By Beau Kilmer, Special to CNN
Editor’s note: Beau Kilmer is co-director of the RAND Drug Policy Research Center and coauthor of Marijuana Legalization: What Everyone Needs to Know. The views expressed are his own.
Testifying before the Senate Judiciary Committee recently, U.S. Deputy Attorney General James Cole summarized the administration’s new approach to marijuana policy released in a recent U.S. Department of Justice (DOJ) memorandum.
The announcement was monumental.
In addition to laying out the marijuana enforcement priorities for federal prosecutors, the memo suggests the DOJ will tolerate potentially large, for-profit marijuana companies in states with strong and effective regulatory and enforcement systems. This means Colorado and Washington will be the first jurisdictions in the modern era to remove the prohibition on commercial marijuana production and distribution for nonmedical purposes and start regulating and taxing it.
Not even the Netherlands goes that far.
In fact, the memo specifically states that firms should not be targeted solely because of their size or commercial nature, suggesting instead that they should only be targets if they undermine any of the federal enforcement priorities, such as selling to minors or diverting revenues to organized crime groups.
But here is something to keep in mind about for-profit companies: They tend to like profit. A lot.
Since about 80 percent of the marijuana market is driven by those who use on a daily or near-daily basis, profit-maximizing companies will have strong incentives to market and advertise in ways that create and retain heavy users. While decision makers in Colorado and Washington are working to limit marijuana advertising, controlling promotion can be difficult in the United States with its doctrine of commercial free speech. The DOJ memo suggests federal prosecutors should target marijuana firms that market in ways that appeal to minors and it will be interesting to see if, and how, this is enforced.
Meanwhile, the federal announcement could encourage other states and other countries to consider the radical shift from marijuana prohibition to allowing the development of a commercial marijuana industry. But it’s critical to note those are not the only choices. Marijuana policy isn’t a black or white issue. Indeed, it’s more like 420 shades of grey.
For those seeking alternatives to marijuana prohibition, there are a number of options short of regulating a profit-maximizing commercial industry.
They could permit home production, as is allowed in Colorado, or allow non-profit cooperatives or buyers’ clubs. And if permitted under state law, they could also limit licensees or give preferences to social enterprises or “for-benefit” companies like B Corps that prioritize people and planet over profits.
But with all of these options, policy makers should consider how these choices might ultimately affect the retail price of marijuana, which can then influence both consumption and tax revenues.
Studies I have undertaken with my RAND colleagues suggest that marijuana legalization could dramatically decrease the costs of producing and distributing marijuana by removing risk and allowing for increasing returns to scale. The reduced costs could deflate retail prices, but the overall impact will depend on how the regulatory regimes are set up and enforced.
Aside from taxes, jurisdictions could attempt to offset price declines by imposing production limits and minimum prices. They could also create monopolies that would allow the government to control production and set the price. However, setting up monopolies would be difficult in the U.S. since state governments cannot order their employees to violate federal law.
Policy options become even greyer when you realize that decisions about marijuana don’t have to be permanent. But once for-profit companies and their lobbyists get entrenched, it could be harder to make changes. Thus, pioneering jurisdictions may want to consider incremental approaches that begin with non-profit regimes.
They should also contemplate sunset provisions that give them an escape clause in case they change their minds.
Ultimately, there are pros and cons to all marijuana policy options, and decisions will likely hinge on values about intoxication, personal freedom and predictions about what will work best. Since no modern country has removed the prohibition on commercial marijuana production and distribution, no one really knows whether legalization will be a net positive or negative for public health and public safety.
That means the world will be watching what happens in Washington and Colorado, but policy makers and voters should not forget that regulating profit-maximizing commercial firms is only one alternative to marijuana prohibition – and what works for one jurisdiction may not be the best fit for others.