Cannabusiness Goes to Pot

Can Legal Weed Win?:
The Blunt Realities of Cannabis Economics
by robin goldstein and daniel sumner
university of california, 232 pages, $24.95

My one and ­only run-in with the police occurred on a hot summer night in Portland, Oregon, a month or so before my junior year of high school. My friend and I, both seventeen years old, had—like more than 44 percent of Americans in our age group—­recently been introduced to cannabis, a staple of the city’s youth scene. For us, at least, the drug’s allure was as much aesthetic as experiential: The transgressive nature of the act of smoking weed—a heady feeling of liberation from the limits of parentally enforced mores—was a far greater rush than the drug’s actual psychoactive effects. But that freedom came with its own consequences. One night, in the park by my friend’s house, we were caught by an unamused policeman; half an hour or so later, two chastened, sheepish teenagers were delivered home in the back of a cop car to their even-less-amused parents. Almost immediately thereafter, my interest in weed evaporated. The drug never appealed to me again. Within a year, I had forsworn it completely. By the time I was in college, I was going out of my way to avoid situations where pot was present at all.

This, I would come to realize much later, is the function of public order: not that it prevents deviance in all cases, but that it disciplines those who do deviate, nudging them back onto the straight and narrow. The law, and the mores and norms that uphold it, enforces the boundaries of the social contract. But it also teaches those who err. The sense of being external to the law—of stepping, albeit in a relatively brief and inconsequential way, outside the bounds of the political ­community—provided me with a glimpse of what life would be like in the law’s absence. In my adolescent way, I had seen that I had a personal stake in the social order—that its rules and regulations were not simply coercive but protective, and that they both enabled my personal freedom and imposed an obligation to exercise it responsibly.

Since that summer night, Oregon has substantially eased the demands of that public order. In 2020, despite boasting one of the highest rates of drug and alcohol addiction in the nation, my home state decriminalized all drugs. Possession of cocaine, heroin, methamphetamine, and any number of other illicit substances is now punishable by the issuance of a civil citation, akin to a parking ticket. Oregon’s move was the most radical edge of a nationwide push for cannabis legalization: According to the National Conference of State Legislatures, “Nineteen states, two territories, and the District of Columbia have legalized small amounts of cannabis (marijuana) for adult recreational use.” The campaign to legalize recreational marijuana, which enjoys the support of a powerful and lavishly funded coalition of libertarian and progressive interests, has met little in the way of organized opposition, at least at the federal level. But in practice, weed legalization faces a far more formidable foe: reality.

The quagmire of cannabis legalization is ably chronicled in Can Legal Weed Win?: The Blunt Realities of Cannabis ­Economics, by Daniel Sumner and Robin ­Goldstein, two economists at the University of California, ­Davis. Sumner and Goldstein do not oppose cannabis legalization as such; if anything, their criticisms are directed toward helping the industry navigate the challenges they describe. (The final chapter of the book is titled “How to Survive ­Legalization.”) But as practitioners of the dismal science, they offer a sobering picture of the gap between the romantic predictions of pro-­legalization activists and advocates and the reality on the ground.

The book’s compelling mix of hard economic data and qualitative interviews with activists, investors, and “cannabusinessmen,” written “in plain English” and assuming “no background in business, economics, or statistics,” is a study in contrasts—contrasts between expectations and outcomes, between ideology and reality, between utopian visions of what could be and the considerably less perfect nature of what is. What emerges is a story of activist hubris. Sumner and ­Goldstein write:

Activists thought they could have the best of all worlds: regulate legal weed so thoroughly that you make it perfectly safe, bring in lots of tax dollars to the state, make entrepreneurs rich, eliminate the illegal weed market, and make the new system inclusive of the formerly illegal operators who suffered under criminal laws that are viewed by today’s lawmakers and citizens as unjustly harsh. ­Recreational legalization has brought none of the above, anywhere in North ­America.

What has come about instead is a trail of broken promises. In 2013, the tech entrepreneur and marijuana investor Jamen Shively confidently declared that the cannabusiness was “going to mint more millionaires than Microsoft.” But in the economic realm, Sumner and Goldstein write, the investors and businessmen who flocked to the industry have seen a “near collapse in the market for legal weed.” Badly written laws, conflicts among local, state, and federal jurisdictions, logistical snags, supply-­chain issues, and a web of taxes and cumbersome regulations—“a variety of rules that other legal businesses,” which don’t have to compete with a sophisticated black-market competitor, “take for granted,” the authors note—all made the legal pot business exponentially costlier than its illegal counterpart. As a result, rather than the black market’s withering away, “in many states that have fully ‘­legalized’ weed . . . there is now a relatively small legal weed market and a much larger illegal one.” In contrast to the struggling legal cannabusiness, “old-fashioned illegal weed producers [are] operating off the radar, getting no licenses, meeting no standards, paying no taxes, and selling through traditional ­illegal back channels.” In California, for example, “two years after legalization, of more than 10,000 weed growers that were thought to exist in Humboldt County, only a few hundred had applied for licenses from the California Department of Food and Agriculture.” In the same period, the number of legal weed ­businesses in California—including medical cannabis firms—actually fell from more than five hundred to around sixty. Far from businesses’ moving from illegality to legality, the authors write, the movement has, if anything, been in the other direction.

