Current U.S. drug policies have produced mediocre results, at best. Pessimists say that trying to eradicate drug use by making it illegal has failed altogether. Even optimists mostly view the prohibition approach as just holding the line, which is a polite way of saying that we are mired in an ugly status quo, in which prices are near all-time lows despite our having locked up half a million people for drug offenses, mostly dealing.This lackluster track record has prompted suggestions that we replace strict prohibition with some form of legal availability for at least some currently banned drugs in order to shrink the illegal market and, with it, the associated violence and incarceration. This approach would also free drug users of the stigma of illegality, the risks of buying drugs of uncertain composition, and drug dealers’ extortionate prices.Marijuana, which has the largest number of users, is the obvious candidate for consideration. About half the U.S. population supports legalization, which contrasts sharply with support for legalizing cocaine, for example, which is closer to 10 percent. Partly as a consequence, liberalizing marijuana policy has become something of a trend in state law that has included the decriminalization of possession for personal use and increasingly liberal availability for those carrying medical recommendations.This November, citizens in Colorado, Oregon and Washington State will vote on the legalization of large-scale commercial marijuana production for non-medical (“social” or “recreational”) use. If any of those propositions passes, that would mark an epoch. Yet despite decades of musings by academics and impassioned advocacy this way and that, most voters have little idea what legalization would and would not bring. Despite the passions that have surrounded the issue, most voters are in fact unaware of many of the likely consequences of the policies they’re being asked to enact. Moreover, the Colorado, Oregon and Washington propositions differ in important ways from the models most discussed among academics and advocates, and they also differ in some ways from each other.The passage of any of these propositions would confront the fact that all marijuana-related activities would remain illegal under Federal law. That doesn’t mean necessarily that passage would be voided entirely by Federal courts or by fiat from the Justice Department. Other outcomes are imaginable, in part because state and local enforcement agencies account for nearly all marijuana-related arrests. State-level legalization would radically and rapidly change the landscape unless the Federal government expanded its enforcement activities enormously. Legalization in either state would also affect the entire country, since any American citizen could travel to Colorado, Oregon or Washington and buy whatever he wanted there. It would affect Mexico and Canada as well.In short, while the principle involved in these ballot propositions may seem simple, the translation of that principle into legal and administrative reality would be anything but. So here is a voter’s guide that reviews the pros and cons of legalizing drugs generally, makes explicit special considerations about marijuana, describes how state-level legalization differs from national legalization, details the Colorado and Washington propositions, and reviews the conundrum the passage of either or both would create for Federal officials.Legalization 101Here are four basic facts about the mass-market intoxicating drugs (alcohol, marijuana, stimulants such as cocaine and methamphetamine, and opiates such as heroin, oxycondone and hydrocodone): They’re cheap and easy to produce; some people like them enough to pay a lot to get them; about one user in six winds up taking the drug frequently and continues to do so in the face of adverse outcomes; and they can damage health. Taken together, these four facts imply that if producers and consumers are left to their own devices there will be a lot of consumption and substantial health consequences.Prohibition raises prices and imposes other costs on users. It lowers consumption overall, but the remaining illegal consumption is more harmful per day of intoxication or per gram sold and used than would be the case under legal consumption. Use becomes more dangerous because illegal production involves less quality assurance, and illegal marketing offers less consumer information, than legal counterparts. Black-market production and distribution also generate violence and corruption. Efforts to suppress black markets cost money and impose harm not just on those punished but also on their families, friends and neighbors.So the essential choice is either to prohibit and deal with black markets or to allow more or less conventionally regulated markets and face greater use and more dependence. The contrast between tobacco and alcohol, on the one hand, and cocaine and heroin, on the other, illustrates the choice. Tobacco and alcohol are far more widely used than cocaine and heroin and