It's Not Easy Bein' Green: How Capitalism is Shaping Cannabis Legalization
by SAVANNAH SMITH
Think all cannabis legalization is the same? Think again. Current regulations reflect the vast disparity in cannabis education among both lawmakers and citizens state to state, resulting in a variety of paths to obtain legal access to cannabis. Even amidst those in favor of legalization, opinions differ on whether to treat cannabis as a pharmaceutical drug like Valium or Ritalin, an agricultural crop like wheat or corn, or as a vice like tobacco or alcohol. This determination dictates which governmental body is tasked with regulating manufacture and sale, as well as how retailers and consumers are taxed on the end product.
Though medical access is far more widespread than recreational access, cannabis as a medicine and tool for social justice is being increasingly eclipsed by its potential as an entrepreneurial opportunity. Many people see cannabis as a chance to get in on the ground floor of a burgeoning green industry, however most do not realize that each state (and occasionally even counties or cities within each state) has its own specific rules and procedures for owning and operating a green business—as well as for legally possessing and consuming the product itself. Today, current regulatory provisions range from mere decriminalization to full recreational commercial access.
The increasing legality of cannabis might lead one to believe that sweeping federal legalization is just over the horizon for America. In all likelihood, we will see some sort of national action on cannabis within the next five years—but it may not happen how you imagine.
All Legalization is Not Created Equal
The primary obstacle in legalization is that cannabis is counted among the highest restricted category of drugs by the FDA. In the five-tier system, controlled substances are grouped according to currently accepted medical use, the potential to be abused, and the subsequent likelihood of causing dependence during abuse. Schedule V substances have a low potential for abuse and contain limited amounts of certain narcotics approved for medical use—some types of cough syrup, for instance. Schedule IV contains substances more likely to be abused, but less likely to cause debilitating physical dependence—Xanax Klonopin, Valium, etc. Schedule III is where we begin to encounter substances likely to cause low to moderate physical dependence and severe psychological dependence—ketamine, tylenol with codeine, and anabolic steroids such as Depo-testosterone. Schedule II drugs have a high likelihood for abuse and may cause severe psychological and physical dependence, but still have some medicinal value—Adderall, Percocet, OxyContin, opium, and morphine are found here. Schedule I substances have no currently accepted medical use and a high likelihood for abuse—LSD, heroin, peyote, ecstasy, and last but not least, cannabis. That’s right: cannabis is classified along with acid, heroin, and ecstasy as a controlled substance with no medicinal benefit and a high likelihood of dependency.
Even amidst those in favor of legalization, opinions differ on whether to treat cannabis as a pharmaceutical drug like Valium or Ritalin, an agricultural crop like wheat or corn, or as a vice like tobacco or alcohol. This determination dictates which governmental body is tasked with regulating manufacture and sale, as well as how retailers and consumers are taxed on the end product.
Concerns about cannabis being dangerous and addictive are very common although largely a misconception. Cannabis is not a dangerous drug. There have been no recorded deaths due to cannabis overdose ever in the history of humanity, which has been inhaling its smoke for over six thousand years. While it is possible to overdose, it would require smoking something on the order of 200 marijuana cigarettes in an hour—a physically impossible feat. Cannabis is also not a very addictive substance. In fact, it neither produces significant physiological dependence nor any serious physical withdrawal symptoms that one would see in alcohol, heroin, or even caffeine addictions. It can become a habit, which constitutes a types of addiction, but a habit forms as a result of an individual's ability to control themselves, not as a result of chemicals inherent to cannabis itself. A cannabis addiction is similar to a shopping addiction in that sense—there is not something inherently addictive about shopping, plenty of people shop every day and never have a shopping problem. But individuals who are using the act of shopping to compensate for some other issue may find themselves dependent on it.
Truly, it is the fundamental disconnect between scientific fact and governmental policy in the drug scheduling that pits medical patients against the federal government. However, it is not irrefutable scientific evidence of medicinal benefits that appears to be giving lawmakers pause over prohibition laws, but instead the irrefutable economic evidence that prohibition laws keep the government from millions of dollars in tax revenue.
