennedy, the chief executive of Privateer Holdings, a private-equity firm focused on the marijuana industry, says that several alcohol distributors have invested in American cannabis firms.
Even without such intervention big companies are likely to emerge. Sam Kamin, a law professor at Denver University who helped draft Colorado’s regulations, suspects that eventual federal legalisation, which would make interstate trade legal, could well see cannabis cultivation become something like the business of growing hops, virtually all of which come from Washington, Oregon and Idaho. Big farms supplying a national market would be much cheaper than the current local-warehouse model, driving local suppliers out of the market, or at least into a niche.
The industry has so far been helped by the fact that many on the left who might normally campaign against selling harmful substances to young people are vocal supporters of legalisation. That could change with the growth of a business lobby that, although understanding that an explosion in demand would trigger a backlash, may have little long-term interest in restraint. The prospect of such a lobby could also serve as an incentive for states to take the initiative on legalisation, rather than waiting for their citizens to demand it. Fine-tuning Colorado’s regime, Mr Kamin says, has been made harder by the fact that the ballot of 2012 enshrined legalisation in the state constitution. Other states “might want [their rules] to be defined instead by legislation, not citizens’ initiative,” suggests Ms Brohl, the Colorado tax chief.
Different places will legalise in different ways; some may never legalise at all; some will make mistakes they later think better of. But those that legalise early may prove to have a lasting influence well beyond their borders, establishing norms that last for a long while. It behoves them to think through what needs regulating, and what does not, with care. Over-regulation risks losing some of the main benefits of liberalisation. But as alcohol and tobacco show, tightening regimes at a later date can be very difficult indeed.
This article originally appeared at https://www.economist.com/briefing/2016/02/13/reeferegulatory-challenge