Marijuana

Illegal Dealers Owe Thanks to Washington State's Marijuana Regulators

The state's doomed scheme for a centrally planned market in pot creates a breeding ground for a completely unplanned and illegal market in the stuff.

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Washington state voters legalized recreational marijuana in 2012 and the first retail store opened in 2014 in a popular move widely hailed as a success for reform. So how come the authorities are moving to close a pot shops across the state in just a few weeks? Are they actually trying to revive the black market in pot?

Probably not. More likely, political hubris and managerial ambition have overwhelmed basic knowledge of how economic incentives work.

Tacoma ranks among the municipalities where new licensing regulations will have a major impact on the marijuana market, potentially inconveniencing consumers and creating a huge opening for those willing to work outside official channels.

"Last August, there were close to 70 unlicensed operators in Tacoma," noted The News Tribune last week. But a 2015 law merged the medical and recreational markets and required all vendors to be licensed—with a strict cap on the number of permitted retailers. "Tacoma is limited by the state to 16 retail licenses, and a recent city ordinance requires every retail operator to also get a medical endorsement to provide for those with medicinal needs," the article added.

So, let me get this straight. A market that sustained 70 businesses will be adequately served by 16 after the rest are closed by government order? That's the official story, and politicians and bureaucrats are sticking to it.

Statewide, "the former retail store cap of 334 was lifted to a new cap of 556. The recommendation followed an analysis of the entire marijuana marketplace by the state's contracted research organization, BOTEC Analysis Corporation," according to the Washington State Liquor and Cannabis Board.

"We illustrate the methods and tools for two particular target numbers of stores statewide: 200 and 330, BOTEC noted in a 2013 report before the recent legal change. Still, the company hedged its bets. "[B]ut we do not necessarily endorse either as the 'correct' number."

Washington's "current grow canopy license limits are sufficient to supply both the recreational and MMJ markets" the University of Washington's Cannabis Law and Policy Projected predicted separately. The group also hedges and notes "we defer to WSLCB to make that determination."

That's right. A quarter-century after the Soviet Union did a face-plant into the ash heap of history, Washington state officials are trying to centrally plan the market for marijuana.

This sort of micromanaged legal-but-only-sort-of market is a characteristic of state officials who were forced to change the law by voters and not as a matter of their own preferences. To carefully control the implementation of the voters' will, they brought in a consultant who perfectly reflected their reluctance: public policy professor Mark Kleiman. Kleiman is a sort of middle-way type on the marijuana issue, favoring legal reform out of conviction that full prohibition has been counter-productive—not as a weed cheerleader or out of a commitment to personal choice.

"The free market is an excellent system for maximizing consumption. That's why I don't want it to apply to this product," he told an interviewer an interviewer at UCLA where he worked before moving to New York University. "I wouldn't want that system for alcohol either, but we lost that battle."

In the same interview, he expressed a preference for state stores, non-profit vendors, and high prices that would make marijuana available, but not cheap or convenient.

Kleiman, by the way, is the head of BOTEC Analysis.

I'll note here that Kleiman is a tad prickly and has tangled with Reason's Jacob Sullum over marijuana issues, even when they are in general agreement.

But black market dealers don't appear just because marijuana—or anything else—is technically outlawed; they arise when restrictions drive prices up, restrict availability, or both, and leave an opening for vendors willing to flout the law to satisfy demand. Eric Garner was killed by New York City cops in a confrontation rooted in his sale of loosies—loose cigarettes—in defiance of state and city tax rules. Cigarettes are legal, but so heavily taxed and restricted as to invite illegal dealers to enter the market and make a buck.

As a former dope dealer myself, I can say with a fair degree of confidence that severely restricting the availability of "legal" marijuana (and otherwise jacking the price with a 37 percent excise tax) creates a wonderful opportunity for black market dealers. Even before the latest change, Washington's underground economy in marijuana was thriving despite its nominally legal status.