Decriminalization is the process of switching cannabis-related offenses from criminal to civil penalties, generally resulting in just a fine. A handful of cannabis consumers and legalization advocates believe decriminalization is a better option than legalization because the consumer would not be subject to any sort of additional tax, nor would they have to jump through hoops to get a medical card or grow license. The existing market would face little disruption so there would be low barriers to entry in that “gray market.” Decriminalization measures do not necessarily improve access to quality cannabis but they do make consumption less risky.
However, some US law enforcement agencies claim that decriminalization on a local level only protects citizens to a certain extent—more than three civil offenses could have one facing a fifth degree federal felony because cannabis remains federally illegal as a Schedule I substance. Additionally, if the decriminalization laws are city—or county-wide, a state patrol officer or officer outside of those jurisdictions would likely arrest according to state laws.
Schedule I substances have no currently accepted medical use and a high likelihood for abuse—LSD, heroin, peyote, ecstasy, and last but not least, cannabis. That’s right: cannabis is classified along with acid, heroin, and ecstasy as a controlled substance with no medicinal benefit and a high likelihood of dependency.
Medical legalization has taken various forms state to state—some allow commercial dispensary activity while others specifically prohibit any excess revenue from cannabis transactions. The term “caregiver” is frequently used in medical cannabis legislation to refer to the party providing the product to a patient, though its precise meaning varies bill to bill. Variation between California, Michigan, and New York state’s respective programs illustrate varying levels of capitalist influence over legislation. This section will detail California and Michigan, while New York will be addressed further into the article.
California was the first state to allow medical access, enacting legislation in 1996. They defined a “caregiver” as “the individual designated [by a legal patient] who has consistently assumed responsibility for the housing, health, or safety of that person." The law does not specifically allow patients to have multiple caregivers, however a caregiver may lawfully serve anywhere from one patient to hundreds of patients. Here, a medical dispensary must operate as a nonprofit cooperative or collective. The key difference between a nonprofit organization and a for-profit organization lies in how revenue is handled: in a for-profit corporation, revenue would be redistributed to shareholders, while a nonprofit requires revenue to be reinvested in the company. Dispensary operators are expected to file for a sales permit and pay sales tax to the California Board of Equalization.
From 1996 to 2008, California did not have uniform statewide regulations, and instead left licensing up to local governments. Bills in 1996 and 2003 both failed to address any specific medical cannabis taxation, not specifically requiring marijuana businesses to pay income tax nor be subject to any cannabis-specific taxation. Consumers have always been required to pay the regular California sales tax, which goes to the state’s General Fund and to the city, county, and other local jurisdictions where the sale was made. This revenue is not tied to any specific programs within the state budget.
In recent months, though, the California Department of Consumer Affairs began the process of creating the Bureau of Medical Marijuana Regulation which will issue statewide licenses for distributors, dispensaries, and transporters; cultivation licensing will be regulated by the California State Food and Drug Administration. Patients will continue to apply for their medical card through the State Department of Health Services. With these provisions, the state hopes to generate additional tax revenue from business licensing and promote a safer, more uniform industry without levying additional cannabis-specific taxes.
Michigan legalized medical cannabis for qualifying conditions in 2008. Unlike California, Michigan does not allow commercial entities to function as caregivers and does not issue licenses for dispensaries. Instead, they define a caregiver as “a person who is at least 21 years old and who has agreed to assist with a patient's medical use of marijuana and who has not been convicted of any felony within the past 10 years and has never been convicted of a felony involving illegal drugs or a felony that is an assaultive crime.” Caregivers may serve up to five patients, and are permitted to grow up to 12 plants per patient. Both caregivers and patients are required to apply for a state registry ID card and must renew every two years. The application and renewal fees are used to offset the expenses of implementing and administering the bill. Any revenue generated by these fees will go into a separate fund for the department, rather than a “general fund” as in California.
With no additional tax for medical cannabis and a plethora of medical dispensaries to source from, many medical refugees have migrated to Colorado from prohibitionist home states, seeking legal relief and a better quality of life.