produce far more dependence and use-related problems. However, while there is some bootleg alcohol production and evasion of tobacco taxes, the black markets for alcohol and tobacco are minor nuisances compared to the severe problems created by the cocaine and heroin black markets.Why are some drugs legal and others prohibited? There is some logic to the distinctions; crack and methamphetamine really are quite seductive substances whose use can readily spin out of control, and not just in an unusually vulnerable minority of the population. But historical accident and prejudice have also played important roles in distinguishing legal from illegal drugs. Alcohol is thoroughly entrenched in Western culture in a way that heroin is not. That helps sustain norms of responsible use, but it also makes prohibition an enforcement nightmare, as the history of the Volstead Act demonstrates. If, as a thought experiment, we were offered a do-over on alcohol—that is, if a drug with ethanol’s characteristics were to arrive de novo, with no established user base or cultural cachet—then some substantially restrictive regime might make sense. But that would not make restriction easy. Note that many in the public health community would endorse banning tobacco if given a do-over, yet King James I tried to ban tobacco smoking when it was still a fairly new phenomenon in Britain, without much success.Consumption of intoxicants generally obeys the law of demand: The lower the price, the greater the quantity consumed within certain limits (the elasticity of demand not being infinite). But the price-increasing effects of prohibition are astounding in practical as opposed to theoretical economic terms. This is both because it forces inefficient production and distribution processes and because participants in the trade must be compensated for the risk of going to prison. Consider the economics of marijuana in this light.Marijuana is merely the dried flowers and leaves of a plant. So is tea. High-quality marijuana retails for around $300 per ounce; an ounce of even very fancy tea sells for less than $10. If a whole country legalized marijuana, it could be farmed and mechanically processed for something in the neighborhood of $10 per pound. That would make marijuana like bottled water in the sense that the cost of producing the good would be a second-order consideration; most of the final price would come from quality-control inspection, packaging, distribution and retailing.With legalization, the marijuana production sector would shrivel in terms of revenues and employment even if consumption increased. If legalization were to triple and the number of users and the quantity per user remained the same, all of the resulting demand could be satisfied by less than 30,000 acres of farmland—about three dozen mid-sized farms. Contrast that with the 75 million acres of American soil planted in soybeans. Whatever else nationwide marijuana legalization would do, it wouldn’t create a big production industry or have much effect on the farming sector overall; the logic of mass commodity agricultural production is relentless. Indeed, specialty strains (the equivalent of organic vegetables) and “bundled products” (such as marijuana-infused beer and brownies) would probably become a bigger industry than primary production. Legalization would create more unemployment than it would legitimate jobs for those who are now producing and trafficking illegally.The trade-off of abuse vs. illicit markets applies to all drugs, but each drug has its own special characteristics. For marijuana, three are most important.
- Marijuana is by far the most widely used illegal drug in the United States.
- Marijuana markets are not associated with much crime or violence and account for only a small share of incarceration for drug offenses.
- Compulsive marijuana use is less debilitating than is compulsive use of heroin, cocaine or alcohol.
While legalization would reduce prices and increase use (including dependent use), the consequences wouldn’t be nearly as grave as a parallel increase in the use of cocaine, meth or heroin. For example, respondents in a national survey were asked whether their use of a given substance causes serious problems with home/work/school and whether it causes problems with family/friends. Among those who likely meet the clinical criteria for cocaine or heroin dependence, two-thirds answered yes to those questions; the corresponding proportions for those dependent on marijuana were only one in three. This is not to minimize the problems of marijuana dependence. Denial is a hallmark of addiction, and more than two million people admit on a survey that their marijuana use is causing them serious life problems. Nevertheless, given the awful choice of having your child be dependent either on marijuana or on cocaine, heroin or meth (or, for that matter, alcohol), marijuana addiction, unappealing as it is, would be the preferred option.Roughly thirty million Americans report in general population surveys that they used