This should have been ­predictable: The legal cannabis industry is competing against a black-market infrastructure with decades of experience and none of the cumbersome regulatory barriers that come with operating within the law. But none of these details factored into the activist quest for legal weed. “I was bright-eyed and bushy-tailed,” one ­particularly circumspect activist tells the authors:

The movement was started by activists and grew out of that spirit. Now I realize there were so many things we weren’t considering. . . . The illegal operators need an incentive and mechanism to come over. Otherwise why would they? Why would they stop meeting that demand? I’m not an economist—it’s just human nature.

Human nature, as so many of the disillusioned legalization activists interviewed in the book came to learn, is a sticky, stubborn thing. It responds to well-ordered incentives, not to good intentions, as Sumner and Goldstein aptly demonstrate in their economic analysis. But economics alone cannot comprehend the value of the public order I encountered on that summer night in Portland, Oregon. If the only problem with cannabis legalization lies in its economic implementation, then presumably a technocratic fix is all that is needed. But what then? Even if legalization could overcome the unforeseen challenges it faces in the economic sphere, would it be desirable? Legal weed could become a booming industry. Would that be a good thing?

The economic frame can explain the story of cannabis legalization in terms of dollars and cents. It can tell us how to accumulate ­material wealth; it cannot tell us how to live well. Gross Domestic Product is a measure of economic prosperity, not of virtue. Slavery generated enormous wealth while corroding the soul of the nation. “There must doubtless be an unhappy ­influence on the manners of our people produced by the existence of slavery among us,” Jefferson famously wrote in Notes on the State of ­Virginia. “The whole commerce between master and slave is a perpetual exercise of the most boisterous passions. . . . The man must be a prodigy who can retain his manners and morals undepraved by such ­circumstances.” Similarly, Planned Parenthood is a billion-dollar abortion business, but its revenue is generated by the mass murder of the unborn. Cannabis legalization is not morally comparable to either abortion or slavery, but the folly of framing it in strictly economic terms is the same.

Indeed, many of the arguments for cannabis legalization proceed along narrowly ­materialistic lines—as one Forbes article, titled “Cannabis Legalization is Key to Economic Recovery,” reasoned in May 2020:

At a time when Americans need jobs in record numbers and governments need new sources of tax revenue, continuing the country’s 70+ year experiment of cannabis prohibition . . . is simply economically reckless.

That is the criterion by which Sumner and Goldstein evaluate the legalization project. But the central claim from pro-cannabis activists, they write, is one of justice:

For activists and their followers . . . activism around legalization has always been most about bringing home the two or three or ­generations of people unjustly imprisoned in the War on Drugs. . . . That was objective number one, everything else was a distant second. It was the right thing to do.

Of course, the notion of an epidemic of incarceration of nonviolent drug offenders, which is conventional wisdom in many mainstream policy circles today, is—to put it charitably—overstated. As of December 2019, drug possession (as opposed to distribution and trafficking) accounted for less than 4 percent of state prisoners. (State prisoners make up about 88 percent of all prison inmates in America, and the share of federal inmates who are incarcerated for possession is even more negligible, amounting to just 1.7 percent as of 2021.) Close to half (45 percent) of the drug offenders in state prisons are incarcerated for less than one year; one in five serves for less than six months. And many of those arrested for possession are prone to other, more serious crimes as well: “That a prisoner is categorized as a drug offender . . . does not mean that he is nonviolent or otherwise law-abiding,” Rafael Mangual noted in City Journal. Indeed, “more than three-quarters of released drug offenders are rearrested for a nondrug crime.” In 2017, Baltimore police identified 118 homicide suspects; 70 percent had previously been arrested on drug charges.

Even if the American prison system were guilty of incarcerating large numbers of nonviolent drug offenders, would the adverse effects of cannabis legalization be worth the trade-off? Many legalization activists cite the widespread violation of cannabis prohibition as reason enough for its repeal. “Apart from economic outcomes, some social theorists believe that it’s generally bad for a supposedly civil society to be full of people who are constantly breaking laws,” Sumner and ­Goldstein write. The proliferation of unenforced or unfollowed laws breeds “disrespect for laws and rules in general.” The better approach, from this perspective, is to weaken the law and then enforce it consistently.

The idea of the legal order as a tool of moral formation served as the foundation of, in Irving Kristol’s words, “an older idea of democracy . . . for which the conception of the quality of public life is absolutely critical.” As Kristol put it:

Because the desirability of self-­government depends on the character of the people who govern, the older idea of democracy was very solicitous of the condition of this character. It was solicitous of the individual self, and felt an obligation to educate it into what used to be called “republican virtue.”

