Public Opinion, Political Disconnect, and the Marijuana Market

Public concern has grown recently over the economic status of the United States, along with a sense that its political leadership has been unresponsive. As a result, policies that foster open markets and limit the power of the federal government have seen renewed support. Simultaneously, the percentage of Americans who support reforming our nation’s marijuana laws has increased dramatically. In the last decade, the number of people who think marijuana should be legal for adults has risen significantly across all ages, genders, and racial and political categories.

One of the reasons for this increase in public support is the undeniable fact that Prohibition is a failed policy. If we remove emotional or moral issues and simply look at the economic and practical aspects, this becomes more than obvious.

The root purpose of marijuana Prohibition is to eliminate the marijuana market in order to decrease use. While recent trends have seen the federal government making statements in support of education and harm reduction techniques as a way of reducing domestic demand, the brunt of Prohibition has come in the form of law enforcement directed at both the supply and demand sides of the market. Such interdiction methods have become increasingly expensive since marijuana Prohibition began in 1937, and every taxpayer is footing the bill, year after year.

The results have been abysmal. The United States currently spends approximately $8 billion a year on marijuana Prohibition enforcement. This year alone, more than 853,000 people were arrested for marijuana violations. Of those, more than 750,000 were for simple possession. The effort put into enforcing marijuana Prohibition has been steadily increasing for decades and shows no signs of abating. While more resources have been dedicated to harm reduction in recent years, the emphasis remains firmly on law enforcement and the criminal justice system to disrupt the marijuana market.

Yet use has not decreased and is actually near record levels. This is a clear indication that despite the government’s attempts to eliminate this market, it is thriving.

If the marijuana market cannot be eradicated, it should be accepted and dealt with realistically. As more people have become open about their marijuana use, it has become integrated into our culture with little ill effect. It is time the economics of marijuana become integrated into civil society as well. A system of taxation and regulation is the most effective framework to make the transition from the illicit to the legal market and to allow legitimate businesspeople to direct this integration.

Many proponents of free markets tend to think of taxes and regulations as being inherently restrictive for any industry. No doubt this played a role in the defeat of California’s Proposition 19 last year; the initiative to tax and regulate marijuana in the state saw some cultivators and distributors in the semi-legal and illicit marijuana industries actively campaigning against what they saw as a regulatory threat to their businesses.

Under Prohibition, however, the marijuana market is governed by a single “regulation” that is undeniably more restrictive to free market practices than any that could exist under a legal framework: only criminals may participate. Aside from that “regulation,” the marijuana market receives none of the regulatory benefits and protections afforded to buyers and sellers in other markets.

At the end of the day, we have a system in which taxpayers are forced to pay to keep a large agricultural commodity in the hands of a very small number of people whose competitiveness is determined not by the quality of their goods and services, but by their willingness to commit acts of violence. This is the antithesis of a free market.

But economic arguments appear to hold little sway with the federal government and most politicians. For them, the cost of keeping the market closed to legitimate actors is justified by unsubstantiated concerns about the social and public health costs associated with an assumed, but unproven, rise in use that could accompany an open market. The argument of potential tax revenue to be gained from the marijuana industry has made some headway on local levels, but the estimated net gain from a taxed and regulated system on a national scale is relatively small when compared to other federal tax streams and is, therefore, of little interest of Congress.

The potential of the industry as a whole is frequently overlooked. Marijuana is by most estimates a more valuable commodity than corn and wheat combined, with experts estimating its annual value to be between $10 and $120 billion. The employment potential of such a market is enormous. This does not factor into federal considerations, as evidenced by recent Justice Department crackdowns on the medical marijuana industries in places like Montana and California that have jeopardized thousands of jobs. If economic stagnation continues, however, employment and tax waste will become more and more relevant in driving public support for ending Prohibition. Unfortunately, that support may have to increase dramatically before any real ground is gained.

Despite the fact that according to the latest Gallup poll, 50% of Americans believe that marijuana should be legal, politicians continue to lag far behind public opinion. Speaking at the Drug Policy Alliance Reform Conference in Los Angeles on November 3, former New Mexico Governor and presidential candidate Gary Johnson said, “Fifty percent of Americans support legalizing marijuana. But zero percent of the universe of politicians support this.” This disconnection between elected officials and their constituents presents serious challenges to marijuana policy reform.