marijuana within the past year, about 17.5 million within the past month. Thus, legalizing marijuana would put millions of Americans “on the right side of the law.” Legalizing marijuana would also drastically reduce the number of arrests for drug-law violations, since marijuana accounts for slightly more than half of all drug-related arrests. Legalization wouldn’t shrink marijuana-related arrests to zero; there would still be arrests for underage use (in California, those under 21 account for more than 40 percent of all marijuana arrests), sales to minors, use while driving, public intoxication and so on, just as there are for alcohol. Indeed, there are about as many alcohol-related arrests for each alcohol-dependent person as there are marijuana-related arrests for each marijuana-dependent person. Still, the number of marijuana arrests would drop substantially if marijuana were legalized.On the other hand, marijuana accounts for fewer than 10 percent of those incarcerated for drug-law violations. Legalizing marijuana could make a big difference to the 20,000 to 40,000 people in prisons for marijuana-related charges and to those spending time in jail after a marijuana arrest, but it would barely dent the nation’s total incarcerated population of 2.3 million.The hundreds of thousands of marijuana-possession arrests do not fill many jail cells because it is primarily drug distribution, not use, that puts people in prison. When people end up in prison with a drug possession conviction, there is usually more to the story. There might be concurrent convictions for other offenses; the possession conviction might have been a “third strike” for a repeat offender or the result of a plea bargain down from a distribution offense. Or the sentence might reflect a judge’s reaction to a minor offense by someone with a long criminal history. On the other hand, some people placed on probation for other crimes now get sent to jail or prison for repeated use of marijuana while on probation. Whether legalization could change that would depend on whether it would still be forbidden to probationers, as alcohol sometimes is.Likewise, legalizing marijuana would have little discernible effect on crime or violence in the United States. Marijuana is already relatively cheap, so unlike, say, heroin, there is not much concern with dependent individuals committing burglaries or robberies to finance their habit. And most low-level distribution is done within social networks, not by professional dealers or via arm’s length transactions in street-corner markets.Of course there is some violence in U.S. marijuana markets, but the problem is tiny compared to, for example, cocaine-dealing violence. The big benefits of legalization in reducing black market harms could only be obtained by legalizing the “hard drugs.” That is not primarily because the hard drugs are pharmacologically more dangerous (although they are), but rather because hard-drug habits are expensive. Dependent users of the “big three” often spend $10,000–$20,000 per year on their drug of choice while simultaneously having dependence so disrupt their lives that legal earnings are compromised. In a recent study, Juliette Roddy and colleagues found that heroin-dependent individuals were spending 73 percent of their total income, legal and illegal combined, on heroin. It is rare for marijuana purchases to similarly dominate budgets or life activities more generally.Note the stress here on in the United States.Marijuana distribution does provide substantial income to the violent Mexican drug trafficking organizations. While the oft-cited figure that marijuana accounts for 60 percent of these organizations’ revenues has been discredited, the more plausible proportion (about 20 percent of drug export revenues) still represents more than $1 billion each year.Legalizing marijuana would eliminate many excesses of the so-called “drug war”, such as the use of possession arrests in “order-maintenance” policing strategies that fall disproportionately on minorities. Likewise, it would eliminate the risk that a marijuana conviction would trigger a mandatory sentence under repeat-offender laws. But it would not alter the basic character of the situation. If the United States had legalized marijuana ten years ago, all of the major concerns expressed by drug policy reformers would still be with us, except there would be fewer marijuana arrests.State-Level Legalization in the Face of Federal ProhibitionMost illegal drugs in the United States are doubly prohibited: Producers and consumers violate both state and Federal laws and can be punished under one or both. A given state could repeal or change its own laws, but that would not immunize users in that state from Federal arrest and prosecution, or from arrest and prosecution in other states. In theory, the Federal government could counter state legalization by hiring or reallocating enough DEA agents, judges and prison cells to preserve the status quo ante, leading to no change in production costs, prices, use or