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Legalize It, But: The Perils Of The New Marijuana Market

A majority of Americans, and an overwhelming majority of those under 30, now support the legalization of marijuana. The change in public opinion, which has been building for years but has accelerated of late, is now generating policy changes. In 2012, voters in Colorado and Washington State endorsed initiatives legalizing not just the use of cannabis but also its commercial production and sale to anyone over the age of 21.

That goes further than the “medical marijuana” provisions that are now the law in 20 states. Non-medical retail sales started on January 1 in Colorado and will begin in early summer in Washington. Similar propositions are likely to be on the ballot in 2014 and 2016 in as many as a dozen other states, including Alaska, Arizona, California, Nevada, and Oregon, and a legalization bill just narrowly passed in the New Hampshire House of Representatives, the first time either chamber of any state legislature has voted for such a bill.

The state-by-state approach has generated some happy talk from both advocates and some neutral observers; Justice Louis Brandeis’s praise for states as the “laboratories of democracy” has been widely quoted. Given how much we don’t know about the consequences of legalization, there’s a reasonable case for starting somewhere, rather than everywhere. Even some who oppose legalization are moderately comforted by the fact that the federal government isn’t driving the process. “It’s best that this be done state by state,” said Pat Buchanan recently on The McLaughlin Group, “so you can have a national backlash if it doesn’t work out.”

But letting legalization unfold state by state, with the federal government a mostly helpless bystander, risks creating a monstrosity; Dr. Frankenstein also had a laboratory

Cannabis consumption, like alcohol consumption, follows the so-called 80/20 rule (sometimes called “Pareto’s Law”): 20 percent of the users account for 80 percent of the volume. So from the perspective of cannabis vendors, drug abuse isn’t the problem; it’s the target demographic. Since we can expect the legal cannabis industry to be financially dependent on dependent consumers, we can also expect that the industry’s marketing practices and lobbying agenda will be dedicated to creating and sustaining problem drug use patterns.

Cannabis, even as an illegal product, is already cheaper than beer as a means of getting intoxicated. As a legal product, it would be much, much cheaper, unless taxes or production limits keep prices high. That would matter most to juveniles and to heavy users: precisely the groups whose consumption we’d least like to see soaring.

The trick to legalizing marijuana, then, is to keep at bay the logic of the market—its tendency to create and exploit people with substance abuse disorders, and to facilitate drug heavy use with low prices. So far, the state-by-state, initiative-driven process doesn’t seem up to that challenge. The taxes are high as a percentage of price, but that won’t matter much if prices collapse under competitive pressure. The industry’s marketing efforts will be constrained only by rules against appealing explicitly to minors (rules that haven’t kept the beer companies from sponsoring “Extreme Fighting” on television). And there’s no guarantee that other states won’t create even looser systems.

What’s needed is federal legislation requiring states that legalize cannabis to structure their pot markets so as to prevent their capture by commercial interests. There are any number of ways to do that, so the legislation wouldn’t have to be overly prescriptive. States could, for instance, allow marijuana to be sold only through nonprofit outlets, or distributed via small consumer-owned co-ops. The most effective way, however, would be through a system of state-run retail stores.

There’s plenty of precedent for this: states from Utah to Pennsylvania to Alabama restrict hard liquor sales to state-operated or state-controlled outlets. Such “ABC” (“alcoholic beverage control”) stores date back to the end of Prohibition, and operationally they work fine. Similar “pot control” stores could work fine for marijuana, too. A “state store” system would also allow the states to control the pot supply chain. By contracting with many small growers, rather than a few giant ones, states could check the industry’s political power (concentrated industries are almost always more effective at lobbying than those comprised of many small companies) and maintain consumer choice by avoiding a beer-like oligopoly offering virtually interchangeable products.