Michigan’s noncommercial program certainly simplifies issues related to regulating businesses and taxation because they simply do not exist. Little sales revenue is generated because consumers are intended to receive their medicine at-cost directly from the grower. However, this also means that there has been little tax revenue and thus little community improvement as a result of legalization, which is what often inspires non-users to support cannabis reform.
Recreational or “personal” use of cannabis is legal in Colorado, Alaska, Oregon, Washington state, and Washington D.C.. Under these provisions, persons 21 and over may legally purchase, possess and use limited quantities of cannabis. There is no application process or residence requirements to be able to purchase recreational cannabis, however some states may require a license to grow a limited number of plants at home for either personal or medical use (with the exception of Washington state, where home-grow remains illegal).
Colorado made history in 2013 when it became the first state to permit full recreational use and sale of cannabis. There is no license necessary to grow plants at home for either personal or medical use, and there is no cap on the number of retail licenses issued. Cannabis-specific taxes hover around 10% on recreational purchases and are flagged to be applied towards statewide school construction and educational campaigns on cannabis use. Both medical and recreational sales are subject to the 2.9% state sales tax, plus any additional local taxes. The state brought in over $44 million in tax revenue from cannabis sales in 2014, with over $30 million going to schools.
With no additional tax for medical cannabis and a plethora of medical dispensaries to source from, many medical refugees have migrated to Colorado from prohibitionist home states, seeking legal relief and a better quality of life. The remarkable tax revenue has also inspired many non-users to support legal access, noting that light regulations make consumption safer and taxation of the product contributes to the well-being of children through improving schools and offering accurate drug education.
Why Legalization Failed to Pass in Ohio
In 2015, Ohio had the opportunity to vote on a bill that would grant both medical and recreational legalization at once. It was the first state in the country to attempt such brazen legislation. Predictably, the citizen initiative campaign was met with both jubilation and condemnation. Less predictably, a great deal of the condemnation actually originated from pro-legalization advocates. While many patients, activists, and citizens were in favor of its passage, a sizeable portion of both the activist and business community made no bones about their lack of support for Responsible Ohio’s Issue 3.
The most controversial aspect of the plan was that commercial growth for both recreational and medical products would be restricted to 10 companies. These companies would then send their buds to a testing and manufacturing facility to ensure quality and safety before the product hit the retail shelves. Licenses for both testing/manufacturing facilities and medical dispensaries/retail shops would be open to the public. There would be no open application process for commercial growth because the 10 companies were already owned by the approximately twenty investors who financed the signature gathering effort and subsequent election campaign. Each investor put up just over a million dollars in order to have a stake in one of the 10 grow sites.
One national news outlet did get it right, though: the popular television show Late Night with Seth Myers was careful to highlight that Ohio didn’t vote against legalization of weed but instead against what they perceived as the monopolization of the weed industry.
Many medical advocates balked at the language of the bill, which made medical dispensaries and subsidized medicine for low-income patients merely optional and subject to the discretion of the regulatory body. Patients and advocates feared that a medical program would be overlooked in favor of more profit-focused recreational products meant to appeal to the average consumer rather than the needy patient. They believed that these recreational products would likely not include the breadth of medical strains needed to treat specific disorders, and that all products would be subject to additional excise taxes.
Outside of the patient blowback, Issue 3 also faced considerable opposition from citizens interested in joining the industry themselves but distraught that predetermined investors in the campaign already had a “monopoly” on commercial growth. Indeed, the words “monopoly” and “cartel” were thrown around by citizens, the media, and, interestingly, by Ohio Attorney General Mike DeWine and Ohio Secretary of State John Husted themselves. Despite the fact that licenses for the testing and manufacturing facilities as well as licenses for the 1100 medical dispensaries and/or retail shops would be open to the public, the term “monopoly” would haunt the campaign throughout 2015.
“Monopoly,” though, is not the appropriate designation for the system created under Responsible Ohio. Instead, the ten separate companies would comprise an oligopoly—an industry controlled by a few companies rather than a single company. Regardless, the Republican-dominated legislature pushed the “monopoly” verbiage because it elicited a specific negative emotional response from voters. In this way, the conservative lawmakers could easily fight tooth and nail against legalization—but under the convenient guise of fighting against the common man being left out of the industry. In an age where income inequality is such a hot-button topic, the prohibitionist Ohio government was effectively able to split the pro-cannabis majority vote and easily defeat the measure this past November.