any other outcome, except that the costs of enforcement would then be borne by Federal rather than state taxpayers.In practice, that is extremely unlikely. State and local police forces employ about 750,000 sworn officers; the DEA has only 5,000 special agents. In 2010, state and local law enforcement made 97 percent of the more than 800,000 marijuana-related arrests nationwide. Most were possession arrests, which Federal agents very rarely make, but even among sales and distribution arrests, state and local agencies accounted for roughly 90 percent of the total outside border regions. So as a practical matter, state-level legalization would dramatically reduce enforcement risk, at least for those handling quantities too small to attract Federal attention. (Many U.S. Attorneys’ offices don’t bother to prosecute cases involving less than several hundred pounds of marijuana.)If a state legalized production, it seems unlikely that Federal agents would allow flagrant violations of Federal law, such as openly operating industrial farms or commercial greenhouses. But production might still take place in “grow houses” (residences or warehouses dedicated to growing marijuana) that are outwardly indistinguishable from similar structures housing lawful activity. A RAND estimate puts the post-legalization costs of grow-house marijuana at about $400 per pound and resulting pre-tax retail prices at around $40 per ounce (compared to the current $300 per ounce). Thus the pre-tax price might fall by more than 80 percent, though not the 99 percent decline in production costs that would result from full national legalization.In addition to stepping up its own enforcement, the Federal government could put other forms of pressure on a state that legalized: for example by withholding certain Federal funds. It could also “preempt” components of the legalization that positively conflict with the Federal Controlled Substances Act. Colorado’s Regulate Marijuana Like Alcohol Act (henceforth “CO-LA”) and Washington’s State Initiative 502 (I-502) both envision state employees playing an active role in licensing and regulating the marijuana market, but not possessing, testing or selling marijuana. It is unclear whether such regulatory activity would be judged to positively conflict with Federal law.The Federal government could also attempt to seize marijuana tax revenues on the grounds that they are the proceeds of illegal sales. So far Federal authorities have not pursued the revenues that cities such as Oakland receive from medical marijuana taxes, or for that matter the general sales tax the State of California collects on medical marijuana sales, but statewide revenues from specific taxes on marijuana could provide a much larger target. The Federal government could also use the threat of seizing tax revenues to pressure the legalizing states to prevent “exports” to other states, to keep prices high and to forbid commercial marketing.Perhaps in anticipation of Federal action against tax revenues, both the Washington and Colorado propositions earmark substantial shares of the anticipated revenues for politically popular programs, including public schools (Colorado) and state-sponsored basic health insurance (Washington). That might raise the political price of Federal interference.A Federal-state legal ping-pong match could play out in so many ways, and the political calculus for politicians is so complicated, that it is extremely difficult to predict what will happen. Details matter.For example, Washington State’s proposed I-502 includes three provisions that, together, could constrain the decline in price. Its marijuana retail outlets would have to: (1) operate from a specified location; (2) sell nothing but “useable marijuana [defined as dried flowers, apparently excluding leaves], marijuana-infused products or paraphernalia”; and (3) limit sales per consumer to one ounce of marijuana, 16 ounces of marijuana-infused solids, and/or 72 ounces of marijuana-infused liquids at a time. As a result of these strictures, existing stores could not simply add marijuana to their current product lines or sell it as a loss leader to bring in additional customers. And the marijuana outlets’ price markups and sales volume would need to be high enough to cover their rent, utilities and labor costs. That might put a lower bound on sales revenue per store of something like $50,000–100,000 per year, net of taxes and cost of goods sold.Assuming that prices with taxes would have to be competitive with current black-market prices, which in Washington State are roughly $200–$300 per ounce of high-quality marijuana, the revenue net of taxes and materials would be at most $75–$150 per ounce.Stores would therefore have to sell at least 300–1,200 ounces per year to cover costs. Washington’s consumers could support at most a few thousand such retail outlets.Now, suppose that U.S. Attorneys wrote letters to the landlords of these outlets, reminding those landlords that their tenants were violating Federal law and threatening