Though legalization has made headway in states with strong initiative provisions in their Constitutions, it’s been slow going in other states in which legalization has to go through the legislature, where anti-pot law enforcement groups can easily block it. So it could be many years before legalization reaches the rest of the country or gets formal federal approval that removes the stigma of (even unpunished) law-breaking from cannabis users. Rather than wait, legalization advocates might be willing to accept something short of full commercialization; some of them actually prefer a noncommercial system. Meanwhile, those who have been opponents of legalization heretofore might—with the writing now on the wall—decide that a tightly regulated and potentially reversible system of legal availability is the least-bad outcome available.

The current political situation seems anomalous. Public opinion continues to move against cannabis prohibition, but no national-level figure of any standing is willing to speak out for change. That’s unlikely to last. Soon enough, candidates for president are going to be asked their positions on marijuana legalization. They’re going to need a good answer. I suggest something like this: “I’m not against all legalization; I’m against dumb legalization.”

Mark Kleiman is a professor of public policy at the University of California Los Angeles. He has consulted for the state of Washington on marijuana legalization. This post is adapted from a featured article in the current edition of The Washington Monthly

AFP Photo/Theo Stroomer

Legislatures Consider Changes In Liquor, Beer, Wine Laws

By Elaine S. Povich, Stateline.org

WASHINGTON — In Shrewsbury, Pennsylvania, near the Maryland state line, a square cinderblock building sports huge painted images of beer and soda bottles painted on the side. The sign on the private business reads, “Beer and Soda.” Pennsylvania Governor Tom Corbett and some state legislators would like to add “Liquor” to that.

As it stands now, liquor is sold only in the approximately 600 stores run by the state.

The latest push to privatize liquor stores in Pennsylvania is among several proposals in state legislatures this year dealing with the sale of liquor, wine and beer. A similar attempt in Pennsylvania failed last year, as it has before, amid legislative squabbling. This time around, Corbett, a Republican, took a more subtle tack by only mentioning the issue in his State of the State speech, but declining to offer legislation and leaving it to lawmakers to put forth any bills.

Among the other liquor law changes being considered in states legislatures for 2014 are: eliminating the mandatory “Sunday closing” law in Minnesota — twelve states currently prohibit Sunday sales; a move to put grocery store sales of some liquor on the Oregon ballot in November; allowing wine to be sold in grocery stores in Tennessee — thirty-three states and Washington, D.C. now allow food stores to sell wine; various proposals in Utah to expand or privatize liquor sales, which are among the most restrictive in the country; and a proposal to eliminate excise taxes on beer, wine and liquor in Connecticut. Neighboring Rhode Island cut the tax on wine and spirits last year and advocates say Connecticut is losing business across the border.

Most of the direct taxes on beer, wine and liquor are likely to remain untouched by legislatures in 2014, because of a general reluctance to raise taxes as the economy improves and as states consider tax cuts or spending increases. A formidable liquor lobby also resists such taxes.

Tax Policy Center figures show states and localities took in a total of $6.2 billion from alcohol taxes in 2011, compared with $17.6 billion from tobacco.

But these other moves to tinker with liquor laws may well increase state tax revenues. For example, Washington state, which privatized liquor sales in June 2012, saw its alcohol tax revenues increase 9.7 percent as a result.

Alcohol tax collections for July 2011 to July 2012 were $242 million and increased to $265 million for July 2012 to July 2013, according to Kim Schmanke of the Washington State Department of Revenue. She attributed the rise to making it more convenient for consumers to buy liquor and the resulting increased sales.

“Our tax structure didn’t change. Our taxes are exactly the same (as before privatization),” she said. “Private market forces influenced the pricing and that influenced consumer behavior.”

But while private store sales may lure more consumers, new state fees and distribution charges in Washington have pushed taxes and fees that consumers pay on spirits to $35.22 a gallon in 2013, from $26.70 a gallon in 2012, according to the Tax Foundation, a nonpartisan, anti-tax group. The foundation noted that in general, however, the average tax on a gallon of spirits in “control states” is $11.12, and in privatized states, $5.51 a gallon.