On a federal level, the chances of seeing any real changes in the near future are slim. It should not be surprising that, for the most part, the only conservative presidential candidates calling for an end to marijuana Prohibition are figures like Gary Johnson and Rep. Ron Paul, both longtime proponents of personal liberty and free markets. The Obama administration has repeatedly expressed its position in online public forums (most recently through the “We the People” petition program on the White House website), and making marijuana legal is not a part of the plan.

Support among federal lawmakers is similarly scarce, although several bills have been introduced that would greatly improve marijuana policy and provide more market access and safety. The most ambitious is the Ending Federal Marijuana Prohibition Act of 2012, or H.R. 2306. If passed, this law would remove marijuana from the list of controlled substances and would eliminate all federal penalties related to marijuana, except in cases where marijuana is shipped into another state in violation of that state’s laws. Introduced by Reps. Barney Frank and Ron Paul, this bill quickly garnered a total of 17 co-sponsors in the House but will probably not be seriously considered for quite some time. At the time of the bill’s introduction, Rep. Lamar Smith, Chairman of the House Judiciary Committee, promised that his panel would not even look at the legislation.

Earlier this year, a trio of bills was also proposed by a small group of legislators that would protect the burgeoning legitimate medical marijuana industry from federal encroachment. The States’ Medical Marijuana Patient Protection Act would immunize individuals acting in compliance with state law from federal prosecution. The Small Business Tax Equity Act of 2011 and the Small Business Banking Improvement Act of 2011 address critical tax and banking issues faced by medical marijuana centers and dispensaries as they attempt to serve patients and comply with statewide regulations. Currently, the IRS considers marijuana businesses to be drug trafficking organizations, and as such they are not allowed the same tax deductions given to other legitimate industries, regardless of their compliance with state law. Banks can also be targeted for having medical marijuana distributors as clients. Needless to say, these policies place an undue burden on this legitimate market. Unfortunately, the bills to correct these problems are also moving slowly.

While support for allowing the medical use of marijuana may be rising among state lawmakers, it is still far from common, despite an overwhelming 80% of the public showing support for this policy. State legislative efforts to tax and regulate the recreational marijuana market in a manner similar to alcohol are nearly nonexistent. This leaves state-level ballot initiatives as the most viable option for circumventing unresponsive politicians and bringing marijuana into the legal market.

Efforts are already underway to get such initiatives on the ballots of several states. In Colorado, the Campaign to Regulate Marijuana Like Alcohol is well on its way to having the necessary number of signatures for consideration on the November 2012 ballot. This initiative would make adult use of marijuana legal while establishing a regulated and taxed system for cultivation and distribution. The cultivation of industrial hemp, a non-psychoactive cousin of marijuana, would also be permitted, opening yet another market for the beleaguered agricultural and textile industries. Voters in Washington, Oregon, Missouri, and California could decide on similar initiatives next year as well. Judging from current public support and the voter demographics that turn out during presidential elections, it seems likely that at least one state will end marijuana Prohibition within its borders in 2012.

When this happens, there is sure to be a showdown between that state and the federal government, which can still enforce Prohibition in any state. Regardless of who is in control of the White House, it is uncertain whether he or she will have the stomach to carry on the battle for long. Support for making marijuana legal is strongest among Democrats and liberals, and enforcing federal Prohibition in the face of a majority state vote would cost considerable political capital. Moreover, given the importance of limited government and fiscal responsibility among its base, it seems unlikely that an incoming Republican administration would kick things off by spending tax revenue in an effort to subvert states’ rights.

Should the federal government adopt a policy of noninterference with an adult marijuana market regulated by the states, we may begin to see more politicians aligning themselves with the majority on this issue. Once the market transitions to the realm of legal operators and has time to establish itself, the jobs provided and additional tax revenue gained will be impossible for lawmakers to ignore. Until that gap is bridged, however, marijuana policy reform will depend on the power of supportive voters in each state.