to confiscate their property unless they evicted the tenants. (This approach has been used to drive some medical marijuana dispensaries out of business.) That simple and relatively inexpensive tactic might alter dramatically the economics of operating a marijuana outlet. Under Washington’s proposed I-502, unlike Colorado’s CO-LA, retail outlets would have to operate from a fixed address; they couldn’t just sell out of the back of an old a car or make home deliveries. So retailers might be forced to buy storefronts rather than rent them, and that business asset immediately becomes a tempting target for Federal law enforcement to seize. Entrepreneurs might be reluctant to put up enough cash to buy a storefront knowing that, at any time, Federal enforcement could shut down their business and seize the store. So U.S. Attorneys might be able to effectively shut down Washington’s legal marijuana industry just by sending out a few thousand letters and seizing a handful of properties—just enough to send the message that this is not a reliably profitable business. Similar tactics might work with producers and processors—who are required to specify locations in their license applications—and there would be even fewer of them. In short, some carefully designed state regulatory structures could thwart the purpose of the legalization by allowing the Federal government to negate its effect at a relatively modest cost.Colorado’s proposition might be harder for the Feds to nullify. While CO-LA speaks of marijuana “facilities”, the facilities and retail stores are defined only as “entities” with no requirement to maintain any fixed address or to notify any official of their locations. Production could be done in a tractor-trailer; sales could be made from a mobile van. Activities could be surreptitiously based in private residences; the fact that residential production might violate zoning ordinances would be irrelevant if that activity never came to the attention of authorities. This example illustrates a general point: The less administrative and legal substance there is to a state’s legalization proposal, the smaller the target for Federal response.And CO-LA is by no means the least structured proposition that could be written. Propositions were circulated this year in several states that were truly minimalist, although none attracted enough signatures to reach the ballot. I-502 includes 62 pages of detailed, mostly thoughtful regulation. By contrast, Michigan’s proposed Constitutional Amendment to End Marijuana Prohibition comprised just 88 words that would have simply repealed all civil and criminal penalties pertaining to marijuana cultivation, manufacture, sale or any other activity by adults who were not incarcerated—with the sole exception of operating a motor vehicle while impaired.There is historical precedent for such “repeal-only” plans, as opposed to the Washington or Colorado “repeal-and-regulate” propositions. New York State repealed its prohibition of alcohol in 1923, though Federal alcohol prohibition continued for another decade. The courts have made it clear that no state is under any obligation to criminalize an activity just because the Federal government does so.From a public health perspective, a well-regulated market is better than a laissez-faire free-for-all. Washington’s proposition imposes taxes, allows for quality control testing, restricts storefront advertising to simple signage, requires employees to be 21 or older, forbids establishments from locating within 1,000 feet of a school, park or daycare center, regulates advertising, and gives the state liquor control board responsibility for several regulatory tasks, such as “specifying procedures for identifying, seizing, confiscating, [and] destroying” illegally produced marijuana. I-502 would even earmark money for a cost-benefit evaluation to be conducted by the well-respected Washington State Institute for Public Policy.So the Federal government would face a difficult choice. It could effectively thwart a thoughtfully designed repeal-and-regulate scheme like Washington’s, and it could prevent Colorado’s Department of Revenue (the agency CO-LA empowers to regulate the new marijuana industry) from producing regulations that take Colorado in the direction envisioned by I-502. It would have a much harder time nullifying a loose regulatory scheme and, short of massively expanding the DEA payroll, could do essentially nothing to stop a legalize-only action such as the Michigan amendment.In short, the Federal government may be incapable of stopping legalization, and the primary effect of an aggressive response might be to push legalization toward a relatively unregulated open market. But a strict non-interference policy on the Federal level might also be untenable, and it is instructive to see why.A principal motivation for legalization has been its potential to generate tax revenues. CO-LA specifies that the first $40 million raised by its excise tax would be credited to the public school capital construction fund. That figure suggests unrealistic expectations; unless state-level legalization tripled Colorado’s cannabis use, the tax receipts from sales to Coloradans wouldn’t even total that much, especially since the law would exempt medical users from paying taxes and such users account for about a quarter of Colorado’s current regular marijuana users. (Under CO-LA, medical dispensaries would be like “duty-free” shops at airports.) However, there are about fifty times as many marijuana users elsewhere in the United States as there are in Colorado. That, ultimately, is why Federal authorities would not be able to ignore the matter.