Washington state’s sales tax on spirits is 20.5 percent of the selling price and $3.77 per liter.

In Pennsylvania, Wendell Young, president of the United Food and Commercial Workers Local 1776, which opposes privatization, said the state shouldn’t expect a windfall in tax revenue if it turns over liquor sales to private businesses.

He said studies have shown it will take $1.4 billion to “unwind” the current state stores system and that the “best-case scenario” would be that the state would pick up $800 million in new licensing and operation fees for the private stores. Young said the union estimates 3,500 jobs would be lost if the state liquor stores close, and the existing private businesses that would take over sales won’t replace that many jobs.

“They will re-allocate their current space and re-allocate the current workforce,” he said. “Our folks are going to be put out of work and very few of them will get hired in the retail stores.”

He argued that the current state store system is working well. “This benefits taxpayers whether they drink or not,” he said. “It’s a solution in search of a problem. There is no problem.”

Charles Zogby, Pennsylvania’s state budget secretary, said the state might get more revenue from private sales, but, unlike many states, Pennsylvania does not have a budget surplus this year, so the legislature might hesitate to move forward without a better guarantee that privatization would garner at least the same amount of funds.

The governor estimated the state loses $80 million a year to neighboring states, such as New Jersey, Delaware or Maryland, because of the inconvenience of buying at state stores in Pennsylvania, which forces consumers to go to more than one store to pick up beer, wine or hard liquor.

“We have to reform our antiquated system of state-owned liquor stores. Visitors often wonder about it _ unless they’re from Utah,” Corbett said in his State of the State speech, mentioning the only other state that has completely state-controlled alcohol purchases.

Utah has some of the most restrictive alcohol laws in the nation. The Mormon Church, whose members eschew alcohol, tobacco and caffeine, said recently it is opposed to making liquor more accessible because of what it sees as an invitation to more alcohol-related problems.

The church opposed proposals that would “weaken Utah’s alcohol laws and regulations” including privatization of sales, increases in alcohol license quotas, sales of “heavy beer,” (over 3.2 percent alcohol) outside the state-controlled system and eliminating the requirement that restaurants do 70 percent of their business in food and 30 percent in alcohol.

Tennessee lawmakers recently took one step toward convenience, at least according to a Vanderbilt University poll that showed 66 percent of those surveyed favored allowing sales of wine in grocery stores. It is sold in private liquor stores now, along with spirits. The state Senate last month approved giving voters a chance to decide the issue in a referendum this fall.

The House approved similar legislation, but the two versions must be reconciled before the bill can go to Republican Governor Bill Haslam, who said he would sign it. The new law would take effect in 2016, to give liquor stores and grocery stores time to adjust.

Tennessee Lieutenant Governor Ron Ramsey, a Republican, called the approval “a great step forward” in expanding consumer choice and spurring economic growth “with this common-sense, pro-market measure.”

In Minnesota, a Republican state lawmaker is pushing to allow all liquor sales on Sunday. State Representative Jenifer Loon said the prohibition against Sunday sales is just that — a leftover from the Prohibition era that needs to be scrapped. Her bill would give localities the option of permitting Sunday sales or not.

“The law against Sunday sales has been in place since Prohibition ended,” Loon told Stateline. “It just doesn’t reflect how people do their shopping. Sunday is a very busy day in the retail world for every product except liquor.” Currently, only low-alcohol beer can be sold in Minnesota grocery stores on Sunday.

Some smaller stores have opposed the change, saying it would be difficult for them to open another day each week.

“Some say ‘I don’t want to be open on Sunday.’ I say, ‘You don’t have to,’ ” Loon said. “I don’t think it’s the state’s role to determine that a particular type of store can’t be open on Sunday.”

Democratic Governor Mark Dayton said he would sign the bill.

Photo: Jeff_Golden via Flickr