The fight for legalization in Ohio gained national media attention throughout the summer and fall. Many recognized the implications of a conservative swing state voting to legalize recreational cannabis just a year before a major presidential election. America’s heartland growing leafy green medicine alongside traditional crops of wheat, corn, and soybeans could have been the tipping point for national action, and surely would have forced presidential candidates, liberal and conservative alike, to address cannabis reform as a key factor in their campaign platform. In the wake of the failure of Issue 3, national media buzzed over Ohio rejecting legal pot but most left out any mention of the nuances of the proposal that split the otherwise sizeable pro-cannabis community. One national news outlet did get it right, though: the popular television show Late Night with Seth Myers was careful to highlight that Ohio didn’t vote against legalization of weed but instead against what they perceived as the monopolization of the weed industry.
The Effects of the Industry
Colorado is widely touted as the gold standard for recreational legalization. When recreational access was implemented in 2014, cannabis morphed into a multi-million dollar industry almost overnight. The state had legalized medical access via non-commercial caregiver in 2000, but received a paltry 6000 patient applications over the next seven years combined. Upon legalizing storefront dispensaries in 2009, patient applications increased exponentially, swelling to over 38,000 that year alone. Over those twelve months in 2009, the number of operational dispensaries in the state increased from 250 to over 900. Commercial visibility proved a crucial factor in promoting medical access and normalizing cannabis consumption.
New York will issue just 5 licenses and requires $210,000 in application fees. Fascinatingly, though New York State allows half the number of growers and grants only those growers the right to legally sell medical cannabis, there has been zero “monopoly” blowback from legislators or citizens, as was seen in Ohio.
Fast forward to 2014, when recreational access is granted. Many cities in Colorado placed a moratorium on applications for recreational business licenses, allowing only pre-existing medical grow operations and dispensaries to open shops aimed at recreational consumers (medical applications remained open to anyone). This ensured that regulations were followed, business plans were sound, and owner/operators were somewhat experienced in the industry. Two years later, this moratorium is set to expire in January 2016 and industry regulators are forced to grapple with the prospect of extending or ending it. As in Ohio, pro-pot advocates and industry heavyweights are split.
Denver, the state capital, is home to over 400 medical and recreational cannabis businesses. Ashley Kilroy, the Marijuana Policy Director for the city’s mayor, asserts that Denver has reached an industry saturation point, claiming, “We already have an abundance of marijuana products and...marijuana businesses in Denver.” She worries that the potential for overproduction would force legally-grown buds into the black market.
Oregon, too, is facing an over-saturated market after the rise of recreational access. Currently there are 300 dispensaries and shops operational, with approximately 400 applications waiting to be approved. Application fees for licenses are one of the most obvious barriers to entry into the cannabis industry, but Oregon charges only around $4000 for each application. As a result, the industry is more accessible to laypeople but this means that “a lot of people got into [the industry], but they were not well-financed and were hanging on by their fingertips,” according to the Director of the Oregon Cannabis Business Council. With increasing competition, smaller businesses simply cannot make ends meet and fear returning to the black market as their only way to recoup costs.
Other states with fledgling medical programs, such as New York and Massachusetts, are attempting to circumvent the boom and bust cycle of the green rush by maintaining much higher barriers to entry, including restricting the number of licenses issued and charging exorbitant application and licensing fees. Massachusetts will issue up to 35 licenses statewide, and requires approximately $32,000 in non-refundable application fees. New York will issue just 5 licenses and requires $210,000 in application fees. Fascinatingly, though New York State allows half the number of growers and grants only those growers the right to legally sell medical cannabis, there has been zero “monopoly” blowback from legislators or citizens, as was seen in Ohio.