The remnants of a legal regime ordered toward republican virtue are what formed the civic sensibilities of one stoned, rebellious teenager in Portland, Oregon.

The most fundamental problem with cannabis legalization is not economic, but civic. Marijuana use, contrary to activists’ claims, is not harmless: As Charles Fain Lehman notes at the Institute for Family Studies,

about 10% of people who use will develop a marijuana use disorder, characterized by continued use in spite of “negative impact on one’s life and health,” and . . . associated with “neuropsychological deficits such as memory and attention problems.” In fact, 1 in 3 past-month users in the 2020 NSDUH [National Survey on Drug Use and Health] met the criteria for marijuana use disorder.

On a wider social scale, “a significant minority of the population being routinely intoxicated, whether it be by alcohol or marijuana, is a public health concern,” Lehman writes. In one survey, two in five users admitted to driving under the influence at least monthly. There is evidence to suggest that marijuana use contributes to lower family formation rates—in every age cohort, single citizens are much likelier to have a marijuana use disorder than married ones—as well as attention and memory issues, anxiety and motivation. All of these pathological effects weave into the broader breakdown of the American order. Against the ­backdrop of ongoing social atomization and isolation, they are potentially devastating.

In so many of these debates, one encounters the retort that it is the role of the individual to regulate his own moral habits. (“If you don’t like abortion,” the popular slogan goes, “just don’t have one.”) Of course, the individual has moral agency and an overriding moral obligation to himself. But if his only obligation is to himself, then his only moral authority is his own “reason,” and the world is whatever he makes of it. The privatization of public morality is an invitation to relativism. If we are concerned only with “the machinery of democracy” and not with “the quality of life that this machinery might generate,” as Kristol put it, then justice can be measured only in terms of liberation—liberation from norms and mores, from legal regulations of individual license, and from any institutional arrangement that could be viewed as a barrier to autonomy and choice.

This is the vision of justice on offer from the advocates of cannabis legalization. But in liberating citizens from restrictions on the recreational use of illicit substances, we trade the bondage of public morality for the bondage of vice. It is not at all clear that this is a trade worth making, no matter the economic returns. Though the legal cannabusiness may yet become lucrative for investors and ­entrepreneurs, the profits will come at the expense of the vulnerable. It is no coincidence that the pandemic, which was accompanied by a nearly 50-percent increase in demand for cannabis, was also accompanied by a burgeoning mental health crisis. “For many Americans, stocking up on marijuana was as essential as stocking up on toilet paper,” the New York Times reported. “And the industry found a way to get it to them.”

The “live and let live” argument for legalizing cannabis—in the words of one board member at the National Organization for the Reform of Marijuana Laws, “as long as you are an adult and not harming anyone, you must have the right to have your government stay the heck out of [your] life”—ignores the nature of the profit motive. As legal cannabis becomes an institutionalized industry, with economic interests and its own phalanx of lobbyists and business advocates, it develops a host of affirmative demands. Already during the ­pandemic, cannabis dispensaries were deemed “essential” in many states, even as church services, weddings, and funerals were often denied that designation. The promise of tighter regulation is undermined: Industries naturally lobby for less ­regulation—in fact, one of the central arguments of Can Legal Weed Win? is that policymakers should lessen the regulatory burden on legal cannabis in order to allow it to compete with the black market. The Marijuana Policy Project argues that legalization opens the way to a “tightly regulated” market: “By ­legalizing and regulating cannabis. . . businesses will be required to test their products and adhere to strict labeling and packaging requirements that ensure cannabis is identifiable and consumers know what they are getting.” But that prospect, too, is complicated by the incentive structure for the cannabis industry, which will seek to stack the deck with friendly regulators. When Oregon legalized cannabis, for example, “it appointed 15 people to its new cannabis rules advisory ­committee,” Madeleine Kearns noted in The Spectator. “Four appointees were growers, three provided various services to the cannabis industry and one was a county commissioner later sued for accepting industry ­handouts.”

The question of cannabis legalization, then, is not merely a question of freedom of choice. The debate is about whether America should affirm drug use as a public good, or remain loyal to the traditional view that getting high is a violation of the social contract’s moral limits. Economics alone cannot resolve this debate, which implicates civic, moral, and political questions surrounding individual health, cultural formation, and our obligations to one another, all of which sit beyond the scope of revenue and profit. But the economic challenges the industry faces are themselves an indication of the poor judgment of marijuana’s overzealous advocates, who have dedicated the past decade to convincing their fellow citizens that a multibillion-dollar cannabis industry would be in their best interests. And if their central economic promise has not worked out as planned, why should we believe any of their other assurances?

Nate Hochman is a staff writer at ­National Review.