BOTEC's reports for the state fully acknowledges the existence of the black market. Kleiman and company's latest submission grants that the scope of illicit sales is not entirely knowable and "the feasible range covers as low as $60 million and as high as $740 million." In fact, "Due to the considerable amount of uncertainty in the estimation process, as well as the rapidly changing nature of cannabis markets in Washington at present, it is valuable to reference feasible ranges rather than a single point estimate." That is, the whole marijuana market is too dynamic and in flux to get a firm handle on its size.

So, with "rapidly changing" markets, how do you predict, as a central planner, "sufficient" production capacity? Or the magic number of retail outlets to satisfy demand?

The answer is that you can't. Central planners can never respond to shifting supply and demand as quickly as buyers and vendors can in their multitude of independent transactions. That's why central planning failed in the old Soviet Union, and why it can't any more effectively serve the trade in marijuana in one state. And unable to satisfy buyers, it will inevitably leave room for sellers who don't care what officials think ought to be.

Washington's impossible scheme for a centrally planned market in marijuana creates a breeding ground for a completely unplanned and illegal market in the stuff.

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  1. I left Mass. after a year and a half or so of waiting for them to open dispensaries (after they were legal), but even if it had proceeded in a timelier fashion, the plan was to open only like ten dispensaries statewide, the licenses for which seemed to be going to politicians’ cronies. I really really don’t know if the way marijuana’s being treated now is making us freer. Is not having to worry about smoking a joint in your apartment worth, say, twenty hours of paperwork and waiting in line a year? I remember one day I was picking up a prescription from cvs and buying weed. my doctor had fucked up the prescription so I had to spend an extra three hours going back to her office and getting another (on top of the two hours I had already spend getting there and back), but that morning I called my “guy” and he met me a couple blocks from my apartment in about an hour. It’s weird how incentives operate on doctors and drug dealers alike.

    1. It’s a step in the right direction, a huge conceptual step really. Thinking that recreational marijuana should be legalized is one of the reasons everyone thought that libertarians were so crazy. Just fifteen years ago, legal recreational marijuana seemed as crazy as gay marriage–like we’ll ever live to see that happen!

      Recreational marijuana sellers will probably never be any less regulated than recreational alcohol, and alcohol sales are still heavily regulated through arbitrary conditional use permits, alcohol licenses, subject to cronyism, etc. We have to take our victories where we can get them (especially the conceptual ones) and keep fighting.

      Also, it isn’t just the sale side that benefits from legal marijuana. The seller side may still be heavily regulated, but buyers are free to possess like they never could before, too. Even if the sellers are under the boot of government, the buyers have squirmed out from under the government’s boot on simple possession, and that’s a good thing.

      1. I will say that one major aspect of most of the legalization I have seen “allows” citizens to grow their own, which I prefer anyway. The space of a decent walk-in closet can easily provide for at least 2 people. When I grow my own, I don’t have to worry where I can buy, price increases, taxes (assuming a person does not have to buy a permit, which in itself is a tax). I can control quality and even work on my own hybrid. This is all I ask for; allow me to grow my weed like I can grow tomatoes.

    2. So why didn’t you call your “guy” to fill the prescription?

      1. different drugs. my point is I like it when the person I get something important from has a vested interest in me getting it.

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  2. If the intent here was to subvert the will of the voters then they couldn’t have made a better choice than Mark Kleiman, a prohibitionist who has dedicated most of his life to opposing any move towards a saner drug policy.

    Kindly google “Kleiman is a prohibitionist” and you’ll see articles going back decades.

    “Third, even on those rare occasions where Kleiman does not endorse prohibitionist policy, his analysis is infused with a prohibitionist morality. In his often superb chapter on marijuana, his evidence forces him to consider alternatives. Yet he is reluctant at every turn. He brings himself to admit that the costs of the current prohibition (e.g. each year 350 000 arrests and up to 10 billion dollars in enforcement costs and lost revenue) are probably too great for the ‘benefits’ received. But he still conceives of the alleged deterrent value of prohibition as a benefit, and again implies that he believes marijuana use is in itself somehow ‘bad’.”
    ?Prohibitionism in Drug Policy Discourse by Craig Reinarman, University of California, Santa Cruz,
    INTERNATIONAL JOURNAL OF DRUG POLICY, 1994. VOL 5 NO 2.