Perhaps the most interesting case of all legal states, however, is Washington. Medical access want granted in 1998, though it remained largely unregulated until 2010. In 2012, the state legalized recreational access and the first recreational shop opened in July 2014. In the wake of sweeping legalization, the state found its licensed recreational shops struggling as medical dispensaries carried on unlicensed and untaxed, while the black market continued to thrive. At the beginning of 2015, lawmakers elected to merge the medical and recreational programs in an attempt to drive all sales to a single legal, taxable market. This means previously untaxed medical sales are now subject to a 37% cannabis-specific tax, and patients must go to recreational shops to purchase their medicine. The state has around 150 recreational outlets (but far fewer grow operations—growth has mostly oligopolized) and their revenue has soared as a result of new users and tourists, despite the heavy taxes.
Medical advocacy groups in Washington insist that merging the medical and recreational markets is harmful to patients. They claim that imposing the same restrictions and privileges on all cannabis users belittles the medicinal value of the plant and actually strips patients of certain rights which they had previously enjoyed for over a decade. Possession limits are lower and collective grow restrictions are tighter. The latter is critical for low-income patients. Because Washington does not allow any home-grow, group collective grows (many of which functioned as not-for-profit organizations, similar to California) provided a cost-effective alternative to dispensary products. The old laws did not specify whether each member of a collective needed to actively participate in the farming of their medicine; the reformed laws now dictate that they must. This is problematic for patients who may suffer from motor or mobility issues, as well as for elderly patients. Individuals suffering from chronic pain, Multiple Sclerosis, Parkinson’s, arthritis, sickle cell anemia, and others may find that the disorders that inhibit their ability to function regularly and hold a job may now keep them from receiving their medicine too. However, supporters of the reform maintain that Washington will achieve lower prices in the long run, ultimately benefitting consumers medical and recreational alike.
So where’s the sweet spot?
American cannabis policy has moved from unregulated, non-profit medical access to strictly regulated, highly profitable recreational access over the past 30 years. The opportunity to cash in on getting high is changing the way lawmakers approach writing policy and the way voters respond to proposed bills. State governments aim to mimic Colorado’s remarkable tax revenue, but are not sure how to navigate taxation on a product that remains federally illegal. Voters want to move away from the perils of the black market but are hesitant to jump onboard with stricter rules and regulations.
Voters openly scorned an oligopolized cannabis industry, yet protest remarkably little about the state having access to just two or three options for cable/internet providers and a single option for electricity. Clearly the problem is not with the concept of an oligopoly itself, but with the notion that they would miss out on profiting from the legal cannabis boom.
The failure to legalize in Ohio rests largely on how citizens interpreted their ability to make money within the new industry, rather than because Ohioans do not support access to cannabis. Voters allowed legalization progress to stall because they believed Issue 3 to be too regulated and restrictive, without researching how markets and policies are unfolding in other states. Voters openly scorned an oligopolized cannabis industry, yet protest remarkably little about the state having access to just two or three options for cable/internet providers and a single option for electricity. Clearly the problem is not with the concept of oligopolization itself, but with the notion that they would miss out on profiting from the legal cannabis boom.
Through detailing various states’ legal markets both medical and recreational, it is clear that there is no single best way to roll out a program. While citizens often prefer free market regulations in hopes that they may join the industry themselves, Colorado and Oregon demonstrate that too many retail establishments create poor market conditions for business owners and drive legal products to the illegal market. On the other hand, programs such as New York’s five-retailer system may prove inaccessible to many of the state’s most needy patients, driving them to continue seeking medicine through the illegal market as well. When a legal market opens but is not successful in squashing the black market, such as in Washington State, we see that it is medical consumers who suffer in the name of profits.
Looking at the big picture, the US is full of restrictive markets that citizens participate in every day. To take medicine, eat pre-packaged food, or even watch the news, one is more than likely participating in an oligopoly on some level. Taking a stand against big business and strict regulation in the context of withholding legal access is simply not the progressive choice so many people believe it to be. Take a moment to consider that states end up holding medical patients hostage over who gets to profit from providing their care. Cannabis is a medicine before it is a marketplace, and in only considering the economic aspects of a proposal, it is possible to miss the real-world, human implications of this politico-capitalist tug-of-war against the federal government.
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Savannah Smith can be reached at email@example.com.