“Drug tourism” (users coming to Colorado to buy) could generate significant economic benefits, though not nearly as much as it might for an eastern state with more populous neighbors. Indeed, Colorado could make much more money selling to out-of-state dealers who could buy in bulk in Colorado to sell (illegally) in other states. The economics are compelling. Most dealers would certainly prefer to buy high-quality marijuana in Colorado for $400 per pound than pay current domestic suppliers $2,000 per pound for the same quality, or pay the same wholesale price along the southwest border for inferior grades of pot. Even if Colorado successfully enforced CO-LA’s restriction that cultivation and manufacturing facilities sell only to each other or to a licensed retail store, not to unlicensed third parties, the out-of-state dealers might by happy to pay an extra 15 percent—still under $500 per pound—to be (mostly) on the right side of Colorado law while in the state.Likewise, although under CO-LA marijuana stores are supposed to sell only to “consumers” (defined as adults who will not resell) there is no mechanism for verifying that, and the potential tax revenues might give Colorado state officials an incentive not to be particularly fastidious. If Colorado became the dominant supplier of cannabis for the entire country, or even for large parts of it, revenues from out-of-state sales could approach $500 million, about the size of Colorado’s deficit this past year.So while it might be counterproductive for the Federal government to fight back tooth and nail against state-level legalization, complete acquiescence might touch off a brawl. Other states might well cry foul and push for Federal intervention if Colorado’s legalization led to Colorado replacing Mexico and Canada as a closer and more efficient “source country” for marijuana, putting downward pressure on prices around the country and hence stimulating more use.Colorado’s Department of Revenue would retain the power to make out-of-state diversion more difficult, for example by instituting a true quantity limit on retail sales. Hence, one Federal strategy might be to remain mostly hands-off as long as the state did indeed act to constrain diversion for “export.” Unfortunately, even well-intentioned measures might not be able to prevent diversion unless the state directly controlled distribution, and that could create pre-emption problems and all sorts of other problems besides.The marijuana legalization debate has droned on for decades. The familiar debating points having been repeated so often and accepted so uncritically by the two groups of partisans that advocates on both sides are certain of their validity. This is not a healthy situation, since both sides’ views are either non-trivially mistaken or simply irrelevant to specific legalization proposals. Both sides have typically insisted that legalization is a simple yes/no question, but different legalization scenarios differ in important ways. State-level legalization is not like national legalization, since it can introduce all sorts of competitive and beggar-thy-neighbor dilemmas. Repeal-only legalization is not like repeal-and-regulate. The Federal government may have to choose between discouraging state-level legalization by making effective taxation and regulation impossible (at the cost of increasing the damage if a state chose to legalize anyway) and accommodating state laws that permit the violation of Federal laws.True legalization, meaning allowing commercial-scale production for non-medical use, would be a dramatic break with the past, going far beyond mere decriminalization or non-interference with low-level distribution. While we can lay out a framework for understanding the principal benefits and risks, great uncertainty would necessarily attend what a legal market would ultimately look like and how long the transition to a new normal would take. So while the stakes are high, certainties about what legalization would mean are scarce. We hope the citizens of Colorado and Washington will invest the time necessary to cast informed votes this November, and that the media will facilitate that process rather than merely report competing slogans. Rational ignorance has been forgivable because the prospect of legalization up until now was too theoretical to justify a great deal of effort on the part of most people. It’s forgivable no longer.