    1. Malcolm Kyle says, Kindly google “Kleiman is a prohibitionist.” Do not Google anything. How about doing a search instead. You shilling for google? Google IS Evil.

      How about using Duck Duck Go which does not keep a record of searches or as Malcolm would say, googles. No, I do not have any affiliation with said search engine. I don’t shill for nobody, make me look like a joke. This Buds for you. Neil Young

      1. Your newsletter, where can I subscribe?

  3. “He also bases his support for prohibition on the fact that the criminal justice system does not do a good enough job of preventing drug-related crime. Most informed observers, however, trace many of the problems in our criminal justice system to the burden and corruption placed on it by narcotics prohibition. Finally, I would note that even Mr. Kleiman realizes that only a small percentage of the population develops abuse problems with any specific drug and that we do not know what makes a given person have an abuse problem with a given drug. Why then does he recommend a nationwide policy that is oppressive, impersonal, and ineffective? ”
    ?Mark Thornton, Auburn University.
    A Review of Against Excess: Drug Policy for Results, 1992.

    “There’s one problem with legalizing, taxing and regulating cannabis at the state level: It can’t be done. The federal Controlled Substances Act makes it a felony to grow or sell cannabis. California can repeal its own marijuana laws, leaving enforcement to the feds. But it can’t legalize a federal felony. Therefore, any grower or seller paying California taxes on marijuana sales or filing pot-related California regulatory paperwork would be confessing, in writing, to multiple federal crimes. And that won’t happen.”
    ?Mark Kleiman, LA Times, 2010.

  4. “Kleiman is a tee-totaler and sado-moralist who believes intoxication is a disease.” ?Allan Erickson, The Media Awareness Project

    “D.A.R.E. is a wonderful tool for police-community relations, particularly, in poor neighborhoods. Getting poor kids to meet a police officer, and getting a police officer to meet poor kids, on a civil, friendly basis, is a wonderful thing to do. Police officers love it, and police departments love it, and neighborhoods love it, and kids love it and parents love it and everybody loves it.” ?Mark Kleiman 1997

    “I’ve been going around the country trying to convince people that knowing the unsatisfactory results of marijuana prohibition doesn’t prove that any specific implementation of legal marijuana will turn out to be an improvement.” ?Mark Kleiman, 2013

    “I’ve been going around the country trying to convince people that knowing the unsatisfactory results of alcohol prohibition doesn’t prove that any specific implementation of legal alcohol will turn out to be an improvement.” ?Mark Kleiman’s grandfather, 1933

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  6. Here’s what Mark Kleiman apparently said when asked about the advantages of changing a light bulb:

    “The advantage of changing the light bulb is one consideration, the other is the possible negative side effects of this change. Yes, the closet will be lit by the changed bulb, but it will also create harsh shadows, cost an unknowable amount of money for electricity plus other potential negatives which we cannot anticipate at this time. No studies have been performed that prove that the benefit of light in the closet out-weighs any big scary negative outcomes. These outcomes could be huge and once we take this drastic step there is absolutely no turning back. We have no way of knowing, so it’s better to not change the light bulb. Since the people, through the ballot box, have decided to change the light bulb then surely it is better to first put in a 1 watt bulb and see how it goes. Later we can step up in tiny, gradual increments. Under no circumstances should anyone be permitted to put in a higher wattage bulb. Further, the state must tax this light bulb to the nth degree to ensure that the costs are as high as possible, guaranteeing that the negative outcomes are so great that people will be forced to learn to live in the dark.”

    — Mark Kleiman

    1. I’m sort of starting to think you’ve got beef with Mark Kleiman.

      1. It is Mark Kleiman

        1. Whoa.

          1. I know.

            It’s as if Slammer just made us all high with his revelation.

        2. The calls are coming from inside the house!

    2. Isn’t Mark Kleiman the guy that had the big back and forth with Sullum over reclassification a couple of years ago?

      https://reason.com/blog/2014/02…..ma#comment

      Why, yes it is!

      Kleiman should write a book entitled, “How It Feels to be a Dinosaur”.

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  8. So……Hillary was right?? You cannot legalize weed because there’s too much money in it!

  9. Anecdote:

    I know one grower. It cost him in excess of $60k to get the proper permits and inspections and fees and whatevers. Not the equipment, the land, the nursery stock – just getting permission to grow. And he did so knowing the state could legislate him out of existence on a whim next season.

    His cannabutter was really weak, and for that alone do I judge him.

  10. A market that sustained 70 businesses will be adequately served by 16 after the rest are closed by government order?

    Because we cut out “waste” and “abuse” — get it?

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  12. “The free market is an excellent system for maximizing consumption. That’s why I don’t want it to apply to this product”

    I guess there is no need for a supply and demand curve then. Consumption is always the most it can be, and it will keep growing and growing. We will all smoke ourselves to death. Just like everyone consumes the most alcohol possible, except in those places with non-profit state stores where alcoholism is unheard of.

    1. you know what else kept growing and growing?

  13. Isn’t this basically the same phenomenon that leads to cigarette bootlegging in NYC?

    1. Which totally caught the self-righteous by surprise. In fact it has caught them by surprise at least twice that I can recall. Prohibitionists and buttinskies do not think and never learn.

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  15. “The free market is an excellent system for maximizing consumption. That’s why I don’t want it to apply to this product,” he told an interviewer an interviewer at UCLA where he worked before moving to New York University. “I wouldn’t want that system for alcohol either, but we lost that battle.”

    “I’m a Top Man, so my preferences override the consumers’ preferences. Truly they suffer from false consciousness and don’t know what’s good for them.”

    My woodchipper cannot contain its hunger for this little Stalin’s flesh.

  16. That’s right. A quarter-century after the Soviet Union did a face-plant into the ash heap of history, Washington state officials are trying to centrally plan the market for marijuana.

    It’s awful and 100% predicted. All the local media repeated, without question, the line that before we legalize marijuana, the state needed to hire an “expert” to “create the market” for marijuana. This expert would calculate how much marijuana consumers would purchase, then set caps and limits that reflected that “correct” number.

    These people are idiots of the highest order. Fuck them. Fuck them in the ear.

    1. The only good thing is that all those socialist hippies up in Washington are seeing first hand what centralized planning does to a company in a market they care about. I mean it is easy to hate on Walmart or Goldman because you don’t interact with those corporations. The only problem is: will they be able to put 1 and 1 together and get 2?

  17. “Washington’s impossible scheme for a centrally planned market in marijuana creates a breeding ground for a completely unplanned and illegal market in the stuff.”

    It was in one of the books on the collapse of the USSR: Toward the end, the gov’t didn’t dare close down the black market; it would have caused mass starvation since something like 50% of the food was sold there.

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  19. I’ve been tangentially involved with legalization in WA for a long time. The ACLU staffer who wrote the recreational bill faced tough questions about all the regulations and restrictions but assured all that it was necessary to get it passed. Thing is, anybody could get a medical green card for $200 and anybody could be a “dispensary” without license or anything BEFORE the law was written, so the cops, in Seattle anyway, had zero incentive to bust grows, even when neighbors complained. After passage, the pols saw that the completely open medical market was undercutting their tax revenue, so now they are closing that side of it. But it’s too late – enforcement is zero and the market is flooded. You want anecdotes? How about a grower struggling to sell good quality weed at $100 an oz and making ends meet now by collecting grease from burger joints? I do see people lined up outside Uncle Ike’s to buy $25+/gram stuff that is no better, and half the advertising in “The Stranger” is for the pot shops, so I guess it’s still tough in smaller towns, and there are always tourists. If they DO start cracking down on the independent growers and dealers in Seattle, it will be at the behest of the politicians and the legal pot shops.

  20. As I’ve said before, the progs want to re-legalized marijuana not because it’s the just thing, but so they can tax and regulate the plant and all it’s paraphernalia and accessories.

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  28. The best part about this is how you can use it to argue against legalization elsewhere. And as horrible as I know the government is at everything it does, being too dumb to sell weed is a surprising new low.

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